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Criteo Reports Results For The Third Quarter 2018, Announces Acquisition Of An Attractive App Install Advertising Solution, And Announces A $80M Share Repurchase Program

NEW YORK, Oct. 31, 2018 /PRNewswire/ -- Criteo S.A. (NASDAQ: CRTO), the advertising platform for the open Internet, today announced financial results for the third quarter ended September 30, 2018.

  • Revenue decreased 6%, or 4% at constant currency1, year-over-year to $529 million.
  • Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC2, decreased 5%, or 2% at constant currency, year-over-year to $223 million, or 42% of revenue.
  • Adjusted EBITDA2 decreased 12%, or 11% at constant currency, year-over-year to $70 million, or 31% of Revenue ex-TAC.
  • Cash flow from operating activities decreased 19% year-over-year to $50 million.
  • Free Cash Flow2 was $21 million.
  • Net income decreased 19% year-over-year to $18 million.
  • Adjusted net income per diluted share2 decreased 18% year-over-year to $0.53.
  • We have entered into a definitive agreement to acquire Manage, a company with an attractive app install advertising solution.
  • Our Board of Directors has authorized a $80 million share repurchase program indicating our confidence in our business.

"Our clients continue to place great value in our performance, scale and neutrality," said JB Rudelle, CEO. "We are building on this trust to expand our client relationships with new products and solutions".

"We are on track with our transition to a multi-product company and the realignment of our sales organization," commented Benoit Fouilland, CFO. "This transformation will help bring even more value to our customers".

Operating Highlights

  • We ended the quarter with over 19,000 commerce and brand clients, a 11% increase year-over-year, while maintaining client retention at close to 90% for our full-funnel products.
  • Revenue ex-TAC from our Customer Acquisition, Audience Match, Sponsored Products and Storetail products combined increased 82% year-over-year at constant currency, to over 7% of our total business.
  • Our in-app business grew 67% year-over-year on a Revenue ex-TAC basis.
  • Our header bidding technology is now connected to over 2,600 large publishers, compared to 2,300 at the end of Q2.
  • Same-client Revenue ex-TAC3 decreased 5% year-over-year at constant currency due to headwinds from limitations to reach users in Safari.

Revenue and Revenue ex-TAC

Revenue decreased 6%, or 4% at constant currency, year-over-year to $529 million (Q3 2017: $564 million). Revenue ex-TAC decreased 5%, or 2% at constant currency, year-over-year to $223 million (Q3 2017: $234 million). This decrease was primarily due to significant headwinds from external factors, in particular in our business with existing clients.

  • In the Americas, Revenue ex-TAC decreased 2%, or 0% at constant currency, year-over-year to $85 million and represented 38% of total Revenue ex-TAC.
  • In EMEA, Revenue ex-TAC decreased 8%, or 5% at constant currency, year-over-year to $84 million and represented 38% of total Revenue ex-TAC.
  • In Asia-Pacific, Revenue ex-TAC decreased 3%, or 2% at constant currency, year-over-year to $55 million and represented 24% of total Revenue ex-TAC.

Revenue ex-TAC margin as a percentage of revenue improved 70 basis points year-over-year to over 42%.

Net Income and Adjusted Net Income

Net income decreased 19% year-over-year to $18 million (Q3 2017: $22 million). Net income available to shareholders of Criteo S.A. was $17 million, or $0.25 per share on a diluted basis (Q3 2017: $20 million, or $0.29 per share on a diluted basis).

Adjusted net income, or net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, decreased 18% year-over-year to $36 million, or $0.53 per share on a diluted basis (Q3 2017: $44 million, or $0.65 per share on a diluted basis).

Adjusted EBITDA and Operating Expenses

Adjusted EBITDA decreased 12%, or 11% at constant currency, to $70 million (Q3 2017: $79 million). This decrease was primarily driven by the Revenue ex-TAC performance across regions.

Adjusted EBITDA margin as a percentage of Revenue ex-TAC was 31% (Q3 2017: 34%).

Operating expenses decreased 4% year-over-year to $165 million (Q3 2017: $171 million), reflecting a flat headcount over the period and lower equity award compensation expense. Operating expenses, excluding the impact of equity awards compensation expense, pension costs, restructuring costs, depreciation and amortization and acquisition-related costs and deferred price consideration, which we refer to as Non-GAAP Operating Expenses, decreased 2% year-over-year to $138 million (Q3 2017: $140 million).

Cash Flow and Cash Position

Cash flow from operating activities decreased 19% year-over-year to $50 million (Q3 2017: $62 million).

Free Cash Flow, defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment, decreased 39% year-over-year to $21 million (Q3 2017: $34 million).

Total cash and cash equivalents increased $45 million compared to the end of 2017 to $459 million.

Business Outlook

The following forward-looking statements reflect Criteo's expectations as of October 31, 2018 and include contributions from the acquisition of Manage.

Fourth Quarter 2018 Guidance:

  • We expect Revenue ex-TAC to be between $256 million and $262 million. This implies a constant-currency growth of -6% to -4%. Using the exchange rate assumptions underlying our guidance for the third quarter 2018, this would equate to between $261 million and $267 million.
  • We expect Adjusted EBITDA to be between $86 million and $92 million. Using the exchange rate assumptions underlying our guidance for the third quarter 2018, this would equate to between $88 million and $94 million.

Fiscal Year 2018 Guidance:

  • We continue to expect Revenue ex-TAC for fiscal year 2018 to grow between -1% and +1% at constant currency.
  • We continue to expect our Adjusted EBITDA margin for fiscal year 2018 to be between 30% and 32% of Revenue ex-TAC.

The above guidance for the quarter the fiscal year ending December 31, 2018, assumes the following average exchange rates over the quarter to December 31, 2018, for the main currencies impacting our business: a U.S. dollar-euro rate of 0.85, a U.S. dollar-Japanese Yen rate of 113, a U.S. dollar-British pound rate of 0.75 and a U.S. dollar-Brazilian real rate of 4.15.

The above guidance assumes no acquisitions are completed during the quarter and the fiscal year ending December 31, 2018.

Reconciliation of Revenue ex-TAC and Adjusted EBITDA guidance to the closest corresponding U.S. GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of equity awards compensation expense specific to equity compensation awards that are directly impacted by unpredictable fluctuations in our share price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future U.S. GAAP financial results.

Acquisition of Manage

Criteo has entered into a definitive agreement to acquire Manage, a Silicon Valley-based company with an attractive app install advertising solution. Mobile apps are one of the biggest and fastest growing advertising spend channels. The addition of Manage complements our already significant app business and further strengthens our end-to-end advertising solution. With Manage, we gain key commercial talent and technology to win in this growing space.

The transaction was closed on October 29, 2018.

Announcement of a $80 million Share Repurchase Program

Demonstrating the Company's confidence in its ability to achieve its vision over the medium-term and to return to growth while continuing to generate healthy Free Cash Flow, Criteo today announces that the Board of Directors has authorized a share repurchase program of up to $80 million of the Company's outstanding American Depositary Shares.

This program relies upon the authorization provided by shareholders at the Company's 2018 Annual General Meeting, and as such the Company intends to use repurchased shares in connection with M&A transactions. In addition, the Company may use repurchased shares to satisfy employee equity plan vesting in lieu of issuing new shares.

The authorization is effective immediately and remains in effect until June 27, 2019. Under the terms of the approved program, the stock purchases may be made from time to time on the NASDAQ Global Select Market in compliance with applicable state and federal securities laws (including the requirements of Securities and Exchange Commission ("SEC") Rule 10b-18) and applicable provisions of French corporate law. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability, as determined by Criteo's management team and within the limits set by the shareholders' authorization. The program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.

Non-GAAP Financial Measures

This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission (the "SEC"): Revenue ex-TAC, Revenue ex-TAC by Region, Revenue ex-TAC margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted Net Income per diluted share, Free Cash Flow and Non-GAAP Operating Expenses. These measures are not calculated in accordance with U.S. GAAP.

Revenue ex-TAC is our revenue excluding Traffic Acquisition Costs ("TAC") generated over the applicable measurement period and Revenue ex-TAC by Region reflects our Revenue ex-TAC by our geographies. Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin are key measures used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue can provide a useful measure for period-to-period comparisons of our business and across our geographies. Accordingly, we believe that Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin provide useful information to investors and the market generally in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA is our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA and Adjusted EBITDA margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short‑ and long-term operational plans. In particular, we believe that by eliminating equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration, Adjusted EBITDA and Adjusted EBITDA margin can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.

Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments. Adjusted Net Income and Adjusted Net Income per diluted share are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that by eliminating equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, Adjusted Net Income and Adjusted Net Income per diluted share can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted Net Income per diluted share provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.

Free Cash Flow is defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment. Free Cash Flow is a key measure used by our management and board of directors to evaluate the Company's ability to generate cash. Accordingly, we believe that Free Cash Flow permits a more complete and comprehensive analysis of our available cash flows.

Non-GAAP Operating Expenses are our consolidated operating expenses adjusted to eliminate the impact of depreciation and amortization, equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. The Company uses Non-GAAP Operating Expenses to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short-term and long-term operational plans, and to assess and measure our financial performance and the ability of our operations to generate cash. We believe Non-GAAP Operating Expenses reflects our ongoing operating expenses in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. As a result, we believe that Non-GAAP Operating Expenses provides useful information to investors in understanding and evaluating our core operating performance and trends in the same manner as our management and in comparing financial results across periods. In addition, Non-GAAP Operating Expenses is a key component in calculating Adjusted EBITDA, which is one of the key measures the Company uses to provide its quarterly and annual business outlook to the investment community.

Please refer to the supplemental financial tables provided in the appendix of this press release for a reconciliation of Revenue ex-TAC to revenue, Revenue ex-TAC by Region to revenue by region, Adjusted EBITDA to net income, Adjusted Net Income to net income, Free Cash Flow to cash flow from operating activities, and Non-GAAP Operating Expenses to operating expenses, in each case, the most comparable U.S. GAAP measure. Our use of non-GAAP financial measures has limitations as an analytical tool, and you should not consider such non-GAAP measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP.  Some of these limitations are: 1) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; and 2) other companies may report Revenue ex-TAC, Revenue ex-TAC by Region, Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, Non-GAAP Operating Expenses or similarly titled measures but calculate them differently or over different regions, which reduces their usefulness as comparative measures. Because of these and other limitations, you should consider these measures alongside our U.S. GAAP financial results, including revenue and net income.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including projected financial results for the quarter ending September 30, 2018 and the fiscal year ending December 31, 2018, our expectations regarding our market opportunity and future growth prospects and other statements that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure related to our technology and our ability to respond to changes in technology, uncertainty regarding our ability to access a consistent supply of internet display advertising inventory and expand access to such inventory, investments in new business opportunities and the timing of these investments, whether the projected benefits of acquisitions materialize as expected, uncertainty regarding international growth and expansion, the impact of competition, uncertainty regarding legislative, regulatory or self-regulatory developments regarding data privacy matters and the impact of efforts by other participants in our industry to comply therewith, failure to enhance our brand cost-effectively, recent growth rates not being indicative of future growth, our ability to manage growth, potential fluctuations in operating results, our ability to grow our base of clients, and the financial impact of maximizing Revenue ex-TAC, as well as risks related to future opportunities and plans, including the uncertainty of expected future financial performance and results and those risks detailed from time-to-time under the caption "Risk Factors" and elsewhere in the Company's SEC filings and reports, including the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2018, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 4, 2018, and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on August 2, the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, that will be filed with the SEC, as well as future filings and reports by the Company. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events, changes in expectations or otherwise.

Conference Call Information

Criteo's earnings conference call will take place today, October 31, 2018, at 8:00 AM ET, 1:00 PM CET. The conference call will be webcast live on the Company's website http://ir.criteo.com and will be available for replay.

Conference call details:

  • U.S. callers:

+1 855 209 8212

  • International callers:

+1 412 317 0788 or +33 1 76 74 05 02

Please ask to be joined into the "Criteo S.A." call.

About Criteo

Criteo (NASDAQ: CRTO) is the advertising platform for the open Internet, an ecosystem that favors neutrality, transparency and inclusiveness. 2,700 Criteo team members partner with over 19,000 customers and thousands of publishers around the globe to deliver effective advertising across all channels, by applying advanced machine learning to unparalleled data sets. Criteo empowers companies of all sizes with the technology they need to better know and serve their customers. For more information, please visit www.criteo.com.

1 Growth at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the 2017 average exchange rates for the relevant period to 2018 figures.
2 Revenue ex-TAC, Adjusted EBITDA, Adjusted net Income per diluted share and Free Cash Flow are not measures calculated in accordance with U.S. GAAP.
3 Same-client Revenue ex-TAC  is the Revenue ex-TAC generated by clients that were live with us in a given quarter and still live with us the same quarter in the following year.

Contacts

Criteo Investor Relations
Edouard Lassalle, VP, Head of IR, e.lassalle@criteo.com
Friederike Edelmann, IR Director, f.edelmann@criteo.com

Criteo Public Relations
Emma Ferns, VP Global Communications, e.ferns@criteo.com

Financial information to follow



CRITEO S.A.

Consolidated Statement of Financial Position

(U.S. dollars in thousands, unaudited)



December 31, 2017


September 30, 2018

Assets




Current assets:




Cash and cash equivalents

$

414,111



$

458,690


Trade receivables, net of allowances

484,101



356,792


Income taxes

8,882



20,316


Other taxes

58,346



48,722


Other current assets

26,327



26,855


Total current assets

991,767



911,375


Property, plant and equipment, net

161,738



183,777


Intangible assets, net

96,223



96,848


Goodwill

236,826



268,734


Non-current financial assets

19,525



20,491


Deferred tax assets

25,221



34,718


    Total non-current assets

539,533



604,568


Total assets

$

1,531,300



$

1,515,943






Liabilities and shareholders' equity




Current liabilities:




Trade payables

$

417,032



$

332,388


Contingencies

1,798



2,411


Income taxes

9,997



2,510


Financial liabilities - current portion

1,499



2,498


Other taxes

58,783



45,233


Employee - related payables

66,219



53,709


Other current liabilities

65,677



59,463


Total current liabilities

621,005



498,212


Deferred tax liabilities

2,497



6,438


Retirement benefit obligation

5,149



5,942


Financial liabilities - non-current portion

2,158



2,766


Other non-current liabilities

2,793



3,669


    Total non-current liabilities

12,597



18,815


Total liabilities

633,602



517,027


Commitments and contingencies




Shareholders' equity:




Common shares, €0.025 per value, 66,085,097 and 67,231,036 shares authorized, issued and outstanding at December 31, 2017 and September 30, 2018, respectively.

2,152



2,182


Additional paid-in capital

591,404



648,139


Accumulated other comprehensive income (loss)

(12,241)



(25,788)


Retained earnings

300,210



355,003


Equity - attributable to shareholders of Criteo S.A.

881,525



979,536


Non-controlling interests

16,173



19,380


Total equity

897,698



998,916


Total equity and liabilities

$

1,531,300



$

1,515,943


 




CRITEO S.A.

Consolidated Statement of Income

(U.S. dollars in thousands, except share and per share data, unaudited)



Three Months Ended




Nine Months Ended




September 30,




September 30,




2017


2018


YoY Change


2017


2018


YoY Change













Revenue

$

563,973



$

528,869



(6)

%


$

1,622,661



$

1,630,218



0.5

%













Cost of revenue












Traffic acquisition cost

(329,576)



(305,387)



(7)

%


(958,469)



(936,096)



(2)

%

Other cost of revenue

(29,951)



(32,921)



10

%


(89,914)



(92,937)



3

%













Gross profit

204,446



190,561



(7)

%


574,278



601,185



5

%













Operating expenses:












Research and development expenses

(43,860)



(41,796)



(5)

%


(126,992)



(134,658)



6

%

Sales and operations expenses

(95,184)



(90,526)



(5)

%


(283,815)



(278,901)



(2)

%

General and administrative expenses

(32,389)



(32,463)



0.2

%


(96,143)



(102,698)



7

%

Total Operating expenses

(171,433)



(164,785)



(4)

%


(506,950)



(516,257)



2

%

Income from operations

33,013



25,776



(22)

%


67,328



84,928



26

%

Financial income (expense), net

(2,886)



(1,007)



(65)

%


(7,313)



(3,338)



(54)

%

Income before taxes

30,127



24,769



(18)

%


60,015



81,590



36

%

Provision for income taxes

(7,858)



(6,821)



(13)

%


(15,724)



(27,845)



77

%

Net Income

$

22,269



$

17,948



(19)

%


$

44,291



$

53,745



21

%













Net income available to shareholders of Criteo S.A.

$

19,774



$

17,143





$

38,185



$

50,678




Net income available to non-controlling interests

$

2,495



$

805





$

6,106



$

3,067
















Weighted average shares outstanding used in computing per share amounts:












Basic

65,412,326



67,075,453





64,881,751



66,531,371




Diluted

68,200,343



68,625,673





67,876,791



67,864,802
















Net income allocated  to shareholders per share:












Basic

$

0.30



$

0.26





$

0.59



$

0.76




Diluted

$

0.29



$

0.25





$

0.56



$

0.75




 




CRITEO S.A.

Consolidated Statement of Cash Flows

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY

Change


September 30,


YoY

Change


2017


2018



2017


2018














Net income

$

22,269



$

17,948



(19)

%


$

44,291



$

53,745



21

%

Non-cash and non-operating items

61,995



51,993



(16)

%


146,443



159,982



9

%

           - Amortization and provisions

25,990



27,891



7

%


72,681



79,040



9

%

           - Equity awards compensation expense (1)

22,028



17,262



(22)

%


51,887



56,333



9

%

           - Interest accrued and non-cash financial income and expense

(25)



20



NM



7



66



NM


           - Change in deferred taxes

(8,164)



(1,806)



(78)

%


(20,569)



(9,341)



(55)

%

           - Income tax for the period

16,022



8,626



(46)

%


36,293



37,186



2

%

           - Other (2)

6,144





(100)

%


6,144



(3,302)



NM


Changes in working capital related to operating activities

(12,372)



3,929



(132)

%


13,418



17,573



31

%

           - (Increase)/decrease in trade receivables

(991)



12,931



NM



35,220



114,377



NM


           - Increase/(decrease) in trade payables

(5,031)



13,091



NM



(31,284)



(76,599)



NM


           - (Increase)/decrease in other current assets

4,001



(8,229)



NM



6,581



5,550



(16)

%

           - Increase/(decrease) in other current liabilities (2)

(10,351)



(13,864)



34

%


2,901



(25,755)



NM


Income taxes paid

(10,165)



(23,614)



NM



(37,696)



(56,174)



49

%

CASH FROM OPERATING ACTIVITIES

61,727



50,256



(19)

%


166,456



175,126



5

%

Acquisition of intangible assets, property, plant and equipment

(20,999)



(60,627)



NM



(74,275)



(86,920)



17

%

Change in accounts payable related to intangible assets, property, plant and equipment

(6,774)



30,971



NM



(8,760)



6,850



NM


Disposal of (Payments for) business, net of cash acquired (disposed)

73



(38,100)



NM



1,125



(48,911)



NM


Change in other non-current financial assets

(157)



(45)



(71)

%


1,117



(3)



(100)

%

CASH USED FOR INVESTING ACTIVITIES

(27,857)



(67,801)



NM



(80,793)



(128,984)



60

%

Issuance of long-term borrowings

2,220





(100)

%


3,674





(100)

%

Repayment of borrowings (3)

(4,672)



(248)



(95)

%


(83,893)



(721)



(99)

%

Proceeds from capital increase

5,164



212



(96)

%


29,619



774



(97)

%

Change in other financial liabilities (2)

15,082



(136)



NM



15,346



16,674



9

%

CASH (USED FOR) FROM FINANCING ACTIVITIES

17,794



(172)



NM



(35,254)



16,727



NM














CHANGE IN NET CASH AND CASH EQUIVALENTS

51,664



(17,717)



NM



50,409



62,869



25

%

Net cash and cash equivalents at beginning of period

308,185



480,285



56

%


270,317



414,111



53

%

Effect of exchange rates changes on cash and cash equivalents (2)

(1,866)



(3,878)



NM



37,257



(18,290)



NM


Net cash and cash equivalents at end of period

$

357,983



$

458,690



28

%


$

357,983



$

458,690



28

%


(1) Of which $21.4 million and $17.1 million of equity awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the quarter ended September 30, 2017 and 2018, respectively, and $50.7 million and $55.3 million for the nine month period ended September 30, 2017 and 2018, respectively.


(2) During the quarter ended September 30, 2017 and 2018, respectively, and the nine months ended September 30, 2017, and 2018, respectively, the Company reported the cash impact of the settlement of hedging derivatives related to financing activities in cash from (used for) financing activities in the unaudited consolidated statements of cash flows.


(3) Interest paid for the quarter ended September 30, 2017 and 2018, amounted to $0.6 million and $0.4 million respectively and for the nine months ended September 30, 2017 and 2018, amounted to $2.1 million and $1.2 million respectively.

 




CRITEO S.A.

Reconciliation of Cash from Operating Activities to Free Cash Flow

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY

Change


September 30,


YoY

Change


2017


2018



2017


2018














CASH FROM OPERATING ACTIVITIES

$

61,727



$

50,256



(19)

%


$

166,456



$

175,126



5

%

Acquisition of intangible assets, property, plant and equipment

(20,999)



(60,627)



NM



(74,275)



(86,920)



17

%

Change in accounts payable related to intangible assets, property, plant and equipment

(6,774)



30,971



NM



(8,760)



6,850



NM


FREE CASH FLOW (1)

$

33,954



$

20,600



(39)

%


$

83,421



$

95,056



14

%


(1) Free Cash Flow is defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment.

 













CRITEO S.A.




Reconciliation of Revenue ex-TAC by Region to Revenue by Region




(U.S. dollars in thousands, unaudited)










Three Months Ended






Nine Months Ended







September 30,






September 30,






Region

2017


2018


YoY Change


YoY
Change at
Constant
Currency


2017


2018


YoY Change


YoY
Change at
Constant
Currency

Revenue

















Americas

$

228,326



$

211,247



(7)

%


(6)

%


$

665,731



$

636,723



(4)

%


(4)

%


EMEA

207,168



195,230



(6)

%


(3)

%


587,942



618,921



5

%


0.2

%


Asia-Pacific

128,479



122,392



(5)

%


(4)

%


368,988



374,574



2

%


(0.2)

%


Total

563,973



528,869



(6)

%


(4)

%


1,622,661



1,630,218



0.5

%


(2)

%


















Traffic acquisition costs

















Americas

(141,869)



(126,406)



(11)

%


(9)

%


(416,025)



(383,429)



(8)

%


(7)

%


EMEA

(115,446)



(111,131)



(4)

%


(1)

%


(329,635)



(343,601)



4

%


(1)

%


Asia-Pacific

(72,261)



(67,850)



(6)

%


(5)

%


(212,809)



(209,066)



(2)

%


(3)

%


Total

(329,576)



(305,387)



(7)

%


(5)

%


(958,469)



(936,096)



(2)

%


(4)

%


















Revenue ex-TAC (1)

















Americas

86,457



84,841



(2)

%


(0.3)

%


249,706



253,294



1

%


2

%


EMEA

91,722



84,099



(8)

%


(5)

%


258,307



275,320



7

%


2

%


Asia-Pacific

56,218



54,542



(3)

%


(2)

%


156,179



165,508



6

%


4

%


Total

$

234,397



$

223,482



(5)

%


(2)

%


$

664,192



$

694,122



5

%


2

%


(1) We define Revenue ex-TAC as our revenue excluding traffic acquisition costs generated over the applicable measurement period. Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region are not measures calculated in accordance with U.S. GAAP. We have included Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region because they are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue and review of these measures by region can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region has limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region or similarly titled measures but define the regions differently, which reduces their effectiveness as a comparative measure; and (c) other companies may report Revenue ex-TAC or similarly titled measures but calculate them differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region alongside our other U.S. GAAP financial results, including revenue. The above table provides a reconciliation of Revenue ex-TAC to revenue and Revenue ex-TAC by Region to revenue by region.

 




CRITEO S.A.

Reconciliation of Adjusted EBITDA to Net Income

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY

Change


September 30,


YoY

Change


2017


2018



2017


2018


Net income

$

22,269



$

17,948



(19)

%


$

44,291



$

53,745



21

%

Adjustments:












Financial (income) expense, net

2,886



1,007



(65)

%


7,313



3,338



(54)

%

Provision for income taxes

7,858



6,821



(13)

%


15,724



27,845



77

%

Equity awards compensation expense

22,028



17,261



(22)

%


51,887



56,809



9

%

Research and development

6,361



4,901



(23)

%


14,738



16,227



10

%

Sales and operations

9,897



6,952



(30)

%


23,009



23,451



2

%

General and administrative

5,770



5,408



(6)

%


14,140



17,131



21

%

Pension service costs

320



419



31

%


910



1,272



40

%

Research and development

161



208



29

%


459



640



39

%

Sales and operations

65



83



28

%


184



237



29

%

General and administrative

94



128



36

%


267



395



48

%

Depreciation and amortization expense

23,755



25,619



8

%


66,232



72,825



10

%

Cost of revenue

14,320



16,571



16

%


38,419



46,870



22

%

Research and development

2,822



2,724



(3)

%


8,857



7,190



(19)

%

Sales and operations

5,102



4,442



(13)

%


14,988



13,414



(11)

%

General and administrative

1,511



1,882



25

%


3,968



5,351



35

%

Acquisition-related costs



516



%




516



%

General and administrative



516



%




516



%

Restructuring





%


3,299



(53)



NM


Cost of revenue





%


2,497





(100)

%

Research and development





%




(332)



%

Sales and operations





%


690



290



(58)

%

General and administrative





%


112



(11)



NM


Total net adjustments

56,847



51,643



(9)

%


145,365



162,552



12

%

Adjusted EBITDA(1)

$

79,116



$

69,591



(12)

%


$

189,656



$

216,297



14

%


(1) We define Adjusted EBITDA as our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operational plans. In particular, we believe that the elimination of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Adjusted EBITDA alongside our U.S. GAAP financial results, including net income.

 




CRITEO S.A.

Reconciliation from Non-GAAP Operating Expenses to Operating Expenses under GAAP

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY

Change


September 30,


YoY

Change


2017


2018



2017


2018














Research and Development expenses

$

(43,860)



$

(41,796)



(5)

%


$

(126,992)



$

(134,658)



6

%

Equity awards compensation expense

6,361



4,901



(23)

%


14,738



16,227



10

%

Depreciation and Amortization expense

2,822



2,724



(3)

%


8,857



7,190



(19)

%

Pension service costs

161



208



29

%


459



640



39

%

Restructuring





%




(332)



%

Non GAAP - Research and Development expenses

(34,516)



(33,963)



(2)

%


(102,938)



(110,933)



8

%

Sales and Operations expenses

(95,184)



(90,526)



(5)

%


(283,815)



(278,901)



(2)

%

Equity awards compensation expense

9,897



6,952



(30)

%


23,009



23,451



2

%

Depreciation and Amortization expense

5,102



4,442



(13)

%


14,988



13,414



(11)

%

Pension service costs

65



83



28

%


184



237



29

%

Restructuring





%


690



290



(58)

%

Non GAAP - Sales and Operations expenses

(80,120)



(79,049)



(1)

%


(244,944)



(241,509)



(1)

%

General and Administrative expenses

(32,389)



(32,463)



%


(96,143)



(102,698)



7

%

Equity awards compensation expense

5,770



5,408



(6)

%


14,140



17,131



21

%

Depreciation and Amortization expense

1,511



1,882



25

%


3,968



5,351



35

%

Pension service costs

94



128



36

%


267



395



48

%

Acquisition related costs



516



%




516



%

Restructuring





%


112



(11)



NM


Non GAAP - General and Operations expenses

(25,014)



(24,529)



(2)

%


(77,656)



(79,316)



2

%

Total Operating expenses

(171,433)



(164,785)



(4)

%


(506,950)



(516,257)



2

%

Equity awards compensation expense

22,028



17,261



(22)

%


51,887



56,809



9

%

Depreciation and Amortization expense

9,435



9,048



(4)

%


27,813



25,955



(7)

%

Pension service costs

320



419



31

%


910



1,272



40

%

Acquisition-related costs



516



%




516



%

Restructuring





%


802



(53)



NM


Total Non GAAP Operating expenses (1)

$

(139,650)



$

(137,541)



(2)

%


$

(425,538)



$

(431,758)



1

%


(1) We define Non-GAAP Operating Expenses as our consolidated operating expenses adjusted to eliminate the impact of depreciation and amortization, equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. The Company uses Non-GAAP Operating Expenses to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short-term and long-term operational plans, and to assess and measure our financial performance and the ability of our operations to generate cash. We believe Non-GAAP Operating Expenses reflects our ongoing operating expenses in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. As a result, we believe that Non-GAAP Operating Expenses provides useful information to investors in understanding and evaluating our core operating performance and trends in the same manner as our management and in comparing financial results across periods. In addition, Non-GAAP Operating Expenses is a key component in calculating Adjusted EBITDA, which is one of the key measures we use to provide our quarterly and annual business outlook to the investment community.

 




CRITEO S.A.

Detailed Information on Selected Items

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY

Change


September 30,


YoY

Change


2017


2018



2017


2018


Equity awards compensation expense












Research and development

$

6,361



$

4,901



(23)

%


$

14,738



$

16,227



10

%

Sales and operations

9,897



6,952



(30)

%


23,009



23,451



2

%

General and administrative

5,770



5,408



(6)

%


14,140



17,131



21

%

Total equity awards compensation expense

22,028



17,261



(22)

%


51,887



56,809



9

%













Pension service costs












Research and development

161



208



29

%


459



640



39

%

Sales and operations

65



83



28

%


184



237



29

%

General and administrative

94



128



36

%


267



395



48

%

Total pension service costs

320



419



31

%


910



1,272



40

%













Depreciation and amortization expense












Cost of revenue

14,320



16,571



16

%


38,419



46,870



22

%

Research and development

2,822



2,724



(3)

%


8,857



7,190



(19)

%

Sales and operations

5,102



4,442



(13)

%


14,988



13,414



(11)

%

General and administrative

1,511



1,882



25

%


3,968



5,351



35

%

Total depreciation and amortization expense

23,755



25,619



8

%


66,232



72,825



10

%













Acquisition-related costs












General and administrative



516



%




516



%

Total acquisition-related costs



516



%




516



%













Restructuring












Cost of revenue





%


2,497





(100)

%

Research and development





%




(332)



%

Sales and operations





%


690



290



(58)

%

General and administrative





%


112



(11)



NM


Total restructuring

$



$



%


$

3,299



$

(53)



NM


 




CRITEO S.A.

Reconciliation of Adjusted Net Income to Net Income

(U.S. dollars in thousands except share and per share data, unaudited)



Three Months Ended




Nine Months Ended




September 30,


YoY


September 30,


YoY


2017


2018


Change


2017


2018


Change













Net income

$

22,269



$

17,948



(19)

%


$

44,291



$

53,745



21

%

Adjustments:












Equity awards compensation expense

22,028



17,261



(22)

%


51,887



56,809



9

%

Amortization of acquisition-related intangible assets

4,428



3,920



(11)

%


13,879



10,825



(22)

%

Acquisition-related costs



516



%




516



%

Restructuring costs





%


3,299



(53)



NM


Tax impact of the above adjustments

(4,309)



(3,309)



(23)

%


(11,880)



(9,505)



(20)

%

Total net adjustments

22,147



18,388



(17)

%


57,185



58,592



2

%

Adjusted net income(1)

$

44,416



$

36,336



(18)

%


$

101,476



$

112,337



11

%













Weighted average shares outstanding












 - Basic

65,412,326



67,075,453





64,881,751



66,531,371




 - Diluted

68,200,343



68,625,673





67,876,791



67,864,802
















Adjusted net income per share












 - Basic

$

0.68



$

0.54



(21)

%


$

1.56



$

1.69



8

%

 - Diluted

$

0.65



$

0.53



(18)

%


$

1.50



$

1.66



11

%


(1) We define Adjusted Net Income as our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, restructuring costs, acquisition-related costs and deferred price consideration and the tax impact of the foregoing adjustments. Adjusted Net Income is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted Net Income because it is a key measure used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of the foregoing adjustments in calculating Adjusted Net Income can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) Adjusted Net Income does not reflect the potentially dilutive impact of equity-based compensation or the impact of certain acquisition related costs; and (b) other companies, including companies in our industry, may calculate Adjusted Net Income or similarly titled measures differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Adjusted Net Income alongside our other U.S. GAAP-based financial results, including net income.

 




CRITEO S.A.

Constant Currency Reconciliation

(U.S. dollars in thousands, unaudited)



Three Months Ended




Nine Months Ended




September 30,




September 30,




2017


2018


YoY Change


2017


2018


YoY Change













Revenue as reported

$

563,973



$

528,869



(6)

%


$

1,622,661



$

1,630,218



0.5

%

Conversion impact U.S. dollar/other currencies



11,355







(31,125)




Revenue at constant currency(1)

563,973



540,224



(4)

%


1,622,661



1,599,093



(1)

%













Traffic acquisition costs as reported

(329,576)



(305,387)



(7)

%


(958,469)



(936,096)



(2)

%

Conversion impact U.S. dollar/other currencies



(6,280)







17,076




Traffic Acquisition Costs at constant currency(1)

(329,576)



(311,667)



(5)

%


(958,469)



(919,020)



(4)

%













Revenue ex-TAC as reported(2)

234,397



223,482



(5)

%


664,192



694,122



5

%

Conversion impact U.S. dollar/other currencies



5,076







(14,048)




Revenue ex-TAC at constant currency(2)

234,397



228,558



(2)

%


664,192



680,074



2

%

Revenue ex-TAC(2)/Revenue as reported

42

%


42

%




41

%


43

%















Other cost of revenue as reported

(29,951)



(32,921)



10

%


(89,914)



(92,937)



3

%

Conversion impact U.S. dollar/other currencies



(480)







123




Other cost of revenue at constant currency(1)

(29,951)



(33,401)



12

%


(89,914)



(92,814)



3

%













Adjusted EBITDA(3)

79,116



69,591



(12)

%


189,656



216,297



14

%

Conversion impact U.S. dollar/other currencies



522







(12,576)




Adjusted EBITDA(3) at constant currency(1)

$

79,116



$

70,113



(11)

%


$

189,656



$

203,721



7

%

Adjusted EBITDA(3)/Revenue ex-TAC(2)

34

%


31

%




29

%


31

%



Adjusted EBITDA(3) at constant currency(1)/Revenue ex-TAC(2) at constant currency(1)

34

%


31

%




29

%


30

%




(1) Information herein with respect to results presented on a constant currency basis is computed by applying prior period average exchange rates to current period results. We have included results on a constant currency basis because it is a key measure used by our management and Board of directors to evaluate operating performance. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends. The table above reconciles the actual results presented in this section with the results presented on a constant currency basis.


(2) Revenue ex-TAC is not a measure calculated in accordance with U.S. GAAP. See the table entitled "Reconciliation of Revenue ex-TAC by Region to Revenue by Region" for a reconciliation of Revenue ex-TAC to revenue.


(3) Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. See the table entitled "Reconciliation of Adjusted EBITDA to Net Income" for a reconciliation of Adjusted EBITDA to net income.

 




CRITEO S.A.

Information on Share Count

(unaudited)



Nine Months Ended


September 30,


2017



2018


Shares outstanding as at January 1,

63,978,204



66,085,097


Weighted average number of shares issued during the period

903,547



446,274


Basic number of shares - Basic EPS basis

64,881,751



66,531,371


Dilutive effect of share options, warrants, employee warrants - Treasury method

2,995,040



1,333,431


Diluted number of shares - Diluted EPS basis

67,876,791



67,864,802






Shares outstanding as of September 30,

65,551,174



67,231,036


Total dilutive effect of share options, warrants, employee warrants

8,194,498



8,368,660


Fully diluted shares as of September 30,

73,745,672



75,599,696













 




CRITEO S.A.

Supplemental Financial Information and Operating Metrics

(U.S. dollars in thousands except where stated, unaudited)



Q4

 2016

Q1

 2017

Q2

 2017

Q3

 2017

Q4

2017

Q1

2018

Q2

 2018

Q3

 2018

YoY

Change

QoQ Change














Clients

14,468

15,423

16,370

17,299

18,118

18,528

18,396

19,213

11%

4%














Revenue

566,825

516,667

542,022

563,973

674,031

564,164

537,185

528,869

(6)%

(2)%


Americas

266,438

208,013

229,392

228,326

324,696

212,695

212,781

211,247

(7)%

(1)%


EMEA

189,298

189,092

191,682

207,168

221,019

222,611

201,080

195,230

(6)%

(3)%


APAC

111,089

119,562

120,948

128,479

128,316

128,858

123,324

122,392

(5)%

(1)%














TAC

(341,877)

(306,693)

(322,200)

(329,576)

(397,087)

(323,746)

(306,963)

(305,387)

(7)%

(1)%


Americas

(167,046)

(128,867)

(145,289)

(141,869)

(203,368)

(131,521)

(125,502)

(126,406)

(11)%

1%


EMEA

(108,567)

(107,583)

(106,605)

(115,446)

(120,662)

(119,893)

(112,577)

(111,131)

(4)%

(1)%


APAC

(66,264)

(70,243)

(70,306)

(72,261)

(73,057)

(72,332)

(68,884)

(67,850)

(6)%

(2)%














Revenue ex-TAC

224,948

209,974

219,822

234,397

276,944

240,418

230,222

223,482

(5)%

(3)%


Americas

99,391

79,146

84,103

86,457

121,328

81,174

87,279

84,841

(2)%

(3)%


EMEA

80,731

81,509

85,077

91,722

100,357

102,718

88,503

84,099

(8)%

(5)%


APAC

44,826

49,319

50,642

56,218

55,259

56,526

54,440

54,542

(3)%

0.2%














Adjusted EBITDA

82,995

56,454

54,086

79,116

119,928

77,932

68,774

69,591

(12)%

1%














Cash flow from operating activities

71,658

44,238

60,491

61,727

79,002

84,527

40,341

50,256

(19)%

25%














Capital expenditures

22,981

28,206

27,055

27,773

25,476

32,567

17,847

29,656

7%

66%














Capital expenditures / Revenue

4%

5%

5%

5%

4%

6%

3%

6%

20%

100%














Net cash position

270,318

303,813

308,185

357,983

414,111

483,874

480,285

458,690

28%

(4)%














Headcount

2,503

2,582

2,690

2,712

2,764

2,675

2,678

2,737

1%

2.2%














Days Sales Outstanding (days - end of month)

53

56

57

56

57

60

61

60

N.A.

N.A.



 

SOURCE Criteo S.A.