NEW YORK – April 29, 2020 – Criteo S.A. (NASDAQ: CRTO), the global technology company powering the world’s marketers with trusted and impactful advertising, today announced solid financial results for the first quarter ended March 31, 2020 in a challenging global environment marked by the outbreak of COVID-19.
- Revenue decreased 10% year-over-year, or 8% at constant currency1, to $503 million.
- Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC2, decreased 13% year-over-year, or 11% at constant currency, to $206 million ($207 million at guidance rates), representing 41% of revenue.
- The COVID-19 outbreak negatively impacted Revenue by approximately $24 million, or approximately 4 points of year-over-year growth at constant currency, and negatively impacted Revenue ex-TAC by approximately $10 million, or approximately 4 points of year-over-year growth at constant currency.
- Net income decreased 23% year-over-year to $16 million, representing 3% of revenue.
- Adjusted EBITDA2 decreased 12% at constant currency to $59 million ($60 million at guidance rates), representing 29% of Revenue ex-TAC.
- Diluted EPS decreased 14% to $0.25 and Adjusted diluted EPS2 decreased 13% to $0.52.
- Cash flow from operating activities was $57 million.
- Free Cash Flow2 was solid and increased 3% to $45 million.
- Our cash position was $437 million as of March 31, 2020, up $18 million compared to Dec. 31, 2019.
- The Company’s Board of directors authorized a new share repurchase program of up to $30 million.
- The Company had financial liquidity in excess of $820 million as of March 31, 2020.
“Our people safety, operations, client relationships and cost control are our key priorities in this context,” said Megan Clarken, CEO. “We believe our core strength in direct response marketing will help our customers best rebound from these unusual times.”
“Q1 was a solid quarter amidst a challenging environment,” said Benoit Fouilland, CFO. “We’re hyper-focused on managing our cost base and protecting our profitability and financial liquidity.”
Operating Highlights
- New solutions, which include all solutions outside of retargeting, grew 49% year-over-year to 13% of total Revenue ex-TAC, an increase of 4 points year-over-year.
- We added over 110 net new clients and maintained high client retention at close to 90% for all solutions.
- Same-client revenue declined 9% year-over-year and same-client Revenue ex-TAC3 decreased 9% year-over-year at constant currency, including 5 points directly attributable to the COVID-19 disruption.
- Our direct header-bidding technology now connects to over 4,600 publishers across Web and App, and we now reach about 40% of all our publishers via Criteo Direct Bidder.
- We launched Criteo Partners, our global partnership program for reseller agencies.
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1 Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the 2019 average exchange rates for the relevant period to 2020 figures.
2 Revenue ex-TAC, Revenue ex-TAC margin, Adjusted EBITDA, Adjusted EBITDA at constant currency, Adjusted EBITDA margin, Adjusted diluted EPS, Free Cash Flow and growth at constant currency are not measures calculated in accordance with U.S. GAAP.
3 Same-client revenue or Revenue ex-TAC is the revenue or 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.
Revenue and Revenue ex-TAC
Revenue declined 10% year-over-year, or 8% at constant currency, to $503 million (Q1 2019: $558 million), after an approximately $24 million business impact from the COVID-19 outbreak, or approximately 4 points of the year-over-over decline at constant currency. Revenue ex-TAC decreased 13% year-over-year, or 11% at constant currency, to $206 million (Q1 2019: $236 million), after an approximately $10 million business impact from the COVID-19 outbreak, or approximately 4 points of the year-over-over decline at constant currency. Growth in our midmarket business and increased adoption of new solutions were offset by the decline in our large client business. Revenue ex-TAC as a percentage of revenue, or Revenue ex-TAC margin, was 41% (Q1 2019: 42%).
- In the Americas, Revenue declined 12% year-over-year, or 11% at constant currency, to $192 million and represented 38% of total Revenue. Revenue ex-TAC declined 17% year-over-year, or 16% at constant currency, to $72 million and represented 35% of total Revenue ex-TAC.
- In EMEA, Revenue declined 9% year-over-year, or 7% at constant currency, to $190 million and represented 38% of total Revenue. Revenue ex-TAC declined 12% year-over-year, or 9% at constant currency, to $82 million and represented 40% of total Revenue ex-TAC.
- In Asia-Pacific, Revenue declined 7% year-over-year, or 6% at constant currency, to $122 million and represented 24% of total Revenue. Revenue ex-TAC declined 8% year-over-year, or 7% at constant currency, to $53 million and represented 25% of total Revenue ex-TAC.
Net Income and Adjusted Net Income
Net income decreased 23% year-over-year to $16 million (Q1 2019: $21 million). Net income margin as a percentage of revenue was 3% (Q1 2019: 4%). Net income available to shareholders of Criteo S.A. decreased 19% year-over-year to $15 million, or $0.25 per share on a diluted basis (Q1 2019: $19 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 19% year-over-year to $32 million, or $0.52 per share on a diluted basis (Q1 2019: $40 million, or $0.60 per share on a diluted basis).
Adjusted EBITDA and Operating Expenses
Adjusted EBITDA decreased 14% year-over-year, or 12% at constant currency, to $59 million (Q1 2019: $69 million), driven by the Revenue ex-TAC performance over the period, including the impact of the COVID-19 outbreak, partly offset by our proactive and disciplined expense management. Adjusted EBITDA as a percentage of Revenue ex-TAC, or Adjusted EBITDA margin, was 29% (Q1 2019: 29%).
Operating expenses decreased 16% to $148 million (Q1 2019: $176 million), mostly driven by lower headcount-related expense and disciplined expense management. 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 16% to $126 million (Q1 2019: $150 million), mostly driven by lower headcount-related expense and disciplined expense management.
Since the outbreak of COVID-19, the Company has been focused on managing its expense base in a swift, agile and disciplined way to maximize profitability and preserve cash generation for 2020. We have already frozen substantially all hiring and travel expenses globally and have taken several additional cost containment measures, including reductions in marketing spend and events, third-party services, hosting costs and others, beyond the savings that were already included in our fiscal year 2020 guidance provided on February 11, 2020.
Cash Flow, Cash and Financial Liquidity Position
Cash flow from operating activities decreased 16% year-over-year to $57 million (Q1 2019: $67 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, was solid in the current circumstances and increased 3% year-over-year to $45 million (Q1 2019: $44 million), representing 76% of Adjusted EBITDA (Q1 2019: 63%), despite $4 million cash restructuring charges.
Cash and cash equivalents increased $18 million compared to December 31, 2019 to $437 million, after spending $18 million on share repurchases in the quarter. The Company completed its second share-buyback program in February 2020, for 4.5 million shares and approximately $77 million.
The Company has immediate access to a €350 million Revolving Credit Facility, which, combined with its cash position as of March 31, 2020, provides total liquidity of approximately $820 million. Overall, we believe that our current financial liquidity, combined with our expected cash-flow generation in 2020, puts us in a strong position to weather the COVID-19 crisis under multiple scenarios.
Business Outlook
The following forward-looking statements reflect Criteo’s expectations as of April 29, 2020.
Based on our current forecasting framework for the impact of COVID-19 on our business, we currently assume that the second quarter 2020 will be the through quarter in our central COVID-19 scenario.
Second quarter 2020 guidance:
- We expect Revenue ex-TAC to be between $140 million and $147 million, implying constant-currency decline of approximately 32% to 35%.
- Due to the expected significant impact of COVID-19 on our business in the second quarter, we expect Adjusted EBITDA to be between $0 million and $7 million.
We withdrew our financial guidance for fiscal year 2020 on April 1, 2020. Given how fluid the global situation still is around the consequences of the COVID-19 outbreak and the many unknowns at this point, we believe the Company is currently not yet in a position to reliably quantify the impact of COVID-19 on its financial results beyond the second quarter 2020. We will therefore not provide guidance for Revenue ex-TAC and Adjusted EBITDA for fiscal year 2020 until further notice.
The above guidance for the second quarter ending June 30, 2020, assumes the following exchange rates for the main currencies impacting our business: a U.S. dollar-euro rate of 0.902, a U.S. dollar-Japanese Yen rate of 109.7, a U.S. dollar-British pound rate of 0.803, a U.S. dollar-Korean Won rate of 1,224.5 and a U.S. dollar-Brazilian real rate of 5.05.
The above guidance assumes no acquisitions are completed during the second quarter ending June 30, 2020.
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. The variability of the above charges could potentially have a significant impact on our future U.S. GAAP financial results.
Announcement of a Share Repurchase Program of up to $30 million
Demonstrating the Company’s confidence in its business and its ability to generate cash flow, and to meet its equity obligations to employees while taking advantage of the attractive level of its share price, Criteo today announces that the Board of Directors has authorized a share repurchase program of up to $30 million of the Company’s outstanding American Depositary Shares.
This program relies primarily upon the authorization provided under L. 225-208 of the French Commercial Code, and as such the Company intends to use repurchased shares under this new program to satisfy employee equity obligations in lieu of issuing new shares, which would limit future dilution for its employee equity program. If a new authorization under L. 225-209-2 of the French Commercial Code is granted by the Company’s shareholders at the Company’s 2020 Annual General Meeting, the program could alternatively rely on the new authorization, provided the conditions provided therein notably relating to stock price are met, and could be used either to satisfy employee equity plan vesting in lieu of issuing new shares, or in connection with M&A transactions.
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 diluted EPS, 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 diluted EPS 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 diluted EPS can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted diluted EPS 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 June 30, 2020, 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 innovate and respond to changes in technology, uncertainty regarding the scope and impact of the recent outbreak of COVID-19 on our employees, operations, revenue and cash flows, 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, the impact of consumer resistance to the collection and sharing of data, our ability to access data through third parties, 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 2, 2020, and in subsequent Quarterly Reports on Form 10-Q as well as future filings and reports by the Company. Importantly, at this time, the COVID-19 pandemic is having a significant impact on Criteo’s business, financial condition, cash flow and results of operations. There are significant uncertainties about the duration and the extent of the impact of the virus. 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, April 29, 2020, at 8:00 AM EDT, 2:00 PM CEST. The conference call will be webcast live on the Company’s website http://ir.criteo.com and will be available for replay.
- 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 global technology company powering the world’s marketers with trusted and impactful advertising. 2,700 Criteo team members partner with over 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 Investor and Analyst Relations, 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
