News

NEW YORK, July 31, 2019 /PRNewswire/ -- Criteo S.A. (NASDAQ: CRTO), the advertising platform for the open Internet, today announced financial results for the second quarter ended June 30, 2019.

• Revenue decreased 2% year-over-year, and increased 1% at constant currency¹, to $528 million.
• Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC², decreased 3% year-over-year, and increased 0.3% at constant currency, to $224 million (or $225 million at the Q2 guidance exchange rates), or 42% of revenue.
• Net income decreased 15% year-over-year to $13 million.
• Adjusted EBITDA² declined 18% year-over-year, or 16% at constant currency, to $56 million, or 25% of Revenue ex-TAC.
• Cash flow from operating activities increased 31% year-over-year to $53 million.
• Free Cash Flow² reached $20 million and the cash position increased to $422 million as of June 30, 2019.
• Adjusted Net Income per diluted share² was $0.47.
• We maintain our 2019 outlook for both Revenue ex-TAC growth and Adjusted EBITDA margin.
• Our Board of Directors has authorized a share repurchase program of up to $80 million of outstanding American Depositary Shares.

"In a challenging landscape, we achieved important milestones in our transformation in Q2," said JB Rudelle, CEO. "I feel good about our strategic direction and our ability to deliver on our plans."

"We maintain our 2019 outlook for both topline growth and profitability margin, and are strongly committed to delivering healthy profitability over time," said Benoit Fouilland, CFO.

Operating Highlights

• Revenue ex-TAC from new products, which includes all solutions outside of retargeting, represented 10% of total, growing 61% year-over-year.
• We added 360 net new clients in Q2, the highest level since Q2 2018, and maintained client retention at close to 90% for all products.
• Revenue ex-TAC from mobile apps grew 21% year-over-year.
• Same-client revenue³ decreased 1.9% year-over-year at constant currency and same-client Revenue ex-TAC³ decreased 2.9% year-over-year at constant currency.
• Our header-bidding technology now connects to over 3,800 web publishers and 200 app developers providing direct access to quality inventory.
• We just launched our self-registration feature for small and medium clients starting with three key markets: the U.S., U.K. and Australia.
• We took effective measures to further reduce employee attrition.

Revenue and Revenue ex-TAC

Revenue declined 2% year-over-year, and increased 1% at constant currency, to $528 million (Q2 2018: $537 million). Revenue ex-TAC decreased 3% year-over-year, and increased 0.3% at constant currency, to $224 million (Q2 2018: $230 million). The increase at constant currency was primarily driven by our business with new clients, in particular in the midmarket, offsetting a slight decline in our business with existing clients, despite continued adoption of our new solutions across our existing client base. Revenue ex-TAC margin was 42.4% of revenue (Q2 2018: 42.9%).

• In the Americas, Revenue grew 1% year-over-year, or 1% at constant currency, to $214 million and represented 40% of total Revenue. Revenue ex-TAC declined 3% year-over-year, or 3% at constant currency, to $84 million and represented 38% of total Revenue ex-TAC.
• In EMEA, Revenue declined 3% year-over-year, and increased 3% at constant currency, to $194 million and represented 37% of total Revenue. Revenue ex-TAC declined 2% year-over-year, and grew 4% at constant currency, to $87 million and represented 39% of total Revenue ex-TAC.
• In Asia-Pacific, Revenue declined 3% year-over-year, or 1% at constant currency, to $120 million and represented 23% of total Revenue. Revenue ex-TAC declined 4% year-over-year, or 2% at constant currency, to $52 million and represented 23% of total Revenue ex-TAC.

Net Income and Adjusted Net Income

Net income decreased 15% year-over-year to $13 million (Q2 2018: $15 million). Net income margin as a percentage of revenue was 2.4% (Q2 2018: 2.7%), a 40-basis point decrease year-over-year. Net income available to shareholders of Criteo S.A. decreased 21% year-over-year to $11 million, or $0.16 per share on a diluted basis (Q2 2018: $14 million, or $0.20 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 13% year-over-year to $31 million, or $0.47 per share on a diluted basis (Q2 2018: $35 million, or $0.53 per share on a diluted basis).

Adjusted EBITDA and Operating Expenses

Adjusted EBITDA declined 18% year-over-year, or 16% at constant currency, to $56 million (Q2 2018: $69 million), primarily driven by the decrease in Revenue ex-TAC, increased Non-GAAP expenses, in particular in other cost of revenue, as well as a $5 million exceptional charge relating to an invoicing dispute. Adjusted EBITDA as a percentage of Revenue ex-TAC, which we refer to as Adjusted EBITDA margin, was 25.2% (Q2 2018: 29.9%), a 470-basis point decrease year-over-year.

Operating expenses were at $175 million (Q2 2018: $176 million), in line with the prior-year period. 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, increased 2% year-over-year to $149 million (Q2 2018: $147 million). In connection with our company transformation, we incurred restructuring costs of $0.7 million, including $2 million related to cash payroll and facilities expenses that were added back to Adjusted EBITDA, and $1 million of facilities related depreciation and amortization expense, partially offset by non-cash forfeitures of equity awards.

Cash Flow and Cash Position

Cash flow from operating activities increased 31% year-over-year to $53 million (Q2 2018: $40 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 10% year-over-year to $20 million (Q2 2018: $22 million), representing 36% of Adjusted EBITDA (Q2 2018: 33%).

Cash and cash equivalents increased $58 million in the first half of 2019 to $422 million.

Business Outlook

The following forward-looking statements reflect Criteo's expectations as of July 31, 2019.

Third quarter 2019 guidance:

• We expect Revenue ex-TAC to be between $219 million and $223 million, implying constant-currency growth of approximately -2% to +0%.
• We expect Adjusted EBITDA to be between $57 million and $61 million.

Fiscal year 2019 guidance:

• We maintain our outlook and expect Revenue ex-TAC growth for fiscal year 2019 of between 0% and 2% at constant currency.
• We maintain our outlook and expect Adjusted EBITDA margin for fiscal year 2019 of approximately 30% of Revenue ex-TAC.

The above guidance for the quarter ending September 30, 2019 and the fiscal year ending December 31, 2019, assumes the following exchange rates for the main currencies impacting our business: a U.S. dollar-euro rate of 0.88 a U.S. dollar-Japanese Yen rate of 109, a U.S. dollar-British pound rate of 0.78 and a U.S. dollar-Brazilian real rate of 3.81.

The above guidance assumes no acquisitions are completed during the quarter ending September 30, 2019, and the fiscal year ending December 31, 2019.

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 potentially significant impact on our future U.S. GAAP financial results.

Announcement of a $80 million Share Repurchase Program

Demonstrating the Company's confidence in its business and its ability to generate 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 primarily upon the authorization provided by shareholders at the Company's 2019 Annual General Meeting, and as such the Company intends to use repurchased shares to satisfy employee equity plan vesting in lieu of issuing new shares, and potentially in connection with M&A transactions. The authorization is effective immediately and remains in effect until May 15, 2020.

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 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, 2019 and the fiscal year ending December 31, 2019, 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, 2019, and in subsequent Quarterly Report on Form 10-Q 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, July 31, 2019, at 8:00 AM ET, 2:00 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:

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. Close to 2,900 Criteo team members partner with close to 20,000 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.

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
Isabelle Leung-Tack, VP, Global Communications, i.leungtack@criteo.com

Financial information to follow