Item 1. Financial Statements
CRITEO S.A. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) | | | | | | | | | | | | | | |
| Notes | June 30, 2022 | | December 31, 2021 |
| | (in thousands) |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | 3 | $ | 562,546 | | | $ | 515,527 | |
Trade receivables, net of allowances of $50.5 million and $45.4 million at June 30, 2022 and December 31, 2021, respectively | 4 | 490,643 | | | 581,988 | |
| Income taxes | | 19,888 | | | 8,784 | |
| Other taxes | | 68,608 | | | 73,388 | |
| Other current assets | 5 | 39,240 | | | 34,182 | |
| Marketable securities - current portion | 3 | 10,000 | | | 50,299 | |
| Total current assets | | 1,190,925 | | | 1,264,168 | |
| Property, plant and equipment, net | | 124,133 | | | 139,961 | |
| Intangible assets, net | | 78,018 | | | 82,627 | |
| Goodwill | | 322,972 | | | 329,699 | |
| Right of use assets - operating lease | 7 | 108,563 | | | 120,257 | |
| Marketable securities - non current portion | 3 | — | | | 5,000 | |
| Non-current financial assets | | 4,908 | | | 6,436 | |
| Deferred tax assets | | 41,325 | | | 35,443 | |
| Total non-current assets | | 679,919 | | | 719,423 | |
| Total assets | | $ | 1,870,844 | | | $ | 1,983,591 | |
| | | | |
| Liabilities and shareholders' equity | | | | |
| Current liabilities: | | | | |
| Trade payables | | $ | 400,058 | | | $ | 430,245 | |
| Contingencies | 14 | 64,731 | | | 3,059 | |
| Income taxes | | 3,791 | | | 6,641 | |
| Financial liabilities - current portion | 3 | 255 | | | 642 | |
| Lease liability - operating - current portion | 7 | 32,110 | | | 34,066 | |
| Other taxes | | 50,589 | | | 60,236 | |
| Employee - related payables | | 70,435 | | | 98,136 | |
| Other current liabilities | 6 | 44,390 | | | 39,523 | |
| Total current liabilities | | 666,359 | | | 672,548 | |
| Deferred tax liabilities | | 2,907 | | | 3,053 | |
| Defined benefit plans | 8 | 3,213 | | | 5,531 | |
| Financial liabilities - non current portion | 3 | 334 | | | 360 | |
| Lease liability - operating - non current portion | 7 | 82,984 | | | 93,893 | |
| Other non-current liabilities | | 4,859 | | | 9,886 | |
| Total non-current liabilities | | 94,297 | | | 112,723 | |
| Total liabilities | | 760,656 | | | 785,271 | |
| Commitments and contingencies | | | | |
| Shareholders' equity: | | | | |
Common shares, €0.025 par value, 65,794,032 and 65,883,347 shares authorized, issued and outstanding at June 30, 2022, and December 31, 2021, respectively. | | 2,147 | | | 2,149 | |
Treasury stock, 5,265,393 and 5,207,873 shares at cost as of June 30, 2022 and December 31, 2021, respectively. | | (148,509) | | | (131,560) | |
| Additional paid-in capital | | 750,774 | | | 731,248 | |
| Accumulated other comprehensive income (loss) | | (102,931) | | | (40,294) | |
| Retained earnings | | 577,552 | | | 601,588 | |
| Equity-attributable to shareholders of Criteo S.A. | | 1,079,033 | | | 1,163,131 | |
| Non-controlling interests | | 31,155 | | | 35,189 | |
| Total equity | | 1,110,188 | | | 1,198,320 | |
| Total equity and liabilities | | $ | 1,870,844 | | | $ | 1,983,591 | |
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| Notes | | June 30,
2022 | | June 30,
2021 | | June 30,
2022 | | June 30,
2021 |
| | (in thousands, except share per data) |
| | | | | | | | | |
| Revenue | 9 | | $ | 495,090 | | | $ | 551,311 | | | $ | 1,005,657 | | | $ | 1,092,388 | |
| | | | | | | | | |
| Cost of revenue: | | | | | | | | | |
| Traffic acquisition costs | | | (280,565) | | | (331,078) | | | (574,215) | | | (658,745) | |
| Other cost of revenue | | | (29,550) | | | (37,364) | | | (62,443) | | | (72,076) | |
| | | | | | | | | |
| Gross profit | | | 184,975 | | | 182,869 | | | 368,999 | | | 361,567 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| Research and development expenses | | | (41,496) | | | (41,915) | | | (75,523) | | | (73,612) | |
| Sales and operations expenses | | | (99,313) | | | (80,751) | | | (188,312) | | | (160,105) | |
| General and administrative expenses | | | (100,672) | | | (40,474) | | | (134,008) | | | (73,902) | |
| Total operating expenses | | | (241,481) | | | (163,140) | | | (397,843) | | | (307,619) | |
| Income from operations | | | (56,506) | | | 19,729 | | | (28,844) | | | 53,948 | |
| Financial and Other income (expense) | 11 | | 16,412 | | | (519) | | | 20,442 | | | (1,237) | |
| Income before taxes | | | (40,094) | | | 19,210 | | | (8,402) | | | 52,711 | |
| Provision for income taxes | 12 | | 7,121 | | | (4,181) | | | (3,293) | | | (14,232) | |
| Net income (loss) | | | $ | (32,973) | | | $ | 15,029 | | | $ | (11,695) | | | $ | 38,479 | |
| | | | | | | | | |
| Net income (loss) available to shareholders of Criteo S.A. | | | $ | (33,614) | | | $ | 14,804 | | | $ | (13,027) | | | $ | 37,210 | |
| Net income available to non-controlling interests | | | $ | 641 | | | $ | 225 | | | $ | 1,332 | | | $ | 1,269 | |
| | | | | | | | | |
| Weighted average shares outstanding used in computing per share amounts: | | | | | | | | | |
| Basic | 13 | | 60,240,344 | | 60,663,301 | | 60,488,429 | | 60,702,780 |
| Diluted | 13 | | 62,303,670 | | 64,665,212 | | 62,957,718 | | 64,371,603 |
| | | | | | | | | |
| Net income (loss) allocated to shareholders per share: | | | | | | | | | |
| Basic | 13 | | $ | (0.56) | | | $ | 0.24 | | | $ | (0.22) | | | $ | 0.61 | |
| Diluted | 13 | | $ | (0.54) | | | $ | 0.23 | | | $ | (0.21) | | | $ | 0.58 | |
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30,
2022 | | June 30,
2021 | | June 30,
2022 | | June 30,
2021 |
| (in thousands) |
| | | | | | | |
| Net income (loss) | $ | (32,973) | | | $ | 15,029 | | | $ | (11,695) | | | $ | 38,479 | |
| Foreign currency translation differences, net of taxes | (51,510) | | | 10,443 | | | (70,728) | | | (26,540) | |
| Actuarial (losses) gains on employee benefits, net of taxes | 1,449 | | | 29 | | | 2,535 | | | 658 | |
| Other comprehensive income (loss) | $ | (50,061) | | | $ | 10,472 | | | $ | (68,193) | | | $ | (25,882) | |
| Total comprehensive income (loss) | $ | (83,034) | | | $ | 25,501 | | | $ | (79,888) | | | $ | 12,597 | |
| Attributable to shareholders of Criteo S.A. | $ | (80,044) | | | $ | 25,191 | | | $ | (75,664) | | | $ | 13,745 | |
| Attributable to non-controlling interests | $ | (2,990) | | | $ | 310 | | | $ | (4,224) | | | $ | (1,148) | |
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share capital | Treasury
Stock | Additional paid-in capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interest | Total equity |
| Common shares | | Shares | | |
| (in thousands, except share amounts ) |
| Balance at December 31, 2020 | 66,272,106 | $2,161 | (5,632,536) | $(85,570) | $693,164 | $16,027 | $491,359 | $1,117,142 | $35,545 | $1,152,687 |
| Net income | — | — | — | — | — | — | 22,406 | 22,406 | 1,044 | 23,450 |
| Other comprehensive income (loss) | — | — | — | — | — | (33,852) | — | (33,852) | (2,502) | (36,354) |
| Issuance of ordinary shares | 119,800 | 3 | — | — | 2,148 | — | — | 2,151 | — | 2,151 |
| Change in treasury stocks | — | — | 34,935 | (1,693) | — | — | (3,237) | (4,930) | — | (4,930) |
| Share-Based Compensation | — | — | — | — | 6,710 | — | — | 6,710 | 50 | 6,760 |
| Other changes in equity | — | — | — | — | — | — | — | — | — | — |
| Balance at March 31, 2021 | 66,391,906 | $2,164 | (5,597,601) | $(87,263) | $702,022 | $(17,825) | $510,528 | $1,109,626 | $34,137 | $1,143,763 |
| Net income | — | — | — | — | — | — | 14,804 | 14,804 | 225 | 15,029 |
| Other comprehensive income (loss) | — | — | — | — | — | 10,387 | — | 10,387 | 85 | 10,472 |
| Issuance of ordinary shares | 305,454 | 9 | — | — | 7,568 | — | — | 7,577 | — | 7,577 |
| Change in treasury stocks | — | — | (482,407) | (24,560) | — | — | (5,439) | (29,999) | — | (29,999) |
| Share-Based Compensation | — | — | — | — | 11,172 | — | — | 11,172 | 55 | 11,227 |
| Other changes in equity | — | — | — | — | — | — | — | — | — | — |
| Balance at June 30, 2021 | 66,697,360 | $2,173 | (6,080,008) | (111,823) | $720,762 | $(7,438) | $519,893 | $1,123,567 | $34,502 | $1,158,069 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share capital | Treasury Stock | Additional paid-in capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interest | Total equity | | |
| Common shares | | Shares | | | | |
| (in thousands, except share amounts ) | | |
| Balance at December 31, 2021 | 65,883,347 | $2,149 | (5,207,873) | $(131,560) | $731,248 | $(40,294) | $601,588 | $1,163,131 | $35,189 | $1,198,320 | | |
| Net income | — | — | — | — | — | — | 20,587 | 20,587 | 691 | 21,278 | | |
| Other comprehensive income (loss) | — | — | — | — | — | (16,207) | — | (16,207) | (1,925) | (18,132) | | |
| Issuance of ordinary shares | 22,047 | 1 | — | — | 319 | — | — | 320 | — | 320 | | |
Change in treasury stocks(*) | — | — | (119,771) | (5,770) | — | — | (2,534) | (8,304) | — | (8,304) | | |
| Share-Based Compensation | — | — | — | — | 8,948 | — | — | 8,948 | 93 | 9,041 | | |
| Other changes in equity | — | — | — | — | — | — | — | — | — | — | | |
| Balance at March 31, 2022 | 65,905,394 | $2,150 | (5,327,644) | $(137,330) | $740,515 | $(56,501) | $619,641 | $1,168,475 | $34,048 | $1,202,523 | | |
| Net income | — | — | — | — | — | — | (33,614) | (33,614) | 641 | (32,973) | | |
| Other comprehensive income (loss) | — | — | — | — | — | (46,430) | — | (46,430) | (3,631) | (50,061) | | |
| Issuance of ordinary shares | (111,362) | — | — | — | 110 | — | — | 110 | — | 110 | | |
Change in treasury stocks(*) | — | (3) | 62,251 | (11,179) | (1,342) | — | (8,509) | (21,033) | — | (21,033) | | |
| Share-Based Compensation | — | — | — | — | 11,452 | — | — | 11,452 | 97 | 11,549 | | |
| Other changes in equity | — | — | — | — | 39 | — | 34 | 73 | — | 73 | | |
| Balance at June 30, 2022 | 65,794,032 | $2,147 | (5,265,393) | $(148,509) | $750,774 | $(102,931) | $577,552 | $1,079,033 | $31,155 | $1,110,188 | | |
(*) On February 3, 2022, Criteo's board of directors authorized an extension of the share repurchase program to up to $280.0 million of the Company's outstanding American Depositary Shares. The change in treasury stocks is comprised of 1,117,873 shares repurchased at an average price of $26.2 offset by 940,543 treasury shares used for RSUs vesting.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30,
2022 | | June 30,
2021 |
| (in thousands) |
| Net income (loss) | | $ | (11,695) | | | $ | 38,479 | |
| Non-cash and non-operating items | | 98,227 | | | 65,905 | |
| - Amortization and provisions | | 114,502 | | | 42,386 | |
| | | | |
| - Net gain or (loss) on disposal of non-current assets | | (696) | | | 3,959 | |
- Equity awards compensation expense (1) | | 21,510 | | | 18,885 | |
| | | | |
| - Change in deferred taxes | | (7,114) | | | 2,305 | |
| - Change in income taxes | | (14,678) | | | (1,655) | |
- Other (2) | | (15,297) | | | 25 | |
| Changes in working capital related to operating activities | | 2,370 | | | (662) | |
| - (Increase) / Decrease in trade receivables | | 65,476 | | | 26,195 | |
| - Increase / (Decrease) in trade payables | | (16,977) | | | (19,906) | |
| - (Increase) / Decrease in other current assets | | (14,595) | | | (5,187) | |
| - Increase/ (Decrease) in other current liabilities | | (31,313) | | | (1,069) | |
| - Change in operating lease liabilities and right of use assets | | (221) | | | (695) | |
| | | | |
| Cash from operating activities | | 88,902 | | | 103,722 | |
| Acquisition of intangible assets, property, plant and equipment | | (32,794) | | | (27,616) | |
| Change in accounts payable related to intangible assets, property, plant and equipment | | 11,778 | | | 708 | |
| Payment for a business, net of cash acquired | | — | | | (9,598) | |
| Change in other non-current financial assets | | 44,311 | | | (20,308) | |
| Cash (used for) from investing activities | | 23,295 | | | (56,814) | |
| Proceeds from borrowings under line-of-credit agreement | | 78,513 | | | — | |
| Repayment of borrowings | | (78,513) | | | (1,272) | |
| Proceeds from exercise of stock options | | 351 | | | 9,575 | |
| Repurchase of treasury stocks | | (29,334) | | | (34,929) | |
| Change in other financial liabilities | | (860) | | | (748) | |
Other (2) | | 15,334 | | | — | |
| Cash used for financing activities | | (14,509) | | | (27,374) | |
| Effect of exchange rates changes on cash and cash equivalents | | (50,669) | | | (18,024) | |
| Net increase in cash and cash equivalents | | 47,019 | | | 1,510 | |
| Net cash and cash equivalents at beginning of period | | 515,527 | | | 488,011 | |
| Net cash and cash equivalents at end of period | | $ | 562,546 | | | $ | 489,521 | |
| | | | |
| Supplemental disclosures of cash flow information | | | | |
| Cash paid for taxes, net of refunds | | (25,085) | | | (13,582) | |
| Cash paid for interest | | (626) | | | (736) | |
(1) Of which $20.6 million and $18.0 million of equity awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the six months ended June 30, 2022 and 2021, respectively.
(2) Primarily consists of realized gains in FX hedges.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
CRITEO S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Criteo S.A. was initially incorporated as a société par actions simplifiée, or S.A.S., under the laws of the French Republic on November 3, 2005, for a period of 99 years and subsequently converted to a société anonyme, or S.A.
We are a global technology company that enables marketers and media owners to drive better commerce outcomes through the world’s leading Commerce Media Platform. We bring richer experiences to every consumer by supporting a fair and open internet that enables discovery, innovation, and choice — powered by trusted and impactful advertising from the world’s marketers and media owners.
We are leading the way of commerce media — a new approach to advertising that combines commerce data and machine learning to target consumers throughout their shopping journey and help marketers and media owners drive commerce outcomes (sales, leads, advertising revenue).
Our strategy is to help marketers and media owners activate 1st-party, privacy-safe data and drive better commerce outcomes through our Commerce Media Platform, a suite of products:
•that offer marketers (brands, retailers, and agencies) the ability to easily reach consumers anywhere throughout their shopping journey and measure their advertising campaigns
•that offer media owners (publishers and retailers) the ability to monetize their advertising and promotions inventory for commerce anywhere where consumers spend their time
•sitting on top of a dataset and technology that power our entire offering.
In these notes, Criteo S.A. is referred to as the "Parent" company and together with its subsidiaries, collectively, as "Criteo," the "Company," the "Group," or "we".
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements included herein (the "Unaudited Condensed Consolidated Financial Statements") have been prepared by Criteo pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.
Conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in the condensed consolidated financial statements and accompanying notes. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. Our actual results may differ from these estimates. U.S. GAAP requires us to make estimates and judgments in several areas, including, but not limited to: (1) revenue recognition criteria, (2) allowances for credit losses, (3) research tax credits, (4) income taxes, including (i) recognition of deferred tax assets arising from the subsidiaries projected taxable profit for future years, (ii) evaluation of uncertain tax positions associated with our transfer pricing policy and (iii) recognition of income tax position in respect with tax reforms recently enacted in countries we operate, (5) assumptions used in valuing acquired assets and assumed liabilities in business combinations, (6) assumptions used in the valuation of goodwill, intangible assets and right of use assets - operating lease, and (7) assumptions used in the valuation model to determine the fair value of share-based compensation plan.
There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Accounting Pronouncements Adopted in 2022
Effective January 1, 2022, we have adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance (ASU 2021-10), which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. The impacts on our annual consolidated financial statements will be limited as a result of adoption of this standard.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s Consolidated Financial Statements upon adoption.
Note 2. Segment information
Reportable segments
The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments: Marketing Solutions and Retail Media.
Criteo's Marketing Solutions segment allows commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
Criteo's Retail Media segment allows retailers to generate advertising revenues from consumer brands, and/or to drive sales for themselves, by monetizing their data and audiences through personalized ads, either on their own digital property or on the open Internet, that address multiple marketing goals.
Segment operating results, Contribution ex-TAC, is Criteo's segment profitability measure and reflects our gross profit plus other costs of revenue.
The following table shows revenue by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30,
2022 | | June 30,
2021 | | June 30,
2022 | | June 30,
2021 |
| (in thousands) |
| Marketing Solutions | $ | 440,423 | | | 487,465 | | | $ | 904,311 | | | 970,655 | |
| Retail Media | 54,667 | | | 63,846 | | | 101,346 | | | 121,733 | |
| Total Revenue | $ | 495,090 | | | $ | 551,311 | | | $ | 1,005,657 | | | $ | 1,092,388 | |
The following table shows Contribution ex-TAC by reportable segment and its reconciliation to the Company’s Consolidated Statements of Operation:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30,
2022 | | June 30,
2021 | | June 30,
2022 | | June 30,
2021 |
| (in thousands) |
| Contribution ex-TAC | | | | | | | |
| Marketing Solutions | $ | 177,969 | | | $ | 193,333 | | | $ | 364,057 | | | $ | 385,650 | |
| Retail Media | 36,556 | | | 26,900 | | | 67,385 | | | 47,993 | |
| $ | 214,525 | | | $ | 220,233 | | | $ | 431,442 | | | $ | 433,643 | |
| | | | | | | |
| Other costs of sales | (29,550) | | | (37,364) | | | (62,443) | | | (72,076) | |
| Gross profit | $ | 184,975 | | | $ | 182,869 | | | $ | 368,999 | | | $ | 361,567 | |
| Operating expenses | | | | | | | |
| Research and development expenses | (41,496) | | | (41,915) | | | (75,523) | | | (73,612) | |
| Sales and operations expenses | (99,313) | | | (80,751) | | | (188,312) | | | (160,105) | |
| General and administrative expenses | (100,672) | | | (40,474) | | | (134,008) | | | (73,902) | |
| Total Operating expenses | (241,481) | | | (163,140) | | | (397,843) | | | (307,619) | |
| | | | | | | |
| Income from operations | $ | (56,506) | | | $ | 19,729 | | | $ | (28,844) | | | $ | 53,948 | |
| Financial and Other Income (Expense) | 16,412 | | | (519) | | | 20,442 | | | (1,237) | |
| Income before tax | $ | (40,094) | | | $ | 19,210 | | | $ | (8,402) | | | $ | 52,711 | |
The Company's chief operating decision maker, or CODM, does not review any other financial information for our two segments, other than Contribution ex-TAC, at the reportable segment level.
Note 3. Financial Instruments
Financial assets
The maximum exposure to credit risk at the end of each reported period is represented by the carrying amount of financial assets and summarized in the following table: | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | |
| | (in thousands) |
| | | | | |
| Trade receivables, net of allowances | | 490,643 | | | 581,988 | | |
| Other taxes | | 68,608 | | | 73,388 | | |
| Other current assets | | 39,240 | | | 34,182 | | |
| Non-current financial assets | | 4,908 | | | 6,436 | | |
| Marketable securities | | 10,000 | | | 55,299 | | |
| Total | | $ | 613,399 | | | $ | 751,293 | | |
For our financial assets, other than trade receivables, net of allowances, the fair value approximates the carrying amount, given the nature of the financial assets and the maturity of the expected cash flows.
Financial Liabilities | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | (in thousands) |
| Trade payables | | $ | 400,058 | | | $ | 430,245 | |
| Other taxes | | 50,589 | | | 60,236 | |
| Employee-related payables | | 70,435 | | | 98,136 | |
| Other current liabilities | | 44,390 | | | 39,523 | |
| Financial liabilities | | 589 | | | 1,002 | |
| Total | | $ | 566,061 | | | $ | 629,142 | |
The fair value of financial liabilities approximates the carrying amount, given the nature of the financial liabilities and the maturity of the expected cash outflows.
Fair Value Measurements
We measure the fair value of our cash equivalents and marketable securities, which include interest-bearing bank deposits, as level 2 measurements because they are valued using observable market data.
Financial assets or liabilities include derivative financial instruments used to manage our exposure to the risk of exchange rate fluctuations. These instruments are considered level 2 financial instruments as they are measured using valuation techniques based on observable market data.
Derivative Financial Instruments
Derivatives consist of foreign currency forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. We recognize gains and losses on these contracts in financial income (expense), and their position on the balance sheet is based on their fair value at the end of each respective period. These instruments are considered level 2 financial instruments as they are measured using valuation techniques based on observable market data.
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | | | |
| | (in thousands) |
| Derivative Assets: | | | | |
| Included in other current assets | | $ | 2,658 | | | $ | 60 | |
| | | | |
| Derivative Liabilities: | | | | |
| Included in financial liabilities - current portion | | $ | — | | | $ | — | |
The fair value of derivative financial instruments approximates the notional amount, given the nature of the derivative financial instruments and the maturity of the expected cash flows.
Cash and Cash Equivalents
The following table presents for each reporting period, the breakdown of cash and cash equivalents: | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | | | |
| | (in thousands) |
| Cash equivalents | | $ | 48,312 | | | $ | 137,228 | |
| Cash on hand | | 514,234 | | | 378,299 | |
| Total cash and cash equivalents | | $ | 562,546 | | | $ | 515,527 | |
Cash equivalents are investments in interest–bearing bank deposits which meet ASC 230—Statement of Cash flows criteria: short-term, highly liquid investments, for which the risks of changes in value are considered to be insignificant. Interest-bearing bank deposits are considered level 2 financial instruments as they are measured using valuation techniques based on observable market data.
For our cash and cash equivalents, the fair value approximates the carrying amount, given the nature of the cash and cash equivalents and the maturity of the expected cash flows.
Marketable Securities
The following table presents for each reporting period, the breakdown of the fair value of marketable securities:
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | | | |
| | (in thousands) |
| Securities Available-for-sale | | | | |
| Term Deposits | | $ | — | | | $ | 22,652 | |
| Securities Held-to-maturity | | | | |
| Term Deposits | | $ | 10,000 | | | $ | 32,647 | |
| Total | | $ | 10,000 | | | $ | 55,299 | |
The gross unrealized gains on our marketable securities were not material as of June 30, 2022.
Term deposits are considered a level 2 financial instrument as they are measured using valuation techniques based on observable market data.
The following table classifies our marketable securities by contractual maturities:
| | | | | | | | | | | | | | |
| | Held-to-maturity | | Available-for-sale |
| | June 30, 2022 |
| | | | |
| | (in thousands) |
| Due in one year | | $ | 10,000 | | | $ | — | |
| Due in one to five years | | $ | — | | | $ | — | |
| Total | | $ | 10,000 | | | $ | — | |
Note 4. Trade Receivables
The following table shows the breakdown in trade receivables net book value for the presented periods:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| | | |
| (in thousands) |
| Trade accounts receivables | $ | 541,131 | | | $ | 627,379 | |
| (Less) Allowance for credit losses | (50,488) | | | (45,391) | |
| Net book value at end of period | $ | 490,643 | | | $ | 581,988 | |
Changes in allowance for credit accounts are summarized below:
| | | | | | | | | | | |
| 2022 | | 2021 |
| | | |
| (in thousands) |
| Balance at January 1 | $ | (45,391) | | | $ | (39,899) | |
| | | |
| Allowance for credit losses | (11,551) | | | (6,617) | |
| Reversal of provision | 4,474 | | | 3,469 | |
| Currency translation adjustment | 1,980 | | | 454 | |
| Balance at June 30 | $ | (50,488) | | | $ | (42,593) | |
We write off accounts receivable balances once the receivables are no longer deemed collectible.
During the six month period ended June 30, 2022, and June 30, 2021, the Company recovered $4.5 million, and $1.7 million, respectively, previously reserved for, and accounted for this as a reversal of provision.
As of June 30, 2022 and December 31, 2021 no customer accounted for 10% or more of trade receivables.
Note 5. Other Current Assets
The following table shows the breakdown in other current assets net book value for the presented periods:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| | | |
| (in thousands) |
| Prepayments to suppliers | $ | 8,231 | | | $ | 9,640 | |
| Other debtors | 2,224 | | | 9,259 | |
| Prepaid expenses | 26,127 | | | 15,283 | |
| Derivative instruments | 2,658 | | | — | |
| Net book value at end of period | $ | 39,240 | | | $ | 34,182 | |
Prepaid expenses mainly consist of cash paid related to SaaS arrangements.
Note 6. Other Current Liabilities
Other current liabilities are presented in the following table:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| | | |
| (in thousands) |
| Current liabilities to clients | $ | 16,978 | | | $ | 16,423 | |
| Rebates | 15,091 | | | 17,423 | |
| Accounts payable relating to capital expenditures | 9,501 | | | 4,507 | |
| Other creditors | 2,136 | | | 1,088 | |
| Deferred revenue | 684 | | | 82 | |
| Total | $ | 44,390 | | | $ | 39,523 | |
Note 7. Leases
The components of lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | June 30, 2021 |
| Offices | | Data Centers | | Total | | Offices | | Data Centers | | Total |
| (in thousands) |
| Lease expense | $ | 4,343 | | | $ | 5,029 | | | $ | 9,372 | | | $ | 6,874 | | | $ | 6,460 | | | $ | 13,334 | |
| Short term lease expense | 204 | | | 2 | | | 206 | | | 125 | | | 7 | | | 132 | |
| Variable lease expense | 25 | | | 86 | | | 111 | | | 100 | | | 129 | | | 229 | |
| Sublease income | (263) | | | — | | | (263) | | | (288) | | | — | | | (288) | |
| Total operating lease expense | $ | 4,309 | | | $ | 5,117 | | | $ | 9,426 | | | $ | 6,811 | | | $ | 6,596 | | | $ | 13,407 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | June 30, 2021 |
| Offices | | Data Centers | | Total | | Offices | | Data Centers | | Total |
| (in thousands) |
| Lease expense | $ | 8,752 | | | $ | 10,236 | | | $ | 18,988 | | | $ | 13,417 | | | $ | 12,858 | | | $ | 26,275 | |
| Short term lease expense | 355 | | | 5 | | | 360 | | | 201 | | | 14 | | | 215 | |
| Variable lease expense | 75 | | | 91 | | | 166 | | | 244 | | | 202 | | | 446 | |
| Sublease income | (435) | | | | | (435) | | | (476) | | | — | | | (476) | |
| Total operating lease expense | $ | 8,747 | | | $ | 10,332 | | | $ | 19,079 | | | $ | 13,386 | | | $ | 13,074 | | | $ | 26,460 | |
As of June 30, 2022, we have additional operating leases, that have not yet commenced which will result in additional operating lease liabilities and right of use assets:
| | | | | | | | | | | | | |
| | Offices | Data Centers |
| | (in thousands) |
| Additional operating lease liabilities | | $ | — | | $ | 6,271 | | | |
| Additional right of use assets | | $ | — | | $ | 6,271 | | | |
These operating leases will commence during the fiscal year ending December 31, 2022 and December 31, 2023.
Note 8. Employee Benefits
Defined Benefit Plans
According to the French law and the Syntec Collective Agreement, French employees are entitled to compensation paid on retirement.
The following table summarizes the changes in the projected benefit obligation:
| | | | | |
| Projected benefit obligation |
| (in thousands) |
Projected benefit obligation present value at January 1, 2021 | $ | 6,167 | |
Service cost | 1,324 | |
Interest cost | 51 | |
Actuarial losses (gains) | (1,543) | |
| |
Currency translation adjustment | (468) | |
Projected benefit obligation present value at December 31, 2021 | $ | 5,531 | |
Service cost | 539 | |
Interest cost | 37 | |
Actuarial losses (gains) | (2,535) | |
| |
Currency translation adjustment | (359) | |
Projected benefit obligation present value at June 30, 2022 | $ | 3,213 | |
The Company does not hold any plan assets for any of the periods presented.
The main assumptions used for the purposes of the actuarial valuations are listed below:
| | | | | | | | | | | |
| Six Months Ended | | Year ended |
| June 30, 2022 | | December 31, 2021 |
Discount rate (Corp AA) | 3.75% | | 1.40% |
Expected rate of salary increase | 5% | | 5% |
Expected rate of social charges | 49% - 50% | | 49% - 50% |
Expected staff turnover | —% - 17.8% | | —% - 17.8% |
Estimated retirement age | Progressive table | | Progressive table |
Life table | TH-TF 2000-2002 shifted | | TH-TF 2000-2002 shifted |
Defined Contribution Plans
The total expense represents contributions payable to these plans by us at specified rates.
In some countries, the Group’s employees are eligible for pension payments and similar financial benefits. The Group provides these benefits via defined contribution plans. Under defined contribution plans, the Group has no obligation other than to pay the agreed contributions, with the corresponding expense charged to income for the year. The main contributions concern France, the United States (for 401k plans), and the United Kingdom.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended | | |
| June 30,
2022 | | June 30,
2021 | June 30,
2022 | | June 30,
2021 | | | | |
| (in thousands) |
Defined contributions plans included in personnel expenses | $ | (6,278) | | | $ | (3,447) | | $ | (10,136) | | | $ | (9,000) | | | | | |
Note 9. Revenue
Disaggregation of revenue
The following table presents our disaggregated revenues:
| | | | | | | | | | | | | | | | | |
| Marketing Solutions | | Retail Media | | Total |
| For the three months ended | (in thousands) |
| | | | | |
| June 30, 2022 | $ | 440,423 | | | $ | 54,667 | | | $ | 495,090 | |
| June 30, 2021 | $ | 487,465 | | | $ | 63,846 | | | $ | 551,311 | |
| | | | | | | | | | | | | | | | | |
| Marketing Solutions | | Retail Media | | Total |
| For the six months ended | (in thousands) |
| | | | | |
| June 30, 2022 | $ | 904,311 | | | $ | 101,346 | | | $ | 1,005,657 | |
| June 30, 2021 | $ | 970,655 | | | $ | 121,733 | | | $ | 1,092,388 | |
Note 10. Share-Based Compensation
Criteo's board of directors ("board of directors") has been authorized by the general meeting of the shareholders to grant employee warrants (Bons de Souscription de Parts de Créateur d’Entreprise or "BSPCEs"), share options (Options de Souscription d'Actions or "OSAs"), restricted share units ("RSUs") and non-employee warrants (Bons de Souscription d'Actions or "BSAs").
During the three months ended June 30, 2022, there was one grant of RSUs under the Employee Share Option Plan 14 as defined in Note 20 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
On February 24, 2022, 348,133 RSUs were granted to Criteo employees subject to continued employment and 384,277 PSUs were granted to members of the management subject to continued employment.
On April 28, 2022 1,626,911 RSUs were granted to Criteo employees subject to continued employment and 79,907 PSUs were granted to members of the management subject to continued employment.
There have been no changes in the vesting and method of valuation of the BSPCEs, OSAs, RSUs, or BSAs from what was disclosed in Note 19 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.
Change in number of outstanding BSPCE / OSA / RSU / BSA
| | | | | | | | | | | | | | | | | | | | | | | |
| OSA/BSPCE | | RSU/PSU | | BSA | | Total |
| Balance at January 1, 2022 | 570,801 | | | 5,299,356 | | | 343,775 | | | 6,213,932 | |
| Granted | — | | | 2,439,227 | | | — | | | 2,439,227 | |
| Exercised (OSA/BSPCE/BSA) | (39,711) | | | — | | | — | | | (39,711) | |
| Vested (RSU) | — | | | (932,135) | | | — | | | (932,135) | |
| Forfeited | (100,860) | | | (705,462) | | | — | | | (806,322) | |
| Expired | — | | | — | | | — | | | — | |
| Balance at June 30, 2022 | 430,230 | | | 6,100,986 | | | 343,775 | | | 6,874,991 | |
Breakdown of the Closing Balance
| | | | | | | | | | | | | | | | | |
| OSA/BSPCE | | RSU | | BSA |
| | | | | |
| Number outstanding | 430,230 | | | 6,100,986 | | | 343,775 | |
| Weighted-average exercise price | € | 21.07 | | | NA | | € | 15.12 | |
| Number vested | 281,242 | | | — | | | 291,645 | |
| Weighted-average exercise price | € | 23.84 | | | NA | | € | 15.45 | |
| Weighted-average remaining contractual life of options outstanding, in years | 4.95 | | NA | | 5.29 |
Reconciliation with the Unaudited Consolidated Statements of Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | June 30, 2021 |
| (in thousands) |
| R&D | | S&O | | G&A | | Total | | R&D | | S&O | | G&A | | Total |
| RSUs | $ | (5,577) | | | $ | (2,709) | | | $ | (3,341) | | | $ | (11,627) | | | $ | (4,218) | | | $ | (3,559) | | | $ | (3,183) | | | $ | (10,960) | |
| Share options / BSPCE | — | | | 157 | | | (79) | | | 78 | | | — | | | (77) | | | (189) | | | (266) | |
| Total share-based compensation | (5,577) | | | (2,552) | | | (3,420) | | | (11,549) | | | (4,218) | | | (3,636) | | | (3,372) | | | (11,226) | |
| BSAs | — | | | — | | | (472) | | | (472) | | | — | | | — | | | (444) | | | (444) | |
| Total equity awards compensation expense | $ | (5,577) | | | $ | (2,552) | | | $ | (3,892) | | | $ | (12,021) | | | $ | (4,218) | | | $ | (3,636) | | | $ | (3,816) | | | $ | (11,670) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | June 30, 2021 |
| (in thousands) |
| R&D | | S&O | | G&A | | Total | | R&D | | S&O | | G&A | | Total |
| RSUs | $ | (9,545) | | | $ | (5,320) | | | $ | (5,745) | | | $ | (20,610) | | | $ | (6,714) | | | $ | (5,208) | | | $ | (5,471) | | | $ | (17,393) | |
| Share options / BSPCE | — | | | 202 | | | (182) | | | 20 | | | — | | | (182) | | | (411) | | | (593) | |
| Total share-based compensation | (9,545) | | | (5,118) | | | (5,927) | | | (20,590) | | | (6,714) | | | (5,390) | | | (5,882) | | | (17,986) | |
| BSAs | — | | | — | | | (920) | | | (920) | | | — | | | — | | | (899) | | | (899) | |
| Total equity awards compensation expense | $ | (9,545) | | | $ | (5,118) | | | $ | (6,847) | | | $ | (21,510) | | | $ | (6,714) | | | $ | (5,390) | | | $ | (6,781) | | | $ | (18,885) | |
Note 11. Financial and Other Income and Expenses
The condensed consolidated statements of income line item “Financial income (expense)” can be broken down as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30,
2022 | | June 30,
2021 | | June 30,
2022 | | June 30,
2021 |
| (in thousands) |
| | | | | | | |
| Financial income from cash equivalents | $ | 240 | | | $ | 198 | | | $ | 373 | | | $ | 326 | |
| Interest and fees | (422) | | | (506) | | | (969) | | | (1,046) | |
| Interest on debt | (214) | | | (464) | | | (744) | | | (881) | |
| Fees | (208) | | | (42) | | | (225) | | | (165) | |
| Foreign exchange gain (loss) | 16,126 | | | (521) | | | 20,589 | | | (1,319) | |
| Other financial expense | 468 | | | 310 | | | 449 | | | 802 | |
| Total Financial and Other income (expense) | $ | 16,412 | | | $ | (519) | | | $ | 20,442 | | | $ | (1,237) | |
The $16.4 million financial and other income and the $20.4 million financial and other income for the three months and six months ended June 30, 2022 respectively, were driven by the recognition of a positive impact of foreign exchange reevaluations net of related hedging and the up-front fees amortization, the non-utilization costs, and the financial expense relating to our available Revolving Credit Facility ("RCF") financing.
At June 30, 2022, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps or forward purchases or sales of foreign currencies.
Note 12. Income Taxes
Breakdown of Income Taxes
The tax provision for interim periods is determined using an estimate of our annual effective tax rate (“AETR”), adjusted for discrete items arising in the period. To calculate our estimated AETR, we estimate our income before taxes and the related tax expense or benefit for the full fiscal year (total of expected current and deferred tax provisions), excluding the effect of significant unusual or infrequently occurring items or comprehensive income items not recognized in the statement of income. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated annual tax rate does change, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions and the changes in foreign exchange rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside of France.
The condensed consolidated statements of income line item “Provision for income taxes” can be broken down as follows:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | June 30, 2021 |
| (in thousands) |
| Current income tax | $ | (10,407) | | | $ | (11,927) | |
| Net change in deferred taxes | 7,114 | | | (2,305) | |
| Provision for income taxes | $ | (3,293) | | | $ | (14,232) | |
For the six months ended June 30, 2022 and June 30, 2021, we used an annual estimated tax rate of 39% and 27%, respectively, to calculate the provision for income taxes. The increase in 2022 was mainly driven by the impact of the accrual booked for the loss contingency related to the CNIL matter as described in Note 14.
Current tax assets and liabilities
The total amount of current tax assets and liabilities consists mainly of prepayments of income taxes and credits of Criteo S.A., Criteo Corp., and Criteo GmbH.
Note 13. Earnings Per Share
Basic Earnings Per Share
We calculate basic earnings per share by dividing the net income (loss) for the period attributable to shareholders of the Parent by the weighted average number of shares outstanding.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Net income (loss) attributable to shareholders of Criteo S.A. | | $ | (33,614) | | | $ | 14,804 | | | $ | (13,027) | | | $ | 37,210 | |
| Weighted average number of shares outstanding | | 60,240,344 | | | 60,663,301 | | | 60,488,429 | | | 60,702,780 | |
| Basic earnings (loss) per share | | $ | (0.56) | | | $ | 0.24 | | | $ | (0.22) | | | $ | 0.61 | |
Diluted Earnings Per Share
We calculate diluted earnings per share by dividing the net income (loss) attributable to shareholders of the Parent by the weighted average number of shares outstanding plus any potentially dilutive shares not yet issued from share-based compensation plans (see Note 10). There were no other potentially dilutive instruments outstanding as of June 30, 2022 and June 30, 2021. Consequently, all potential dilutive effects from shares are considered.
For each period presented, a contract to issue a certain number of shares (i.e., share option, non-employee warrant, employee warrant ("BSPCE")) is assessed as potentially dilutive if it is “in the money” (i.e., the exercise or settlement price is lower than the average market price).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30,
2021 | | June 30, 2022 | | June 30, 2021 |
| Net income (loss) attributable to shareholders of Criteo S.A. | | $ | (33,614) | | | $ | 14,804 | | | $ | (13,027) | | | $ | 37,210 | |
| Weighted average number of shares outstanding of Criteo S.A. | | 60,240,344 | | | 60,663,301 | | | 60,488,429 | | | 60,702,780 | |
| Dilutive effect of : | | | | | | | | |
| Restricted share awards ("RSUs") | | 1,899,561 | | | 3,384,757 | | | 2,245,545 | | | 3,178,570 | |
| Share options and BSPCE | | 87,920 | | | 495,536 | | | 133,506 | | | 395,803 | |
| Share warrants | | 75,845 | | | 121,618 | | | 90,238 | | | 94,450 | |
| Weighted average number of shares outstanding used to determine diluted earnings per share | | 62,303,670 | | | 64,665,212 | | | 62,957,718 | | | 64,371,603 | |
| Diluted earnings (loss) per share | | $ | (0.54) | | | $ | 0.23 | | | $ | (0.21) | | | $ | 0.58 | |
The weighted average number of securities that were anti-dilutive for diluted EPS for the periods presented but which could potentially dilute EPS in the future are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | | | | | | | |
| Restricted share awards | | 384,938 | | | 858,511 | | | 221,889 | | | 595,406 | |
| Share options and BSPCE | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Weighted average number of anti-dilutive securities excluded from diluted earnings per share | | 384,938 | | | 858,511 | | | 221,889 | | | 595,406 | |
Note 14. Commitments and contingencies
Commitments
Revolving Credit Facilities, Credit Line Facilities and Bank Overdrafts
We are party to an RCF with a syndicate of banks which allows us to draw up to €294.0 million ($305.4 million).
We are also party to short-term credit lines and overdraft facilities with HSBC plc, BNP Paribas and LCL with an authorization to draw up to a maximum of €21.5 million ($22.3 million) in the aggregate under the short-term credit lines and overdraft facilities. As of June 30, 2022, we had not drawn on any of these facilities. Any loans or overdrafts under these short-term facilities bear interest based on the one month EURIBOR rate or three month EURIBOR rate. As these facilities are exclusively short-term credit and overdraft facilities, our banks have the ability to terminate such facilities on short notice.
Contingencies
Changes in provisions during the presented periods are summarized below: | | | | | | | | | | | | | | | | | | | | |
| | Provision for employee-related litigation | | Other provisions | | Total |
| | (in thousands) |
| Balance at January 1, 2022 | | $ | 1,117 | | | $ | 1,942 | | | $ | 3,059 | |
| Increase | | 60 | | | 65,719 | | | 65,779 | |
| Provision used | | (77) | | | (311) | | | (388) | |
| Provision released not used* | | (63) | | | (46) | | | (109) | |
| Currency translation adjustments | | (111) | | | (3,499) | | | (3,610) | |
| | | | | | |
| Balance at June 30, 2022 | | $ | 926 | | | $ | 63,805 | | | $ | 64,731 | |
| - of which current | | 926 | | | 63,805 | | | 64,731 | |
*Due to changes in management's latest estimates
The amount of the provisions represents management’s latest estimate of the expected impact.
Regulatory matters
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2021, in November 2018, Privacy International filed a complaint with certain data protection authorities, including France's Commission Nationale de l'Informatique et des Libertés ("CNIL"), against Criteo and a number of other similarly situated advertising technology companies, arguing that certain of these companies' practices were not in compliance with the European Union's General Data Protection Regulation ("GDPR"). In January 2020, CNIL opened a formal investigation into Criteo in response to this complaint, and on June 23, 2021, CNIL notified the Company of the appointment of an investigator (rapporteur) for the ongoing investigation. The investigation also covers another complaint against Criteo received in November 2018 by CNIL from the European Center for Digital Rights ("NOYB").
On August 3, 2022, the assigned rapporteur issued a report that claimed certain GDPR violations, in particular relating to the Company’s contractual relationships with its advertisers and publishers with respect to consent collection oversight. The report includes a proposed financial sanction against the Company of €60.0 million ($65.4 million). Under the CNIL sanction procedures, Criteo has the right to respond in writing to the report, both with respect to the GDPR findings and the value of the sanction, following which there will be a formal hearing before the CNIL Sanction Committee. The CNIL Sanction Committee will then issue a draft decision that will be submitted for consultation to other European data protection authorities as part of the cooperation mechanism mandated by GDPR. Any final decision on resolution and potential financial penalties would likely not occur until 2023.
Pursuant to U.S. GAAP, we establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and these accruals are reviewed and adjusted each quarter based on the information available at that time.
Given the receipt of this report, which included a proposed sanction penalty of €60.0 million ($65.4 million), we have accounted for the proposed penalty as a provision for a loss contingency, which is reflected in our financial statements for the period ended as of June 30, 2022 as general and administrative expenses. Such amount could be lower or higher based on the final resolution and merits of the claims made in the report.
Note 15. Breakdown of Revenue and Non-Current Assets by Geographical Areas
The Company operates in the following three geographical markets:
• Americas (North and South America);
• EMEA (Europe, Middle-East and Africa); and
• Asia-Pacific.
The following tables disclose our consolidated revenue for each geographical area for each of the reported periods. Revenue by geographical area is based on the location of advertisers’ campaigns.
| | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | EMEA | | Asia-Pacific | | Total |
| For the three months ended: | (in thousands) |
| | | | | | | |
| June 30, 2022 | $ | 213,340 | | | $ | 176,867 | | | $ | 104,883 | | | $ | 495,090 | |
| June 30, 2021 | $ | 221,227 | | | $ | 209,303 | | | $ | 120,781 | | | $ | 551,311 | |
Revenue generated in France, the country of incorporation of the Parent, amounted to $29.3 million and $39.1 million for the three months ended June 30, 2022 and 2021, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | EMEA | | Asia-Pacific | | Total |
| For the six months ended: | (in thousands) |
| | | | | | | |
| June 30, 2022 | $ | 408,187 | | | $ | 370,821 | | | $ | 226,649 | | | $ | 1,005,657 | |
| June 30, 2021 | $ | 425,127 | | | $ | 421,399 | | | $ | 245,862 | | | $ | 1,092,388 | |
Revenue generated in France amounted to $60.1 million and $76.9 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
Revenue generated in other significant countries where we operate is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | (in thousands) |
| | | | | | | | |
| Americas | | | | | | | | |
| United States | | $ | 190,018 | | | $ | 196,579 | | | $ | 361,882 | | | $ | 380,663 | |
| EMEA | | | | | | | | |
| Germany | | $ | 48,639 | | | $ | 53,051 | | | $ | 104,094 | | | $ | 106,647 | |
| United Kingdom | | $ | 18,006 | | | $ | 22,112 | | | $ | 36,653 | | | $ | 45,404 | |
| Asia-Pacific | | | | | | | | |
| Japan | | $ | 61,844 | | | $ | 74,791 | | | $ | 139,819 | | | $ | 159,003 | |
Other Information
For each reported period, non-current assets (corresponding to the net book value of tangible and intangible assets, excluding right of use assets related to lease agreements) are presented in the table below. The geographical information includes results from the locations of legal entities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Of which | | | | | | Of which | | |
| Holding | | Americas | | United States | | EMEA | | Asia-Pacific | | Japan | Singapore | | Total |
| (in thousands) |
| | | | | | | | | | | | | | |
| June 30, 2022 | $ | 90,037 | | | $ | 79,952 | | | $ | 78,515 | | | $ | 4,868 | | | $ | 27,294 | | | $ | 10,234 | | $ | 13,231 | | | $ | 202,151 | |
| December 31, 2021 | $ | 97,627 | | | $ | 84,954 | | | $ | 83,843 | | | $ | 6,036 | | | $ | 33,971 | | | $ | 14,159 | | $ | 15,650 | | | $ | 222,588 | |
Note 16. Related Parties
There were no significant related-party transactions pursuant to ASC 850 during the period nor any change in the nature of the transactions as described in Note 25 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Note 17. Subsequent Events
CNIL Investigation
In connection with the previously disclosed investigation by CNIL, on August 3, 2022, the assigned rapporteur issued a report that claimed certain GDPR violations. The report includes a proposed financial sanction against the Company of €60.0 million ($65.4 million). A final decision on resolution and potential financial penalties would likely not occur until 2023. Refer to Note 14. Commitments and contingencies for more information.
Completion of the Acquisition of IPONWEB
On August 1, 2022, the Company, IPONWEB Holding Limited (“IPONWEB”), Exezars Limited (a subsidiary of IPONWEB and collectively with IPONWEB, the “Sellers”), Mr. Ljubisa Bogunovic, in his capacity as trustee of the “IW General Management Trust” (the “Trustee”) and Mr. Boris Mouzykantskii, founder and Chief Executive Officer of IPONWEB (the “Founder”) entered into an amended and restated Framework Purchase Agreement (the “A&R Purchase Agreement”), amending and restating the previously disclosed framework purchase agreement, dated December 22, 2021, which provided for the acquisition of the business of IPONWEB by the Company (the “Acquisition”).
The Acquisition was consummated on August 1, 2022 and the Company funded the purchase price of the Acquisition with (i) approximately $180 million of cash on hand, which is subject to certain adjustments including for working capital, other current assets and current liabilities and net indebtedness and (ii) treasury shares of the Company corresponding to a total value at closing of approximately $70 million. The A&R Purchase Agreement, also provides for contingent consideration payable in cash to the Founder in an amount up to $100 million, conditioned upon the achievement of certain revenue targets by the Company for the 2022 and 2023 fiscal year. The acquisition will accelerate Criteo's plans to shape the future of Commerce Media on the open internet. We will complete the initial accounting for the acquisition of IPONWEB, including the allocation of purchase consideration, during the third quarter of 2022.
On July 29, 2022, the Company drew down €50 million ($51.1 million) under the RCF for a one month period to provide additional liquidity in connection with the closing of the IPONWEB Acquisition.
Condensed Consolidated Statements of Income Data (Unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| (in thousands, except share and per share data) |
| | | | | | | | |
| Revenue | | $ | 495,090 | | | $ | 551,311 | | | $ | 1,005,657 | | | $ | 1,092,388 | |
| | | | | | | | |
Cost of revenue (1) | | | | | | | | |
| Traffic acquisition costs | | (280,565) | | | (331,078) | | | (574,215) | | | (658,745) | |
| Other cost of revenue | | (29,550) | | | (37,364) | | | (62,443) | | | (72,076) | |
| Gross profit | | 184,975 | | | 182,869 | | | 368,999 | | | 361,567 | |
| | | | | | | | |
| Operating expenses | | | | | | | | |
Research and development expenses (1) | | (41,496) | | | (41,915) | | | (75,523) | | | (73,612) | |
Sales and operations expenses (1) | | (99,313) | | | (80,751) | | | (188,312) | | | (160,105) | |
General and administrative expenses (1) | | (100,672) | | | (40,474) | | | (134,008) | | | (73,902) | |
| Total operating expenses | | (241,481) | | | (163,140) | | | (397,843) | | | (307,619) | |
| Income from operations | | (56,506) | | | 19,729 | | | (28,844) | | | 53,948 | |
| Financial and Other income (expense) | | 16,412 | | | (519) | | | 20,442 | | | (1,237) | |
| Income before taxes | | (40,094) | | | 19,210 | | | (8,402) | | | 52,711 | |
| Provision for income taxes | | 7,121 | | | (4,181) | | | (3,293) | | | (14,232) | |
| Net income | | $ | (32,973) | | | $ | 15,029 | | | $ | (11,695) | | | $ | 38,479 | |
| Net income available to shareholders of Criteo S.A. | | $ | (33,614) | | | $ | 14,804 | | | $ | (13,027) | | | $ | 37,210 | |
| | | | | | | | |
| | | | | | | | |
| Net income allocated to shareholders per share: | | | | | | | | |
| Basic | | $ | (0.56) | | | $ | 0.24 | | | $ | (0.22) | | | $ | 0.61 | |
| Diluted | | $ | (0.54) | | | $ | 0.23 | | | $ | (0.21) | | | $ | 0.58 | |
| | | | | | | | |
| Weighted average shares outstanding used in computing per share amounts: | | | | | | | | |
| Basic | | 60,240,344 | | | 60,663,301 | | | 60,488,429 | | | 60,702,780 | |
| Diluted | | 62,303,670 | | | 64,665,212 | | | 62,957,718 | | | 64,371,603 | |
(1)Cost of revenue and operating expenses include equity awards compensation expense, pension service costs, depreciation and amortization expense, restructuring related and transformation costs, and acquisition-related costs:
Detailed Information on Selected Items (unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| (in thousands) |
| Equity awards compensation expense | | | | | | | | |
| Research and development expenses | | $ | 5,578 | | | $ | 4,218 | | | $ | 9,545 | | | $ | 6,714 | |
| Sales and operations expenses | | 2,550 | | | 3,636 | | | 5,118 | | | 6,005 | |
| General and administrative expenses | | 3,892 | | | 3,815 | | | 6,847 | | | 6,832 | |
| Total equity awards compensation expense | | $ | 12,020 | | | $ | 11,669 | | | $ | 21,510 | | | $ | 19,551 | |
| | | | | | | | |
| Pension service costs | | | | | | | | |
| Research and development expenses | | 136 | | | 175 | | | 278 | | | 350 | |
| Sales and operations expenses | | 39 | | | 53 | | | 79 | | | 106 | |
| General and administrative expenses | | 89 | | | 109 | | | 182 | | | 219 | |
Total pension service costs (a) | | $ | 264 | | | $ | 337 | | | $ | 539 | | | $ | 675 | |
| | | | | | | | |
| Depreciation and amortization expense | | | | | | | | |
| Cost of revenue (data center equipment) | | 12,625 | | | 15,744 | | | 27,257 | | | 30,988 | |
Research and development expenses (b) | | 3,181 | | | 2,207 | | | 6,474 | | | 3,960 | |
Sales and operations expenses (c) | | 3,729 | | | 3,702 | | | 7,338 | | | 7,656 | |
| General and administrative expenses | | 606 | | | 838 | | | 1,216 | | | 1,741 | |
| Total depreciation and amortization expense | | $ | 20,141 | | | $ | 22,491 | | | $ | 42,285 | | | $ | 44,345 | |
| | | | | | | | |
| Acquisition-related costs | | | | | | | | |
| | | | | | | | |
| Sales and operations | | 178 | | | — | | | 178 | | | — | |
| General and administrative expenses | | 1,799 | | | 3,047 | | | 4,343 | | | 3,047 | |
| Total acquisition-related costs | | $ | 1,977 | | | $ | 3,047 | | | $ | 4,521 | | | $ | 3,047 | |
| | | | | | | | |
| Loss contingency on regulatory matter | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| General and administrative | | 65,684 | | | — | | | 65,684 | | | — | |
| Total loss contingency on regulatory matter | | $ | 65,684 | | | $ | — | | | $ | 65,684 | | | $ | — | |
| | | | | | | | |
Restructuring related and transformation (gain) costs | | | | | | | | |
| Research and development expenses | | 1,029 | | | 4,831 | | | 1,038 | | | 6,267 | |
| Sales and operations expenses | | 4,076 | | | 1,551 | | | 4,532 | | | 8,918 | |
| General and administrative expenses | | 820 | | | 3,614 | | | 1,065 | | | 6,447 | |
| Total Restructuring related and transformation (gain) costs | | $ | 5,925 | | | $ | 9,996 | | | $ | 6,635 | | | $ | 21,632 | |
| | | | | | | | |
(a) Effective January 1, 2012, actuarial gains and losses are recognized in other comprehensive income.
(b) Includes acquisition-related amortization of intangible assets of $1.5 million and $0.7 million for the three months ended June 30, 2022 and 2021, respectively and $2.9 million and $1.5 million for the six months ended June 2022 and, 2020, respectively.
(c) Includes acquisition-related amortization of intangible assets of $2.2 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively and $4.3 million and $4.4 million for the six months ended June 30, 2022 and 2021, respectively.
Detailed Information on Restructuring related and Transformation costs (unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| (in thousands) |
| (Gain) from forfeitures of share-based compensation awards | — | | | — | | | — | | | (666) | |
| | | | | | | | |
| Facilities related (gain) costs | | 753 | | | 9,721 | | | 1,286 | | | 16,337 | |
| Payroll related (gain) costs | | 4,992 | | | (181) | | | 4,992 | | | 4,971 | |
| Consulting costs related to transformation | | 180 | | | 456 | | | 357 | | | 990 | |
| Total restructuring related and transformation (gain) costs | $ | 5,925 | | | $ | 9,996 | | | $ | 6,635 | | | $ | 21,632 | |
For the three months ended and the six months ended June 30, 2022 and June 30, 2021, respectively, the cash outflows related to restructuring related and transformation costs were $2.3 million, and $10.3 million and $3.1 million, and $16.5 million, respectively, and were mainly comprised of payroll costs, broker and termination penalties related to real-estate facilities and other consulting fees.
Consolidated Statements of Financial Position Data (unaudited):
| | | | | | | | | | | |
| June 30, 2022 | | December 31,
2021 |
| | | |
| (in thousands) |
| Cash and cash equivalents | $ | 562,546 | | | $ | 515,527 | |
| Total assets | 1,870,844 | | | 1,983,591 | |
Trade receivables, net of credit losses | 490,643 | | | 581,988 | |
| Total financial liabilities | 589 | | | 1,002 | |
| Total liabilities | 760,656 | | | 785,271 | |
| Total equity | $ | 1,110,188 | | | $ | 1,198,320 | |
Other Financial and Operating Data (unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| (in thousands, except client data) |
| Number of clients | | 21,711 | | | 21,332 | | | 21,711 | | | 21,332 | |
Contribution ex-TAC (3) | | $ | 214,525 | | | $ | 220,233 | | | $ | 431,442 | | | $ | 433,643 | |
| | | | | | | | |
| | | | | | | | |
Adjusted Net Income (4) | | $ | 23,027 | | | $ | 40,856 | | | $ | 56,801 | | | $ | 84,008 | |
Adjusted EBITDA (5) | | $ | 49,993 | | | $ | 67,269 | | | $ | 112,818 | | | $ | 143,198 | |
(3) We define Contribution ex-TAC as a profitability measure akin to gross profit. It is calculated by deducting traffic acquisition costs from revenue and reconciled to gross profit through the exclusion of other cost of revenue. Contribution ex-TAC is not a measure calculated in accordance with U.S. GAAP. We have included Contribution ex-TAC 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. In particular, we believe that this measure can be useful for measuring for period-to-period comparisons of our business. Accordingly, we believe that Contribution ex-TAC 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 Contribution ex-TAC 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 Contribution 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 Contribution ex-TAC alongside our other U.S. GAAP financial result measures. The below table provides a reconciliation of Contribution ex-TAC to gross profit:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | | | | | | | |
| | (in thousands, except client data) |
| Gross Profit | | $ | 184,975 | | | $ | 182,869 | | | $ | 368,999 | | | $ | 361,567 | |
| | | | | | | | |
| Other Cost of Revenue | | $ | 29,550 | | | 37,364 | | | 62,443 | | | 72,076 | |
| | | | | | | | |
Contribution ex-TAC (1) | | $ | 214,525 | | | $ | 220,233 | | | $ | 431,442 | | | $ | 433,643 | |
(4) 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 related and transformation costs and, acquisition-related costs, certain other non-recurring items impacting net income (loss), 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 in this Form 10-Q 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, restructuring related and transformation costs and, acquisition-related costs, certain other non-recurring items impacting net income (loss) 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 core 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 financial results, including net income. The following table presents a reconciliation of Adjusted Net Income to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | (in thousands) |
| Net income (loss) | | $ | (32,973) | | | $ | 15,029 | | | $ | (11,695) | | | $ | 38,479 | |
| Adjustments: | | | | | | | | |
| Equity awards compensation expense | | 12,020 | | | 11,669 | | | 21,510 | | | 19,551 | |
| Amortization of acquisition-related intangible assets | | 3,614 | | | 2,936 | | | 7,322 | | | 5,871 | |
| Acquisition-related costs | | 1,977 | | | 3,047 | | | 4,521 | | | 3,047 | |
| Loss contingency on regulatory matter* | | 65,684 | | | — | | | 65,684 | | | — | |
| Restructuring related and transformation (gain) costs | | 5,925 | | | 9,996 | | | 6,635 | | | 21,632 | |
| Tax impact of the above adjustments | | (33,220) | | | (1,821) | | | (37,176) | | | (4,572) | |
| Adjusted Net Income | | $ | 23,027 | | | $ | 40,856 | | | $ | 56,801 | | | $ | 84,008 | |
* The Company recorded a provision for a loss contingency on a regulatory matter with France's Commission Nationale de l'Informatique et des Libertés ("CNIL"). Refer to Note 14 of our financial statement notes for more information. We consider that the loss contingency relating to one regulatory matter is non-recurring and is not reflective of the underlying past and future trends in our business.
(5) 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 related and transformation costs and, acquisition-related costs and certain other non-recurring items impacting net income (loss). Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted EBITDA in this Form 10-Q 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 and long-term operational plans. In particular, we believe that the elimination of equity awards compensation expense, pension service costs, restructuring related and transformation costs and, acquisition-related costs and certain other non-recurring items impacting net income (loss) in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core 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 other U.S. GAAP financial results, including net income. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | (in thousands) |
| Net income (loss) | | $ | (32,973) | | | $ | 15,029 | | | $ | (11,695) | | | $ | 38,479 | |
| Adjustments: | | | | | | | | |
| Financial income (expense) | | (15,924) | | | 519 | | | (19,954) | | | 1,237 | |
| Provision for income taxes | | (7,121) | | | 4,181 | | | 3,293 | | | 14,232 | |
| Equity awards compensation expense | | 12,020 | | | 11,669 | | | 21,510 | | | 19,551 | |
| Pension service costs | | 264 | | | 337 | | | 539 | | | 675 | |
| Depreciation and amortization expense | | 20,141 | | | 22,491 | | | 42,285 | | | 44,345 | |
| Acquisition-related costs | | 1,977 | | | 3,047 | | | 4,521 | | | 3,047 | |
| Loss contingency on regulatory matter* | | 65,684 | | | — | | | 65,684 | | | — | |
| Restructuring related and transformation (gain) costs | | 5,925 | | | 9,996 | | | 6,635 | | | 21,632 | |
| Total net adjustments | | 82,966 | | | 52,240 | | | 124,513 | | | 104,719 | |
| Adjusted EBITDA | | $ | 49,993 | | | $ | 67,269 | | | $ | 112,818 | | | $ | 143,198 | |
* The Company recorded a provision for a loss contingency on a regulatory matter with France's Commission Nationale de l'Informatique et des Libertés ("CNIL"). Refer to Note 14 of our financial statement notes for more information. We consider that the loss contingency relating to one regulatory matter is non-recurring and is not reflective of the underlying past and future trends in our business.
Results of Operations for the Periods Ended June 30, 2022 and June 30, 2021 (Unaudited)
Revenue breakdown by segment
Beginning in the first quarter of 2022 and 2021, we report our segments results as Marketing Solutions and Retail Media:
•Criteo Marketing Solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
•Criteo Retail Media solutions allow retailers to generate advertising revenues from consumer brands, and/or to drive sales for themselves, by monetizing their data and audiences through personalized ads, either on their own digital property or on the open Internet, that address multiple marketing goals.
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| (in thousands) | | |
| Revenue as reported | $ | 495,090 | | | $ | 551,311 | | | (10) | % |
| Conversion impact U.S. dollar/other currencies | $ | 38,530 | | | | | |
Revenue at constant currency (1) | $ | 533,620 | | | $ | 551,311 | | | (3) | % |
| | | | | |
| Marketing Solutions revenue as reported | $ | 440,423 | | | $ | 487,465 | | | (10) | % |
| Conversion impact U.S. dollar/other currencies | $ | 37,286 | | | | | |
Marketing Solutions revenue at constant currency (1) | 477,709 | | | 487,465 | | | (2) | % |
| | | | | |
Retail Media revenue as reported (2) | 54,667 | | | 63,846 | | | (14) | % |
| Conversion impact U.S. dollar/other currencies | $ | 1,244 | | | | | |
Retail Media revenue at constant currency (1) | 55,911 | | | 63,846 | | | (12) | % |
Revenue by segment
Revenue for the three months ended June 30, 2022 decreased (10)%, or (3)% on a constant currency basis, to $495.1 million compared to the three months ended June 30, 2021.
In the quarter, 88% of revenue came from existing clients while 12% came from new client additions. We added 379 net new clients year-over-year across regions.
Marketing Solutions revenue decreased (10)%, or (2)% on a constant currency basis, to $440.4 million for the three months ended June 30, 2022, driven by anticipated identity and privacy changes and the suspension of the Company's operations in Russia, partially offset by a rebound in travel and traction in upselling and cross-selling of existing clients.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
(2)Criteo operates as two reportable segments from December 31, 2021. The table above presents the operating results of our Marketing Solutions and Retail Media segments. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, and reported under the retail media segment, is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
Retail Media revenue decreased (14)%, or (12)% on a constant currency basis, to $54.7 million for the three months ended June 30, 2022, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the Company's platform. Criteo's platform accounts for a growing share of Retail Media onsite revenue, or about 82% in the second quarter of 2022, and its revenue is accounted for on a net basis. In the prior year period, approximately 33% of retail media onsite revenue was accounted for on a net basis, and as a result of this transition to a full platform business, the growth of Retail Media revenue has been temporarily impacted.
Reflecting the underlying economic performance, Retail Media's Contribution ex-TAC increased 36% (or 42% on a constant currency basis) in the second quarter of 2022, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the platform.
Additionally, our $495.1 million of revenue for the three months ended June 30, 2022 was negatively impacted by $38.5 million of currency fluctuations, particularly as a result of the depreciation of the Euro, Japanese Yen, British Pound, Turkish Lira, Russian Ruble and the Brazilian Real compared to the U.S. dollar.
Revenue breakdown by region
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| (in thousands) | | |
| Revenue as reported | $ | 495,090 | | | $ | 551,311 | | | (10) | % |
| Conversion impact U.S. dollar/other currencies | $ | 38,530 | | | | | |
Revenue at constant currency (1) | 533,620 | | | 551,311 | | | (3) | % |
| Americas | | | | | |
| Revenue as reported | 213,340 | | | 221,227 | | | (4) | % |
| Conversion impact U.S. dollar/other currencies | $ | (355) | | | | | |
Revenue at constant currency (1) | 212,985 | | | 221,227 | | | (4) | % |
| EMEA | | | | | |
| Revenue as reported | 176,867 | | | 209,303 | | | (15) | % |
| Conversion impact U.S. dollar/other currencies | $ | 21,826 | | | | | |
Revenue at constant currency (1) | 198,693 | | | 209,303 | | | (5) | % |
| Asia-Pacific | | | | | |
| Revenue as reported | 104,883 | | | 120,781 | | | (13) | % |
| Conversion impact U.S. dollar/other currencies | $ | 17,059 | | | | | |
Revenue at constant currency (1) | $ | 121,942 | | | $ | 120,781 | | | 1 | % |
Revenue by region
Our revenue in the Americas region decreased (4)% or (4)% on a constant currency basis to $213.3 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This primarily reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by continued strong performance of Retail Media as the platform continues to scale with large retailers and consumer brands, as well as a rebound in travel.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Our revenue in EMEA decreased (15)% (or (5)% on a constant currency basis), to $176.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting the suspension of the Company's operations in Russia and mixed retail trends with strength in Germany, emerging markets and a rebound in the U.K. offsetting softness in France. This also reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by solid traction in Retail Media.
Our revenue in the Asia-Pacific region decreased (13)% (or increased 1% on a constant currency basis), to $104.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting mixed retail trends and a slow recovery of classifieds and travel in the region.
Six months ended June 30, 2022 compared to the Six months ended June 30, 2021
Revenue breakdown by segment
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| (in thousands) | | |
| Revenue as reported | $ | 1,005,657 | | | $ | 1,092,388 | | | (8) | % |
| Conversion impact U.S. dollar/other currencies | $ | 63,719 | | | | | |
Revenue at constant currency (1) | $ | 1,069,376 | | | $ | 1,092,388 | | | (2) | % |
| | | | | |
| Marketing Solutions revenue as reported | $ | 904,311 | | | $ | 970,655 | | | (7) | % |
| Conversion impact U.S. dollar/other currencies | $ | 62,004 | | | | | |
Marketing Solutions revenue at constant currency (1) | 966,315 | | | 970,655 | | | (0.4) | % |
| | | | | |
Retail Media revenue as reported (2) | 101,346 | | | 121,733 | | | (17) | % |
| Conversion impact U.S. dollar/other currencies | $ | 1,715 | | | | | |
Retail Media revenue at constant currency (1) | 103,061 | | | 121,733 | | | (15) | % |
Revenue by segment
Revenue for the six months ended June 30, 2022 decreased (8)%, or (2)% on a constant currency basis, to $1.0 billion compared to the six months ended June 30, 2021.
In the first half of 2022, 88% of revenue came from existing clients while 12% came from new client additions. We added 379 net new clients year-over-year across regions.
Marketing Solutions revenue decreased (7)%, or (0.4)% on a constant currency basis, to $904.3 million for the six months ended June 30, 2022, driven by anticipated identity and privacy changes and the suspension of the Company's operations in Russia, partially offset by a rebound in travel and mixed retail trends.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
(2) Criteo operates as two reportable segments from December 31, 2021. The table above presents the operating results of our Marketing Solutions and Retail Media segments. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, and reported under the retail media segment, is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
Retail Media revenue decreased (17)%, or (15)% on a constant currency basis, to $101.3 million for the six months ended June 30, 2022, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the Company's platform. Criteo's platform accounts for a fast-growing share of Retail Media onsite revenue, or about 79% in the first half of 2022, and its revenue is accounted for on a net basis. In the prior year period, approximately 27% of retail media onsite revenue was accounted for on a net basis, and as a result of this transition to a full platform business, the growth of Retail Media revenue has been temporarily impacted. Reflecting the underlying economic performance, Retail Media's Contribution ex-TAC increased 40% (or 45% on a constant currency basis) for the six months ended June 30, 2022, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the platform.
Additionally, our $1,005.7 million of revenue for the six months ended June 30, 2022 was negatively impacted by $63.7 million of currency fluctuations, particularly as a result of the depreciation of the Euro, Japanese Yen, British Pound, Turkish Lira, Russian Ruble and the Brazilian Real compared to the U.S. dollar.
Six months ended June 30, 2022 compared to the Six months ended June 30, 2021
Revenue breakdown by region
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| (in thousands) | | |
| Revenue as reported | $ | 1,005,657 | | | $ | 1,092,388 | | | (8) | % |
| Conversion impact U.S dollar / other currencies | $ | 63,719 | | | | | |
Revenue at constant currency (1) | 1,069,376 | | | 1,092,388 | | | (2) | % |
| Americas | | | | | |
| Revenue as reported | 408,187 | | | 425,127 | | | (4) | % |
| Conversion impact U.S dollar / other currencies | $ | (995) | | | | | |
Revenue at constant currency (1) | 407,192 | | | 425,127 | | | (4) | % |
| EMEA | | | | | |
| Revenue as reported | 370,821 | | | 421,399 | | | (12) | % |
| Conversion impact U.S dollar / other currencies | $ | 37,462 | | | | | |
Revenue at constant currency (1) | 408,283 | | | 421,399 | | | (3) | % |
| Asia-Pacific | | | | | |
| Revenue as reported | 226,649 | | | 245,862 | | | (8) | % |
| Conversion impact U.S dollar / other currencies | $ | 27,252 | | | | | |
Revenue at constant currency (1) | $ | 253,901 | | | $ | 245,862 | | | 3 | % |
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Revenue by region
Our revenue in the Americas region decreased (4)% (or (4)% on a constant currency basis) to $408.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This primarily reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by continued strong performance of Retail Media as the platform continues to scale with large retailers and consumer brands and a rebound in travel.
Our revenue in EMEA decreased (12)% (or (3)% on a constant currency basis), to $370.8 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting mixed retail trends with strength in Germany and emerging markets, offsetting softness in France and in the U.K. This also reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by solid traction in Retail Media.
Our revenue in the Asia-Pacific region decreased (8)% (or increased 3% on a constant currency basis), to $226.6 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting the recovery of our retail business in the region and soft Classifieds trends.
Cost of Revenue
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Traffic acquisition costs | $ | (280,565) | | | $ | (331,078) | | | (15) | % |
| Other cost of revenue | $ | (29,550) | | | $ | (37,364) | | | (21) | % |
| Total cost of revenue | $ | (310,115) | | | $ | (368,442) | | | (16) | % |
| % of revenue | (63) | % | | (67) | % | | |
| Gross profit % | 37 | % | | 33 | % | | |
*Traffic acquisition costs breakdown by solution:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change | | % change at Constant Currency (2) |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 | | 2022 vs 2021 |
| | | | | | | |
| (in thousands, except percentages) | | | | |
| Marketing Solutions | $ | (262,454) | | | $ | (294,132) | | | (11) | % | | (5) | % |
Retail Media (1) | $ | (18,111) | | | $ | (36,946) | | | (51) | % | | (52) | % |
| Traffic Acquisition Costs | $ | (280,565) | | | $ | (331,078) | | | (15) | % | | (10) | % |
Cost of revenue for the three months ended June 30, 2022 decreased $(58.3) million, or (16)%, compared to the three months ended June 30, 2021. This decrease was primarily the result of a decrease of $(50.5) million, or (15)% (or (10)% on a constant currency basis) in traffic acquisition costs driven by a lower average price partially offset by an increase in volume, and a decrease of $(7.8) million, or (21)% in other cost of revenue.
(1) Criteo operates as two reportable segments from December 31, 2021. The table above presents the operating results of our Marketing Solutions and Retail Media segments. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, and reported under the retail media segment, is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin will increase. Contribution ex-TAC will not be impacted by this transition
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Traffic acquisition costs in Marketing Solutions decreased by (11)% (or (5)% at constant currency). This was driven by a (22)% decrease (or 17% at constant currency) in the average cost per thousand impressions ("CPM") for inventory purchased, reflecting our preferred relationships with media owners, which allow us to buy quality inventory directly from large publishers and remove intermediary fees in the process, and a 14% increase in the number of impressions we purchased, reflecting our expanding relationships with existing and new publisher partners, in particular through direct connections, to support client demand for advertising campaigns.
Traffic acquisition costs in Retail Media(1) decreased by (51)% (or (52)% at constant currency), reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our platform. Because we recognize revenue on a net basis in all arrangements running on the platform, we expect our traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the platform.
The decrease in other cost of revenue included a decrease in hosting costs of $3.5 million following the closure of certain data centers and depreciation and amortization expense of $3.1 million, and a decrease in other costs of sales mainly due to the digital tax and data acquisition costs.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Traffic acquisition costs | $ | (574,215) | | | $ | (658,745) | | | (13) | % |
| Other cost of revenue | $ | (62,443) | | | $ | (72,076) | | | (13) | % |
| Total cost of revenue | $ | (636,658) | | | $ | (730,821) | | | (13) | % |
| % of revenue | (63) | % | | (67) | % | | |
| Gross profit % | 37 | % | | 33 | % | | |
*Traffic acquisition costs breakdown by solution:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change | | % change at Constant Currency (2) |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 | | 2022 vs 2021 |
| | | | | | | |
| (in thousands, except percentages) | | | | |
| Marketing Solutions | $ | (540,254) | | | $ | (585,005) | | | (8) | % | | (3) | % |
Retail Media (1) | $ | (33,961) | | | $ | (73,740) | | | (54) | % | | (54) | % |
| Traffic Acquisition Costs | $ | (574,215) | | | $ | (658,745) | | | (13) | % | | (8) | % |
Cost of revenue for the six months ended June 30, 2022 decreased $(94.2) million, or (13)%, compared to the six months ended June 30, 2021. This decrease was primarily the result of a decreased of $(84.5) million, or (13)% (or (8)% on a constant currency basis) in traffic acquisition costs driven by a lower average price partially offset by an increase in volume, and a decrease of $(9.6) million, or (13)% in other cost of revenue.
(1) Criteo operates as two reportable segments from December 31, 2021. The table above presents the operating results of our Marketing Solutions and Retail Media segments. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, and reported under the retail media segment, is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin will increase. Contribution ex-TAC will not be impacted by this transition
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Traffic acquisition costs in Marketing Solutions decreased by (8)% (or (3)% at constant currency). This was driven by a (19)% decrease (or 15% at constant currency) in the average cost per thousand impressions ("CPM") for inventory purchased, reflecting our preferred relationships with media owners, which allow us to buy quality inventory directly from large publishers and remove intermediary fees in the process, and a 7% increase in the number of impressions we purchased, reflecting our expanding relationships with existing and new publisher partners, in particular through direct connections, to support client demand for advertising campaigns.
Traffic acquisition costs in Retail Media(1) decreased by (54)% (or (54)% at constant currency), reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our platform. Because we recognize revenue on a net basis in all arrangements running on the platform, we expect our traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the platform.
The decrease in other cost of revenue included a decrease in hosting costs of $5.5 million and depreciation and amortization expense of $3.7 million, and a decrease in other costs of sales mainly due to the digital tax and data acquisition costs.
Contribution excluding Traffic Acquisition Costs
We consider Contribution ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing our Contribution ex-TAC on an absolute basis over maximizing our near-term gross margin. We believe this focus builds sustainable long-term value for our business by fortifying a number of our competitive strengths, including access to advertising inventory, breadth and depth of data and continuous improvement of the Criteo AI Engine’s performance, allowing it to deliver more relevant advertisements at scale. As part of this focus, we continue to invest in building preferred relationships with direct publishers and pursue access to leading advertising exchanges.
The following table sets forth our revenue and Contribution ex-TAC by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | Six Months Ended | | | | |
| Segment | | June 30,
2022 | | June 30,
2021 | | YoY Change | | YoY Change at Constant Currency (2) | | June 30,
2022 | | June 30,
2021 | | YoY Change | | YoY Change at Constant Currency (2) |
| | |
| Revenue | | (amounts in thousands, except percentages) | | |
| Marketing Solutions | | $ | 440,423 | | | $ | 487,465 | | | (10) | % | | (2) | % | | $ | 904,311 | | | $ | 970,655 | | | (7) | % | | (0.4) | % |
| Retail Media | | 54,667 | | | 63,846 | | | (14) | % | | (12) | % | | 101,346 | | | 121,733 | | | (17) | % | | (15) | % |
| Total | | 495,090 | | | 551,311 | | | (10) | % | | (3) | % | | 1,005,657 | | | 1,092,388 | | | (8) | % | | (2) | % |
| | | | | | | | | | | | | | | | |
Contribution ex-TAC (1) | | | | | | | | | | | | | | | | |
| Marketing Solutions | | 177,969 | | | 193,333 | | | (8) | % | | 2 | % | | 364,057 | | | 385,650 | | | (6) | % | | 3 | % |
| Retail Media | | 36,556 | | | 26,900 | | | 36 | % | | 42 | % | | 67,385 | | | 47,993 | | | 40 | % | | 45 | % |
| Total | | 214,525 | | | 220,233 | | | (3) | % | | 7 | % | | 431,442 | | | 433,643 | | | (1) | % | | 8 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) We define Contribution ex-TAC as a profitability measure akin to gross profit. It is calculated by deducting traffic acquisition costs from revenue and reconciled to gross profit through the exclusion of other cost of revenue. We have included Contribution ex-TAC in this Form 10-Q because it is a key measures used by our management and board of directors to evaluate operating performance and generate future operating plans. In particular, we believe that this can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Contribution ex-TAC 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 Contribution ex-TAC 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 Contribution 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 Contribution ex-TAC alongside our other U.S. GAAP financial results, including gross profit.
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Constant Currency Reconciliation
Information in this Form 10-Q with respect to results presented on a constant currency basis was calculated by applying the 2021 monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Beginning in the second quarter of 2022, the Company updated its methodology for calculating revenue and traffic acquisition costs on a constant currency basis, which are non-GAAP measures. The Company will use the prior year’s monthly exchange rates where the settlement or billing currencies are in currencies other than US dollars. The Q1 2022 revenue and traffic acquisition costs have been revised consistent with this updated methodology.
Below is a table which reconciles the actual results presented in this section with the results presented on a constant currency basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30,
2022 | | June 30,
2021 | | YoY Change | | June 30,
2022 | | June 30,
2021 | | YoY Change |
| | (amounts in thousands, except percentages) |
| |
| Revenue as reported | | $ | 495,090 | | | $ | 551,311 | | | (10) | % | | $1,005,657 | | $1,092,388 | | (8) | % |
| Conversion impact U.S. dollar/other currencies | | 38,530 | | | — | | | | | 63,719 | | | — | | | |
| Revenue at constant currency | | $ | 533,620 | | | $ | 551,311 | | | (3) | % | | $1,069,376 | | $1,092,388 | | (2) | % |
| | | | | | | | | | | | |
| Traffic acquisition costs as reported | | $ | (280,565) | | | $ | (331,078) | | | (15) | % | | $ | (574,215) | | | $ | (658,745) | | | (13) | % |
| Conversion impact U.S. dollar/other currencies | | (17,401) | | | — | | | | | (28,811) | | | — | | | |
| Traffic Acquisition Costs at constant currency | | $ | (297,966) | | | $ | (331,078) | | | (10) | % | | $ | (603,026) | | | $ | (658,745) | | | (8) | % |
| | | | | | | | | | | | |
| Contribution ex-TAC as reported | | $ | 214,525 | | | $ | 220,233 | | | (3) | % | | $ | 431,442 | | | $ | 433,643 | | | (1) | % |
| Conversion impact U.S. dollar/other currencies | | 21,129 | | | — | | | | | 34,908 | | | — | | | |
| Contribution ex-TAC at constant currency | | $ | 235,654 | | | $ | 220,233 | | | 7 | % | | $ | 466,350 | | | $ | 433,643 | | | 8 | % |
| Contribution ex-TAC/Revenue as reported | | 43 | % | | 40 | % | | | | 43 | % | | 40 | % | | |
| | | | | | | | | | | | |
| Other cost of revenue as reported | | $ | (29,550) | | | $ | (37,364) | | | (21) | % | | $ | (62,443) | | | $ | (72,076) | | | (13) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Gross Profit as reported | | $ | 184,975 | | | $ | 182,869 | | | 1 | % | | $ | 368,999 | | | $ | 361,567 | | | 2 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Research and Development Expenses
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Research and development expenses | $ | (41,496) | | | $ | (41,915) | | | (1)% |
| % of revenue | (8) | % | | (8) | % | | |
Research and development expenses for the three months ended June 30, 2022, decreased $(0.4) million or (1)%, compared to the three months ended June 30, 2021. This decrease mainly related to higher headcount-related costs offset by lower facilities and supplies costs.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Research and development expenses | $ | (75,523) | | | $ | (73,612) | | | 3% |
| % of revenue | (8) | % | | (7) | % | | |
Research and development expenses for the six months ended June 30, 2022, increased $1.9 million or 3% compared to the six months ended June 30, 2021. This increase mainly related to higher headcount-related costs, depreciation and amortization slightly offset by a decrease in facilities costs.
Sales and Operations Expenses
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Sales and operations expenses | $ | (99,313) | | | $ | (80,751) | | | 23% |
| % of revenue | (20) | % | | (15) | % | | |
Sales and operations expenses for the three months ended June 30, 2022 increased $18.6 million or 23% compared to the three months ended June 30, 2021. This increase mainly related to an increase in headcount-related costs, marketing costs, net bad debt expense, partially offset by a decrease in rent & facilities.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Sales and operations expenses | $ | (188,312) | | | $ | (160,105) | | | 18% |
| % of revenue | (19) | % | | (15) | % | | |
Sales and operations expenses for the six months ended June 30, 2022 increased $28.2 million or 18% compared to the six months ended June 30, 2021. This increase mainly related to an increase in headcount-related costs, marketing costs, net bad debt expense, partially offset by a decrease in rent & facilities.
General and Administrative Expenses
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| General and administrative expenses | $ | (100,672) | | | $ | (40,474) | | | 149% |
| % of revenue | (20) | % | | (7) | % | | |
General and administrative expenses for the three months ended June 30, 2022, increased $60.2 million or 149%, compared to the three months ended June 30, 2021. This increase mainly relates to a loss contingency on a regulatory matter.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| General and administrative expenses | $ | (134,008) | | | $ | (73,902) | | | 81% |
| % of revenue | (13) | % | | (7) | % | | |
General and administrative expenses for the six months ended June 30, 2022, increased $60.1 million or 81%, compared to the six months ended June 30, 2021. This increase mainly relates to a loss contingency on a regulatory matter.
Financial and Other Income / (Expense)
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Financial and Other Income / (Expense) | $ | 16,412 | | | $ | (519) | | | 3,262% |
| % of revenue | 3.3 | % | | (0.1) | % | | |
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30, 2022 | | June 30, 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Financial and Other Income / (Expense) | $ | 20,442 | | | $ | (1,237) | | | 1,753% |
| % of revenue | 2.0 | % | | (0.1) | % | | |
Financial and Other income for the three months ended and the six months ended June 30, 2022, increased by $16.9 million and by $21.7 million, respectively, compared to the three months ended and six months ended June 30, 2021. The $16.4 million financial and other income for the three months ended and six months ended June 30, 2022 were driven by the recognition of a positive impact of foreign exchange reevaluations net of related hedging and the up-front fees amortization, the non-utilization costs, and the financial expense relating to our available Revolving Credit Facility ("RCF") financing. At June 30, 2022, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps or forward purchases or sales of foreign currencies.
Provision for Income Taxes
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Provision for income taxes | $ | 7,121 | | | $ | (4,181) | | | (270)% |
| % of revenue | — | % | | (1) | % | | |
| Effective tax rate | 18 | % | | 22 | % | | |
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Provision for income taxes | $ | (3,293) | | | $ | (14,232) | | | (77)% |
| % of revenue | (0.3) | % | | (1) | % | | |
| Effective tax rate | 39 | % | | 27 | % | | |
For the six months ended June 30, 2022 and June 30, 2021, we used an annual estimated tax rate of 39% and 27%, respectively, to calculate the provision for income taxes.
Net Income
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Net income | $ | (32,973) | | | 15,029 | | | (319)% |
| % of revenue | (7) | % | | 3 | % | | |
Net income for the three months ended June 30, 2022, decreased $(48.0) million, or (319)%, compared to the three months ended June 30, 2021. This decrease was the result of the business dynamics discussed above, in particular, a $(76.2) million decrease in income from operations, offset by a $16.9 million increase in financial and other income and by a $11.9 million decrease in provision for income taxes compared to the three months ended June 30, 2021.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | % change |
| June 30,
2022 | | June 30,
2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands, except percentages) | | |
| Net income | $ | (11,695) | | | 38,479 | | | (130)% |
| % of revenue | (1) | % | | 4 | % | | |
Net income for the six months ended June 30, 2022, decreased $(50.2) million, or (130)%, compared to the six months ended June 30, 2021. This increase was the result of the business dynamics discussed above, in particular, a $(82.8) million decrease in income from operations, offset by $21.7 million increase in financial and other income and by a $10.9 million decrease in provision for income taxes compared to the six months ended June 30, 2021.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and cash generated from operating activities. We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future. In 2018, we completed an $80 million share repurchase program. In July 2019, the board of directors authorized a new share repurchase program of up to $80 million of the Company’s outstanding American Depositary Shares, which we completed in February 2020. In April 2020, the board of directors authorized a new share repurchase program of up to $30 million of the Company's outstanding American Depositary Shares, which we completed in July 2020. In February 2021, the board of directors approved a new, long-term share repurchase program of up to $100 million of the Company's outstanding American Depositary Shares, which we completed in December, 2021. In February 2022, the board of directors approved an extension of the long-term share repurchase program of up to $175 million of the Company's outstanding American Depositary Shares, to a total of $275 million.
Other than these repurchase programs, we intend to retain all available funds from any future earnings to fund our growth. As discussed in Note 14 to the unaudited condensed consolidated financial statements in Item 1 to this Form 10-Q, we are party to several loan agreements and revolving credit facilities with third-party financial institutions.
Our cash and cash equivalents at June 30, 2022 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $562.5 million as of June 30, 2022. The $47.0 million increase in cash and cash equivalents compared with December 31, 2021 primarily resulted from $88.9 million in cash from operating activities, $23.3 million in cash from investing activities, partially offset by $(14.5) million in cash used for financing activities over the period. The cash used for financing activities was mainly related to $(29.3) million in cash used for the share repurchase programs partially offset by the recognition of $14.5 million positive impact of foreign exchange reevaluations net of related hedging, and $0.4 million of proceeds from a capital increase following the exercises of stock options. In addition, the increase in cash includes an $(50.7) million negative impact of changes in foreign exchange rates on our cash position over the period. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts that are currently providing only a minimal return.
Furthermore, the Company has immediate access to an additional € 294.0 million ($305.4 million) from the RCF, which, combined with our cash position, marketable securities and treasury shares as of June 30, 2022, provides total liquidity approximating $1.0 billion. On July 29, 2022, we drew down €50 million ($51.1 million) under the RCF for a one month period to provide additional liquidity in connection with the closing of the IPONWEB Acquisition. Overall, we believe that our current financial liquidity, combined with our expected cash-flow generation in 2022, enables financial flexibility.
Operating and Capital Expenditure Requirements
For the six months ended June 30, 2022 and 2021, our capital expenditures were $21.0 million and $26.9 million, respectively. During the six months ended June 30, 2022, these capital expenditures were mainly comprised of purchases of servers and other data-center equipment and capitalized software development costs. We expect our capital expenditures to remain at, or slightly above, 3% of revenue for 2022, as we plan to continue to build and maintain additional data center equipment capacity in all regions and significantly increase our redundancy capacity to strengthen our infrastructure.
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.
Our future working capital requirements will depend on many factors, including the rate of our revenue growth, the amount and timing of our investments in personnel and capital equipment, and the timing and extent of our introduction of new products and product enhancements.
If our cash and cash equivalents balances and cash flows from operating activities are insufficient to satisfy our liquidity requirements, we may need to raise additional funds through equity, equity-linked or debt financings to support our operations, and such financings may not be available to us on acceptable terms, or at all.
We may also need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies, assets or products.
If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing will be dilutive to our shareholders.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Historical Cash Flows
The following table sets forth our cash flows for the six month period ended June 30, 2022 and June 30, 2021:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2022 | | June 30,
2021 |
| | | |
| (in thousands) |
| Cash (used for) from operating activities | $ | 88,902 | | | $ | 103,722 | |
| Cash (used for) from investing activities | $ | 23,295 | | | $ | (56,814) | |
| Cash (used for) from financing activities | $ | (14,509) | | | $ | (27,374) | |
Operating Activities
Cash from operating activities is primarily impacted by the increase in the number of clients using our solutions and by the amount of cash we invest in personnel to support the anticipated growth of our business. Cash from operating activities has typically been generated from net income and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable, accounts payable and accrued expenses, adjusted for certain non-cash and non-operating items such as depreciation, amortization and share-based compensation, deferred tax assets and income taxes.
For the six months ended June 30, 2022, net cash provided by operating activities was $88.9 million and consisted of net income of $(11.7) million, and $98.2 million in adjustments for certain non-cash and non-operating items. Adjustments for certain non-operating items primarily consisted of amortization and provision expense of $114.5 million, equity awards compensation expense of $21.5 million, and $(7.1) million of changes in deferred tax assets, partially offset by a $(14.7) million change in income taxes and other non-operating items of $(15.3) million. The $2.4 million increase in cash from changes in working capital primarily consisted of a $65.5 million increase in trade receivables, partially offset by a $(14.6) million change in other current assets including prepaid expenses and value-added tax ("VAT") receivables, a $(0.2) million change in lease liabilities and right of use assets, a $(17.0) million change in trade payables, and a $(31.3) million change in other current liabilities such as payroll and payroll related expenses and VAT payables and change in fair value of derivatives.
Investing Activities
Our investing activities to date have consisted primarily of purchases of servers and other data-center equipment. For the six months ended June 30, 2022, net cash from investing activities was $23.3 million and primarily consisted of a $44.3 million positive change from the maturity of investments in Marketable Securities, partially offset by a $(21.0) million change in capital expenditures, mainly comprised of purchases of servers and other data-center equipment and capitalized software development costs.
Financing Activities
For the six months ended June 30, 2022, net cash used for financing activities was $(14.5) million, resulting mainly from a $(29.3) million payment for our share repurchase program, a $(0.9) million change in other financial liabilities, a $15.3 million change relating to the recognition of a positive impact of foreign exchange reevaluations net of related hedging, partially offset by $0.4 million of proceeds from capital increase following the exercises of stock options.