Criteo Reports Results For the Second Quarter 2020

NEW YORK – July 29, 2020 – Criteo S.A. (NASDAQ: CRTO), the global technology company powering the world’s marketers with trusted and impactful advertising, today announced better than expected financial results for the second quarter ended June 30, 2020 in a still challenging global environment marked by the COVID-19 pandemic.

• Revenue declined 17% year-over-year, or 16% at constant currency¹, to $438 million, after an estimated $100 million net negative COVID-19 impact, or 19 points of year-over-year growth at constant currency.
• Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC², decreased 20% year-over-year, or 18% at constant currency, to $180 million ($178 million at guidance rates), representing 41% of revenue. The estimated net negative impact of COVID-19 on Revenue ex-TAC was approximately $41 million, or 19 points of year-over-year growth at constant currency.
• Net income decreased 51% year-over-year to $6 million, representing 1% of revenue.
• Adjusted EBITDA² declined 30% at constant currency to $39 million, representing 22% of Revenue ex-TAC.
• Diluted EPS decreased 44% to $0.09 and Adjusted diluted EPS² decreased 43% to $0.27.
• Cash flow from operating activities was $33 million.
• Free Cash Flow² was solid in the current economic context at $15 million.
• Our cash position was $578 million as of June 30, 2020, up $159 million compared to Dec. 31, 2019.
• The Company had financial liquidity in excess of $830 million as of June 30, 2020.

“I’m pleased with our better-than-expected performance and strong additions to our leadership,” said Megan Clarken, CEO. “The team is fully energized and focused on executing on our strategic plan.”

“Q2 was a solid quarter delivered in a still uncertain context,” said Dave Anderson, Interim CFO. “We remain hyper-focused on managing responsibly our expense base while also investing for growth.”

Operating Highlights

• New solutions, which include all solutions outside of retargeting, grew 67% year-over-year to 20% of total Revenue ex-TAC, doubling year-over-year and adding 7 points of Revenue ex-TAC contribution in Q2.
• Todd Parsons will soon be joining Criteo from OpenX as the Company’s new Chief Product Officer.
• Retail Media’s strong growth momentum accelerated to +84% year-over-year compared to +41% in Q1.
• We hired Sherry Smith, the prior CEO of Triad Retail Media, as MD of Americas for Retail Media.
• We enhanced our SPARROW proposal for cohort-based advertising to improve Google Chrome’s TURTLEDOV initiative as part of our online identity resolution strategy.
• Client count grew 3% year-over-year to close to 20,400, in line with Q1 2020.
• Same-client revenue declined 13% year-over-year and same-client Revenue ex-TAC³ decreased 14% year-over-year at constant currency, including 21 points directly attributable to the COVID-19 disruption on both a revenue and Revenue ex-TAC basis.
• Our direct header-bidding technology now connects to over 4,700 publishers across Web and App.

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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 17% year-over-year, or 16% at constant currency, to $438 million (Q2 2019: $528 million), after an approximately $100 million net negative business impact from the COVID-19 disruption, or approximately 19 points of the year-over-over decline at constant currency. Revenue ex-TAC decreased 20% year-over-year, or 18% at constant currency, to $180 million (Q2 2019: $224 million), after an approximately $41 million net negative business impact from the COVID-19 disruption, or approximately 19 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 core business with large clients, primarily as a result of the COVID-19 pandemic disruption. Revenue ex-TAC as a percentage of revenue, or Revenue ex-TAC margin, was 41% (Q2 2019: 42%).

• In the Americas, Revenue declined 13% year-over-year, or 12% at constant currency, to $186 million and represented 42% of total Revenue. Revenue ex-TAC declined 17% year-over-year, or 15% at constant currency, to $70 million and represented 39% of total Revenue ex-TAC.
• In EMEA, Revenue declined 18% year-over-year, or 16% at constant currency, to $160 million and represented 37% of total Revenue. Revenue ex-TAC declined 20% year-over-year, or 18% at constant currency, to $69 million and represented 39% of total Revenue ex-TAC.
• In Asia-Pacific, Revenue declined 23% year-over-year, or $23 at constant currency, to $92 million and represented 21% of total Revenue. Revenue ex-TAC declined 24% year-over-year, or 24% at constant currency, to $40 million and represented 22% of total Revenue ex-TAC.

Net Income and Adjusted Net Income

Net income decreased 51% year-over-year to $6 million (Q2 2019: $13 million). Net income margin as a percentage of revenue was 1% (Q2 2019: 2%). Net income available to shareholders of Criteo S.A. decreased 47% year-over-year to $6 million, or $0.09 per share on a diluted basis (Q2 2019: $11 million, or $0.16 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 46% year-over-year to $17 million, or $0.27 per share on a diluted basis (Q2 2019: $31 million, or $0.47 per share on a diluted basis).

Adjusted EBITDA and Operating Expenses

Adjusted EBITDA decreased 31% year-over-year, or 30% at constant currency, to $39 million (Q2 2019: $56 million), driven by the Revenue ex-TAC performance over the period, including the still meaningful impact of the COVID-19 pandemic, partly offset by proactive and disciplined expense management. Adjusted EBITDA as a percentage of Revenue ex-TAC, or Adjusted EBITDA margin, was 22% (Q2 2019: 25%).

Operating expenses decreased 22% or $39 million, to $136 million (Q2 2019: $175 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 20% or $29 million, to $120 million (Q2 2019: $149 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 and beyond.

Cash Flow,  Cash and Financial Liquidity Position

Cash flow from operating activities decreased 37% year-over-year to $33 million (Q2 2019: $53 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 at $15 million (Q2 2019: $20 million), representing 61% of Adjusted EBITDA in the first half 2020 (H1 2019: 51%), despite $4 million cash restructuring charges.

Cash and cash equivalents increased $159 million compared to December 31, 2019 to $578 million, after spending $15 million on share repurchases in the quarter and preemptively drawing $157 million on the Company’s €350 million Revolving Credit Facility (RCF).

 The Company has financial liquidity in excess of $830 million, including its RCF and cash position as of June 30, 2020. We believe that the Company’s current financial liquidity, combined with expected cash-flow generation in 2020, puts it in a solid position to weather the COVID-19 crisis.

Business Outlook

The following forward-looking statements reflect Criteo’s expectations as of July 29, 2020.

Third quarter 2020 guidance:

• We expect Revenue ex-TAC to be between $171 million and $173 million, implying constant-currency decline of approximately 20% to 21%.
• Due to the expected and still meaningful impact of COVID-19 on our business in the third quarter, we expect Adjusted EBITDA to be between $31 million and $33 million.

We withdrew our financial guidance for fiscal year 2020 on April 1, 2020. Given how uncertain the global situation still is around the consequences of the COVID-19 pandemic and the still multiple unknowns at this point, we believe the Company is still not in a position to reliably quantify the impact of COVID-19 on its financial results beyond the third quarter 2020.

The above guidance for the third quarter ending September 30, 2020, assumes the following exchange rates for the main currencies impacting our business: a U.S. dollar-euro rate of 0.905, a U.S. dollar-Japanese Yen rate of 108, a U.S. dollar-British pound rate of 0.80, a U.S. dollar-Korean Won rate of 1220 and a U.S. dollar-Brazilian real rate of 5.24.

The above guidance assumes no acquisitions are completed during the third quarter ending September 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.

 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 (“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 September 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, July 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, Director, Investor Relations, f.edelmann@criteo.com

Criteo Public Relations

Jessica Meyers, Director, Public Relations, Americas, j.meyers@criteo.com

Financial information to follow