Criteo S.A 10-Q for FY2021 Q3
Criteo S.A. (CRTO)
10-Q
2021-11-03
For: 2021-09-30
View Original
Added on
April 08, 2026
About this 10-Q
Criteo S.A filed this 10-Q on November 3, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $508.58M
- up 8.1% from $470.35M a year earlier
- Net income
- $23.48M
- up 349.2% from net income of $5.23M a year earlier
- Diluted EPS
- $0.37
- up 311.1% from $0.09 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
for the quarterly period ended September 30, 2021
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
for the transition period from _________ to _________
Commission file number: 001-36153
(Exact name of registrant as specified in its charter)
Not Applicable | |||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
+33 1 40 40 22 90
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
nominal value €0.025 per share | ||||||||||||||
| * | * | |||||||||||||
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | |||||||||
| Non-accelerated Filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of October 29, 2021, the registrant had 60,722,263 ordinary shares, nominal value €0.025 per share, outstanding.
TABLE OF CONTENTS
General
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "Criteo," "we," "us," "our" or similar words or phrases are to Criteo S.A. and its subsidiaries, taken together. In this Form 10-Q, references to "$" and "US$" are to United States dollars. Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or "U.S. GAAP."
Trademarks
“Criteo,” the Criteo logo and other trademarks or service marks of Criteo appearing in this Form 10-Q are the property of Criteo. Trade names, trademarks and service marks of other companies appearing in this Form 10-Q are the property of their respective holders.
Special Note Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than present and historical facts and conditions contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, plans and objectives for future operations, are forward-looking statements. When used in this Form 10-Q, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
•the ongoing effect of the COVID-19 pandemic, including its macroeconomic effects, on our business, operations, and financial results, and the effect of governmental restrictions and regulations on our operations and processes;
•the ability of the Criteo Artificial Intelligence (AI) Engine to accurately predict engagement by a user;
•our ability to predict and adapt to changes in widely adopted industry platforms and other new technologies, including without limitation the proposed changes to and enhancements of the Chrome browser announced by Google;
•our ability to continue to collect and utilize data about user behavior and interaction with advertisers and publishers;
•our ability to acquire an adequate supply of advertising inventory from publishers on terms that are favorable to us;
•our ability to meet the challenges of a growing and international company in a rapidly developing and changing industry, including our ability to forecast accurately;
•our ability to maintain an adequate rate of revenue growth and sustain profitability;
•our ability to manage our international operations and expansion and the integration of our acquisitions;
•the effects of increased competition in our market;
•our ability to adapt to regulatory, legislative or self-regulatory developments regarding internet privacy matters;
•our ability to protect users’ information and adequately address privacy concerns;
•our ability to enhance our brand;
•our ability to enter new marketing channels and new geographies;
•our ability to effectively scale our technology platform;
•our ability to attract and retain qualified employees and key personnel;
•our ability to maintain, protect and enhance our brand and intellectual property; and
•failures in our systems or infrastructure.
You should also refer to Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, and to Part II, Item 1A "Risk Factors" of our subsequent quarterly reports on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Form 10-Q and the documents that we reference in this Form 10-Q and have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary factors.
This Form 10-Q may contain market data and industry forecasts that were obtained from industry publications. These data and forecasts involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this Form 10-Q is generally reliable, such information is inherently imprecise.
PART I
Item 1. Financial Statements
CRITEO S.A. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
| Notes | September 30, 2021 | December 31, 2020 | ||||||||||||
| (in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | 3 | $ | $ | |||||||||||
Trade receivables, net of allowances of $ | 4 | |||||||||||||
| Income taxes | ||||||||||||||
| Other taxes | ||||||||||||||
| Other current assets | 5 | |||||||||||||
| Marketable securities - current portion | 3 | |||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Right of use assets - operating lease | 7 | |||||||||||||
| Marketable securities - non current portion | 3 | |||||||||||||
| Non-current financial assets | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Total non-current assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and shareholders' equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Trade payables | 3 | $ | $ | |||||||||||
| Contingencies | 14 | |||||||||||||
| Income taxes | ||||||||||||||
| Financial liabilities - current portion | 3 | |||||||||||||
| Lease liability - operating - current portion | 7 | |||||||||||||
| Other taxes | ||||||||||||||
| Employee - related payables | ||||||||||||||
| Other current liabilities | 6 | |||||||||||||
| Total current liabilities | ||||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Defined benefit plans | 8 | |||||||||||||
| Financial liabilities - non current portion | 3 | |||||||||||||
| Lease liability - operating - non current portion | 7 | |||||||||||||
| Other non-current liabilities | ||||||||||||||
| Total non-current liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Shareholders' equity: | ||||||||||||||
Common shares, € | ||||||||||||||
Treasury stock, | ( | ( | ||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive income (loss) | ( | |||||||||||||
| Retained earnings | ||||||||||||||
| Equity-attributable to shareholders of Criteo S.A. | ||||||||||||||
| Non-controlling interests | ||||||||||||||
| Total equity | ||||||||||||||
| Total equity and liabilities | $ | $ | ||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
2
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| Notes | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||
| (in thousands, except share per data) | |||||||||||||||||||||||||||||
| Revenue | 9 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||
| Traffic acquisition costs | ( | ( | ( | ( | |||||||||||||||||||||||||
| Other cost of revenue | ( | ( | ( | ( | |||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development expenses | ( | ( | ( | ( | |||||||||||||||||||||||||
| Sales and operations expenses | ( | ( | ( | ( | |||||||||||||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||||||||
| Total operating expenses | ( | ( | ( | ( | |||||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||||||||
| Financial expense | 11 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Income before taxes | |||||||||||||||||||||||||||||
| Provision for income taxes | 12 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income available to shareholders of Criteo S.A. | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income available to non-controlling interests | $ | $ | $ | $ | |||||||||||||||||||||||||
| Weighted average shares outstanding used in computing per share amounts: | |||||||||||||||||||||||||||||
| Basic | 13 | ||||||||||||||||||||||||||||
| Diluted | 13 | ||||||||||||||||||||||||||||
| Net income allocated to shareholders per share: | |||||||||||||||||||||||||||||
| Basic | 13 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Diluted | 13 | $ | $ | $ | $ | ||||||||||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
3
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency translation differences, net of taxes | ( | ( | |||||||||||||||||||||
| Actuarial (losses) gains on employee benefits, net of taxes | ( | ||||||||||||||||||||||
| Other comprehensive income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Attributable to shareholders of Criteo S.A. | $ | $ | $ | $ | |||||||||||||||||||
| Attributable to non-controlling interests | $ | $ | $ | ( | $ | ||||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
4
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, 2019 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity (*) | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at March 31, 2020 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity (**) | ( | ( | — | ( | — | — | ||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
(*) From January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost issued by the Financial Accounting Standards Board (FASB).
(**) Deferred consideration in the context of Storetail Marketing SAS acquisition in 2018.
5
| 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 | $ | ( | $( | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Change in treasury stocks(*) | — | — | ( | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||
| Issuance of ordinary shares | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Change in treasury stocks | — | ( | ( | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(*) On February 5, 2021, Criteo's Board of Directors authorized a share repurchase program of up to $100.0 million of the Company's outstanding American Depositary Shares. The change in treasury stocks is comprised of 1,923,860 shares repurchased at an average price of $37.9 offset by 1,144,982 treasury shares used for RSUs vesting and 866,887 treasury shares cancelled.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
6
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended | ||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Non-cash and non-operating items | ||||||||||||||
| - Amortization and provisions | ||||||||||||||
| - Net gain or (loss) on disposal of non-current assets | ||||||||||||||
- Equity awards compensation expense (1) | ||||||||||||||
| - Change in deferred taxes | ( | |||||||||||||
| - Change in income taxes | ( | |||||||||||||
| - Other | ||||||||||||||
| Changes in working capital related to operating activities | ( | |||||||||||||
| - (Increase) / Decrease in trade receivables | ||||||||||||||
| - Increase / (Decrease) in trade payables | ( | ( | ||||||||||||
| - (Increase) / Decrease in other current assets | ( | |||||||||||||
| - Increase/ (Decrease) in other current liabilities | ( | ( | ||||||||||||
| - Change in operating lease liabilities and right of use assets | ( | ( | ||||||||||||
| Cash from operating activities | ||||||||||||||
| Acquisition of intangible assets, property, plant and equipment | ( | ( | ||||||||||||
| Change in accounts payable related to intangible assets, property, plant and equipment | ||||||||||||||
| Payment for a business, net of cash acquired | ( | ( | ||||||||||||
| Change in other non-current financial assets | ( | ( | ||||||||||||
| Cash used for investing activities | ( | ( | ||||||||||||
| Proceeds from borrowings under line-of-credit agreement | ||||||||||||||
| Repayment of borrowings | ( | ( | ||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Repurchase of treasury stocks | ( | ( | ||||||||||||
| Change in other financial liabilities | ( | ( | ||||||||||||
| Cash (used for) from financing activities | ( | |||||||||||||
| Effect of exchange rates changes on cash and cash equivalents | ( | |||||||||||||
| Net increase in cash and cash equivalents | ||||||||||||||
| Net cash and cash equivalents at beginning of period | ||||||||||||||
| Net cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||
| Cash paid for taxes, net of refunds | ( | ( | ||||||||||||
| Cash paid for interest | ( | ( | ||||||||||||
(1) Of which $30.8 million and $21.4 million of equit y awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the nine months ended September 30, 2021 and 2020, respectively.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
7
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).
We 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 activate and measure their advertising campaigns
•that offer media owners (publishers and retailers) the ability to sell their advertising and promotions inventory
•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".
8
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, 2020, filed with the SEC on February 26, 2021. 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.
The severity, magnitude, duration and after-effects of the COVID-19 pandemic on general economic conditions increase uncertainty associated with these estimates, in particular those related to allowance for credit losses, assumptions used in the valuation of goodwill and estimates relating to income taxes.
Revenue Recognition
Principal vs Agent:
9
Accounting Pronouncements Adopted in 2021
Effective January 1, 2021, we have adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. The adoption of this new standard did not have a material impact on our consolidated financial statements.
Effective January 1, 2021, we have adopted the FASB ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General. The purpose of this update is to modify disclosure requirements for Defined Benefit Plans. It removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year among others. It adds disclosure requirements for the items such as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The adoption of this new standard did not have a material impact on our consolidated financial statements.
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.
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Note 2. Significant Events and Transactions of the Period
Restructuring
On February 1, 2021, the Company announced a plan to restructure its workforce across functions and regions to better align with the Company's evolution. We expect the plan will be completed by the end of 2021. The Company recorded $4.6 million of restructuring charges for severance related to this plan during the nine months ended September 30, 2021. For the period ended September 30, 2021, $3.4 million was included in Sales and Operations expenses, $1.1 million was included in General and Administrative expenses and $0.1 million was included in Research and Development expenses.
The following table presents the breakdown of restructuring liability as of September 30, 2021, presented as part of employees related payables on the balance sheet:
| (in thousands) | |||||||||||
| Restructuring liability - January 1, 2021 | $ | ||||||||||
| Restructuring costs | |||||||||||
| Amount paid | ( | ||||||||||
| Restructuring liability - September 30, 2021 | |||||||||||
Acquisition of Doobe In Site Ltd.
On May 18, 2021, we completed the acquisition of all of the outstanding shares of Doobe In Site Ltd. ("Mabaya"), a leading retail media technology company that powers sponsored products and retail media monetization for major ecommerce marketplaces globally. The total consideration paid was $9.9 million for the acquisition of shares. The acquisition was financed by available cash resources. The transaction has been accounted for as a business combination under the acquisition method of accounting. The purchase price allocation is in progress. A preliminary valuation of the fair value of Mabaya's assets acquired and liabilities assumed resulted in the identification of technology of $8.0 million, a $5.1 million employee related payable and a $2.5 million liability relating to a redemption fee payable to a governmental agency. Provisional goodwill amounted to $8.5 million, subject to post-closing purchase price adjustments. Once this valuation analysis is finalized, the estimate of the fair value of the assets acquired and liabilities assumed may be adjusted. The Company will finalize these amounts no later than one year from the acquisition date. In addition, acquisition costs amounting to $0.5 million were fully expensed as incurred.
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Note 3. Financial Instruments
Financial assets
| September 30, 2021 | December 31, 2020 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Trade receivables, net of allowances | |||||||||||||||||
| Other taxes | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Non-current financial assets | |||||||||||||||||
| Marketable securities | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
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
| September 30, 2021 | December 31, 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Trade payables | $ | $ | ||||||||||||
| Other taxes | ||||||||||||||
| Employee-related payables | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Financial liabilities | ||||||||||||||
| Total | $ | $ | ||||||||||||
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.
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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.
| September 30, 2021 | December 31, 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| 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
| September 30, 2021 | December 31, 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cash equivalents | $ | $ | ||||||||||||
| Cash on hand | ||||||||||||||
| Total cash and cash equivalents | $ | $ | ||||||||||||
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.
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Marketable Securities
| September 30, 2021 | December 31, 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Securities Available-for-sale | ||||||||||||||
| Term Deposits | $ | $ | ||||||||||||
| Securities Held-to-maturity | ||||||||||||||
| Term Deposits | $ | $ | ||||||||||||
| Total | $ | $ | ||||||||||||
The gross unrealized gains on our marketable securities were not material as of September 30, 2021.
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 | |||||||||||||
| September 30, 2021 | ||||||||||||||
| (in thousands) | ||||||||||||||
| Due in one year | $ | $ | ||||||||||||
| Due in one to five years | $ | $ | ||||||||||||
| Total | $ | $ | ||||||||||||
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Note 4. Trade Receivables
The following table shows the breakdown in trade receivables net book value for the presented periods:
| September 30, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Trade accounts receivables | $ | $ | |||||||||
| (Less) Allowance for credit losses | ( | ( | |||||||||
| Net book value at end of period | $ | $ | |||||||||
Changes in allowance for credit accounts are summarized below:
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Balance at January 1 | $ | ( | $ | ( | |||||||
| Allowance for credit losses through retained earnings (*) | — | ( | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Reversal of provision | |||||||||||
| Currency translation adjustment | ( | ||||||||||
| Balance at September 30 | $ | ( | $ | ( | |||||||
(*) On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost issued by the Financial Accounting Standards Board (FASB). ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. This results in earlier recognition of credit losses. We adopted ASU 2016-13 effective January 1, 2020 with the cumulative effect of adoption recorded as an adjustment to retained earnings.
We write off accounts receivable balances once the receivables are no longer deemed collectible. During the nine month period ended September 30, 2021, and September 30, 2020, the Company recovered $2.0 million, and $2.8 million, respectively, previously reserved for, and accounted for this as a reversal of provision.
As of September 30, 2021 and December 31, 2020 no customer accounted for 10% or more of trade receivables.
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Note 5. Other Current Assets
| September 30, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Prepayments to suppliers | $ | $ | |||||||||
| Other debtors | |||||||||||
| Prepaid expenses | |||||||||||
| Net book value at end of period | $ | $ | |||||||||
Prepaid expenses mainly consist of costs related to SaaS arrangements.
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Note 6. Other Current Liabilities
| September 30, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Current liabilities to clients | $ | $ | |||||||||
| Rebates | |||||||||||
| Accounts payable relating to capital expenditures | |||||||||||
| Other creditors | |||||||||||
| Deferred revenue | |||||||||||
| Total | $ | $ | |||||||||
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Note 7. Leases
The components of lease expense are as follows:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Offices | Data Centers | Total | Offices | Data Centers | Total | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Lease expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Short term lease expense | |||||||||||||||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total operating lease expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Offices | Data Centers | Total | Offices | Data Centers | Total | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Lease expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Short term lease expense | |||||||||||||||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total operating lease expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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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, 2020 | $ | ||||
Service cost | |||||
Interest cost | |||||
Actuarial losses (gains) | ( | ||||
Currency translation adjustment | |||||
Projected benefit obligation present value at December 31, 2020 | $ | ||||
Service cost | |||||
Interest cost | |||||
Actuarial losses (gains) | ( | ||||
Currency translation adjustment | ( | ||||
Projected benefit obligation present value at September 30, 2021 | $ | ||||
The Company does not hold any plan assets for any of the periods presented.
| Nine Months Ended | Year ended | ||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
Discount rate (Corp AA) | |||||||||||
Expected rate of salary increase | |||||||||||
Expected rate of social charges | |||||||||||
Expected staff turnover | |||||||||||
Estimated retirement age | Progressive table | Progressive table | |||||||||
Life table | TH-TF 2000-2002 shifted | TH-TF 2000-2002 shifted | |||||||||
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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 | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Defined contributions plans included in personnel expenses | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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) | ||||||||||||||||
| September 30, 2021 | $ | $ | $ | ||||||||||||||
| September 30, 2020 | $ | $ | $ | ||||||||||||||
| Marketing Solutions | Retail Media | Total | |||||||||||||||
| For the nine months ended | (in thousands) | ||||||||||||||||
| September 30, 2021 | $ | $ | $ | ||||||||||||||
| September 30, 2020 | $ | $ | $ | ||||||||||||||
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Note 10. Share-Based Compensation
The 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 nine months ended September 30, 2021, there were five grants of RSUs under the Employee Share Option Plan 13 as defined in Note 19 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
On February 25, 2021, 96,450 RSUs were granted to Criteo employees subject to continued employment and 235,850 RSUs and 235,848 PSUs were granted to members of the management subject to continued employment.
On April 29, 2021, 758,979 RSUs were granted to Criteo employees subject to continued employment.
On June 14, 2021, 858,511 RSUs were granted to Criteo employees subject to continued employment and 14,421 PSUs were granted to members of the management subject to continued employment.
On June 24, 2021, 56,500 RSUs were granted to Criteo employees subject to continued employment.
On July 29, 2021, 75,080 RSUs were granted to Criteo employees 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, 2020, filed with the SEC on February 26, 2021.
Change in number of outstanding BSPCE / OSA / RSU / BSA
| OSA/BSPCE | RSU/PSU | BSA | Total | ||||||||||||||||||||
| Balance at January 1, 2021 | |||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised (OSA/BSPCE/BSA) | ( | ( | |||||||||||||||||||||
| Vested (RSU) | ( | ( | |||||||||||||||||||||
| Forfeited | ( | ( | ( | ||||||||||||||||||||
| Expired | |||||||||||||||||||||||
| Balance at September 30, 2021 | |||||||||||||||||||||||
Breakdown of the Closing Balance
| OSA/BSPCE | RSU | BSA | |||||||||||||||
| Number outstanding | |||||||||||||||||
| Weighted-average exercise price | € | NA | € | ||||||||||||||
| Number vested | |||||||||||||||||
| Weighted-average exercise price | € | NA | € | ||||||||||||||
| Weighted-average remaining contractual life of options outstanding, in years | NA | ||||||||||||||||
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Reconciliation with the Unaudited Consolidated Statements of Income
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| R&D | S&O | G&A | Total | R&D | S&O | G&A | Total | ||||||||||||||||||||||||||||||||||||||||
| RSUs | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Share options / BSPCE | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total share-based compensation | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| BSAs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total equity awards compensation expense | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| R&D | S&O | G&A | Total | R&D | S&O | G&A | Total | ||||||||||||||||||||||||||||||||||||||||
| RSUs | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Share options / BSPCE | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Total share-based compensation | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| BSAs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total equity awards compensation expense | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
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Note 11. Financial Income and Expenses
The condensed consolidated statements of income line item “Financial income (expense)” can be broken down as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Financial income from cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Interest and fees | ( | ( | ( | ( | |||||||||||||||||||
| Interest on debt | ( | ( | ( | ( | |||||||||||||||||||
| Fees | ( | ( | ( | ( | |||||||||||||||||||
| Foreign exchange gain (loss) | ( | ( | |||||||||||||||||||||
| Other financial expense | ( | ( | ( | ( | |||||||||||||||||||
| Total financial expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The $0.2 million and the $1.4 million financial expenses for the three and nine month periods ended September 30, 2021, respectively, were driven by the up-front fees amortization, the non-utilization costs, the financial expense relating to our available Revolving Credit Facility ("RCF") financing and the recognition of a negative impact of foreign exchange reevaluations net of related hedging. At September 30, 2021, 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.
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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.
| Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Current income tax | $ | ( | $ | ( | |||||||
| Net change in deferred taxes | ( | ||||||||||
| Provision for income taxes | $ | ( | $ | ( | |||||||
For the nine months ended September 30, 2021 and September 30, 2020, we used an annual estimated tax rate of 26 % and 30 %, respectively, to calculate the provision for income taxes.
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.
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Note 13. Earnings Per Share
Basic Earnings Per Share
We calculate basic earnings per share by dividing the net income for the period attributable to shareholders of the Parent by the weighted average number of shares outstanding.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Net income attributable to shareholders of Criteo S.A. | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
Diluted Earnings Per Share
We calculate diluted earnings per share by dividing the net income 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 September 30, 2021 and September 30, 2020. 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 | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Net income attributable to shareholders of Criteo S.A. | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average number of shares outstanding of Criteo S.A. | ||||||||||||||||||||||||||
| Dilutive effect of : | ||||||||||||||||||||||||||
| Restricted share awards ("RSUs") | ||||||||||||||||||||||||||
| Share options and BSPCE | ||||||||||||||||||||||||||
| Share warrants | ||||||||||||||||||||||||||
| Weighted average number of shares outstanding used to determine diluted earnings per share | ||||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
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| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Restricted share awards | ||||||||||||||||||||||||||
| Share options and BSPCE | ||||||||||||||||||||||||||
| Weighted average number of anti-dilutive securities excluded from diluted earnings per share | ||||||||||||||||||||||||||
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 €350.0 million ($405.3 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 ($24.9 million) in the aggregate under the short-term credit lines and overdraft facilities. As of September 30, 2021, 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
| Provision for employee-related litigation | Other provisions | Total | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | |||||||||||||||||
| Increase | ||||||||||||||||||||
| Provision used | ( | ( | ||||||||||||||||||
| Provision released not used* | ( | ( | ||||||||||||||||||
| Currency translation adjustments | ( | ( | ( | |||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | |||||||||||||||||
| - of which current | ||||||||||||||||||||
The amount of the provisions represents management’s latest estimate of the expected impact.
26
Regulatory matters
As indicated in our Annual Report on Form 10-K for the year ended December 31, 2020, 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 do not comply 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, which is still ongoing as per CNIL’s notification to Criteo dated June 23, 2021, which notified the Company of the appointment of an investigator (rapporteur). There can be no assurance that actions by the Company will not be required as a result of the investigation. However, at the current phase of the investigation, due to the absence of any specific grievance or sanction and the lack of any legal grounds therefor, we consider this to be an unasserted claim for which an unfavorable outcome is only reasonably possible, and the amount of the potential loss cannot be reasonably estimated in accordance with "ASC 450 Contingencies”, therefore, we have not accrued a loss contingency.
27
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) | ||||||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
Revenue generated in France, the country of incorporation of the Parent, amounted to $33.5 million and $30.7 million for the three months ended September 30, 2021 and 2020, respectively.
| Americas | EMEA | Asia-Pacific | Total | ||||||||||||||||||||
| For the nine months ended: | (in thousands) | ||||||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
Revenue generated in France amounted to $110.3 million and $90.0 million for the nine month ended September 30, 2021 and September 30, 2020, respectively.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Americas | ||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||||||||||||
| EMEA | ||||||||||||||||||||||||||
| Germany | $ | $ | $ | $ | ||||||||||||||||||||||
| United Kingdom | $ | $ | $ | $ | ||||||||||||||||||||||
| Asia-Pacific | ||||||||||||||||||||||||||
| Japan | $ | $ | $ | $ | ||||||||||||||||||||||
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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 | Total | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Note 16. Related Parties
29
Note 17. Subsequent Events
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission, or "SEC", on February 26, 2021.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report filed on Form 10-K for the year ended December 31, 2020.
Recently Issued Pronouncements
See "Recently Issued Accounting Standards" under Note 1, "Summary of Significant Accounting Policies," of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued during 2021.
Use of Non-GAAP Financial Measures
This Form 10-Q includes the following financial measures defined as non-GAAP financial measures by the SEC: Revenue ex-TAC, Adjusted EBITDA and Adjusted Net Income. These measures are not calculated in accordance with U.S. GAAP.
Revenue ex-TAC is our revenue excluding traffic acquisition costs ("TAC") generated over the applicable measurement period and Revenue ex-TAC by Region reflects our Revenue ex-TAC by our core geographies. Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin are key measures used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue can provide a useful measure for period-to-period comparisons of our core business and across our core geographies. Accordingly, we believe that Revenue ex-TAC, Revenue ex-TAC by Region, and Revenue ex-TAC margin provide useful information to investors and the market generally in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted EBITDA is our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring related and transformation costs and, acquisition-related costs. Adjusted EBITDA 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 by eliminating equity awards compensation expense, pension service costs, restructuring related and transformation costs and, acquisition-related costs, Adjusted EBITDA can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, restructuring related and transformation costs and, acquisition-related costs, and the tax impact of these adjustments. Adjusted Net Income and Adjusted Net Income per diluted share are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that by eliminating equity awards compensation expense, amortization of acquisition-related intangible assets, restructuring related and transformation costs and, acquisition-related costs and the tax impact of these adjustments, Adjusted Net Income and Adjusted Net Income per diluted share can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted Net Income per diluted share provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
31
Please refer to the supplemental financial tables provided for a reconciliation of Revenue ex-TAC to revenue, Adjusted EBITDA to net income, and Adjusted Net Income to net income in each case, the most comparable U.S. GAAP measurement. Our use of non-GAAP financial measures 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: (1) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; and (2) other companies may report Revenue ex-TAC, Adjusted EBITDA, Adjusted Net Income, or similarly titled measures but calculate them differently or over different regions, which reduces their usefulness as comparative measures. Because of these and other limitations, you should consider these measures alongside our U.S. GAAP financial results, including revenue and net income.
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Condensed Consolidated Statements of Income Data (Unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||||||||||||||
| Revenue | $ | 508,580 | $ | 470,345 | $ | 1,600,968 | $ | 1,411,335 | ||||||||||||||||||
Cost of revenue (1) | ||||||||||||||||||||||||||
| Traffic acquisition costs | (297,619) | (284,401) | (956,364) | (839,463) | ||||||||||||||||||||||
| Other cost of revenue | (34,935) | (34,608) | (107,011) | (102,328) | ||||||||||||||||||||||
| Gross profit | 176,026 | 151,336 | 537,593 | 469,544 | ||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
Research and development expenses (1) | (33,345) | (30,954) | (106,957) | (99,716) | ||||||||||||||||||||||
Sales and operations expenses (1) | (75,619) | (83,659) | (235,724) | (244,414) | ||||||||||||||||||||||
General and administrative expenses (1) | (34,877) | (28,672) | (108,779) | (83,772) | ||||||||||||||||||||||
| Total operating expenses | (143,841) | (143,285) | (451,460) | (427,902) | ||||||||||||||||||||||
| Income from operations | 32,185 | 8,051 | 86,133 | 41,642 | ||||||||||||||||||||||
| Financial expense | (154) | (491) | (1,391) | (1,828) | ||||||||||||||||||||||
| Income before taxes | 32,031 | 7,560 | 84,742 | 39,814 | ||||||||||||||||||||||
| Provision for income taxes | (7,801) | (2,267) | (22,033) | (11,943) | ||||||||||||||||||||||
| Net income | $ | 24,230 | $ | 5,293 | $ | 62,709 | $ | 27,871 | ||||||||||||||||||
| Net income available to shareholders of Criteo S.A. | $ | 23,481 | $ | 5,227 | $ | 60,691 | $ | 26,402 | ||||||||||||||||||
| Net income allocated to shareholders per share: | ||||||||||||||||||||||||||
| Basic | $ | 0.39 | $ | 0.09 | $ | 1.00 | $ | 0.43 | ||||||||||||||||||
| Diluted | $ | 0.37 | $ | 0.09 | $ | 0.94 | $ | 0.43 | ||||||||||||||||||
| Weighted average shares outstanding used in computing per share amounts: | ||||||||||||||||||||||||||
| Basic | 60,873,594 | 60,080,598 | 60,759,613 | 61,059,345 | ||||||||||||||||||||||
| Diluted | 64,197,686 | 61,027,795 | 64,313,526 | 61,644,827 | ||||||||||||||||||||||
(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:
33
Detailed Information on Selected Items (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Equity awards compensation expense | ||||||||||||||||||||||||||
| Research and development expenses | $ | 4,858 | $ | 3,333 | $ | 11,572 | $ | 7,771 | ||||||||||||||||||
| Sales and operations expenses | 3,875 | 3,190 | 9,880 | 8,380 | ||||||||||||||||||||||
| General and administrative expenses | 4,557 | 280 | 11,389 | 6,314 | ||||||||||||||||||||||
| Total equity awards compensation expense | $ | 13,290 | $ | 6,803 | $ | 32,841 | $ | 22,465 | ||||||||||||||||||
| Pension service costs | ||||||||||||||||||||||||||
| Research and development expenses | 170 | 286 | 520 | 824 | ||||||||||||||||||||||
| Sales and operations expenses | 52 | 101 | 158 | 291 | ||||||||||||||||||||||
| General and administrative expenses | 108 | 185 | 327 | 534 | ||||||||||||||||||||||
Total pension service costs (a) | $ | 330 | $ | 572 | $ | 1,005 | $ | 1,649 | ||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of revenue (data center equipment) | 15,520 | 14,712 | 46,508 | 40,581 | ||||||||||||||||||||||
Research and development expenses (b) | 2,557 | 1,721 | 6,517 | 9,029 | ||||||||||||||||||||||
Sales and operations expenses (c) | 3,545 | 4,176 | 11,201 | 12,737 | ||||||||||||||||||||||
| General and administrative expenses | 679 | 1,143 | 2,420 | 3,751 | ||||||||||||||||||||||
| Total depreciation and amortization expense | $ | 22,301 | $ | 21,752 | $ | 66,646 | $ | 66,098 | ||||||||||||||||||
| Acquisition-related costs | ||||||||||||||||||||||||||
| General and administrative expenses | 2,091 | 112 | 5,138 | 112 | ||||||||||||||||||||||
| Total acquisition-related costs | $ | 2,091 | $ | 112 | $ | 5,138 | $ | 112 | ||||||||||||||||||
Restructuring related and transformation (gain) costs | ||||||||||||||||||||||||||
| Research and development expenses | (1,029) | 1,985 | 5,238 | 3,493 | ||||||||||||||||||||||
| Sales and operations expenses | (106) | 5,357 | 8,812 | 6,793 | ||||||||||||||||||||||
| General and administrative expenses | (632) | 4,839 | 5,815 | 5,320 | ||||||||||||||||||||||
| Total Restructuring related and transformation (gain) costs | $ | (1,767) | $ | 12,181 | $ | 19,865 | $ | 15,606 | ||||||||||||||||||
(a) Effective January 1, 2012, actuarial gains and losses are recognized in other comprehensive income.
(b) Includes acquisition-related amortization of intangible assets of $1.1 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively and $2.6 million and $6.1 million for the nine months ended September 2021 and, 2020, respectively.
(c) Includes acquisition-related amortization of intangible assets of $2.2 million and $2.2 million for the three months ended September 30, 2021 and 2020, respectively and $6.6 million and $6.5 million for the nine months ended September 30, 2021 and 2020, respectively.
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Detailed Information on Restructuring related and Transformation costs (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| (Gain) from forfeitures of share-based compensation awards | — | — | (666) | — | ||||||||||||||||||||||
| Facilities related (gain) costs | (1,645) | 7,023 | 14,692 | 8,817 | ||||||||||||||||||||||
| Payroll related (gain) costs | (334) | 2,858 | 4,637 | 4,489 | ||||||||||||||||||||||
| Consulting costs related to transformation | 212 | 2,300 | 1,202 | 2,300 | ||||||||||||||||||||||
| Total restructuring related and transformation (gain) costs | $ | (1,767) | $ | 12,181 | $ | 19,865 | $ | 15,606 | ||||||||||||||||||
The $(1.8) million restructuring related and transformation gain for the three month period ended September 30, 2021 almost entirely related to the reversal of certain expenses on the right-sizing of our office footprint.
For the three months ended and the nine months ended September 30, 2021 and September 30, 2020, respectively, the cash outflows related to restructuring related and transformation costs were $4.4 million and $ 6.2 million, and $20.9 million and $13.0 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):
| September 30, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | $ | 497,458 | $ | 488,011 | |||||||
| Total assets | 1,814,493 | 1,853,410 | |||||||||
Trade receivables, net of credit losses | 439,493 | 474,055 | |||||||||
| Total financial liabilities | 856 | 3,275 | |||||||||
| Total liabilities | 663,241 | 700,723 | |||||||||
| Total equity | $ | 1,151,252 | $ | 1,152,687 | |||||||
Other Financial and Operating Data (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands, except client data) | ||||||||||||||||||||||||||
| Number of clients | 21,747 | 20,565 | 21,747 | 20,565 | ||||||||||||||||||||||
Revenue ex-TAC (3) | $ | 210,961 | $ | 185,944 | $ | 644,604 | $ | 571,872 | ||||||||||||||||||
Adjusted Net Income (4) | $ | 41,033 | $ | 24,302 | $ | 125,041 | $ | 73,037 | ||||||||||||||||||
Adjusted EBITDA (5) | $ | 68,430 | $ | 49,471 | $ | 211,628 | $ | 147,572 | ||||||||||||||||||
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(3) We define Revenue ex-TAC (Traffic Acquisition Costs) as our revenue excluding traffic acquisition costs, or TAC, generated over the applicable measurement period. Revenue ex-TAC is not a measure calculated in accordance with U.S. GAAP. We have included Revenue ex-TAC 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 TAC from revenue can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Revenue 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 Revenue ex-TAC 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) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Revenue ex-TAC or similarly titled measures but calculate them differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Revenue ex-TAC alongside our other U.S. GAAP financial results, including revenue. The following table presents a reconciliation of Gross Profit to revenue, the most directly comparable U.S. GAAP measure, for each of the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| Revenue | $ | 508,580 | $ | 470,345 | $ | 1,600,968 | $ | 1,411,335 | |||||||||||||||
| Adjustment: | |||||||||||||||||||||||
| Traffic acquisition costs | (297,619) | (284,401) | (956,364) | (839,463) | |||||||||||||||||||
| Revenue ex-TAC | $ | 210,961 | $ | 185,944 | $ | 644,604 | $ | 571,872 | |||||||||||||||
36
(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, 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, 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 | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net income | $ | 24,230 | $ | 5,293 | $ | 62,709 | $ | 27,871 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Equity awards compensation expense | 13,290 | 6,803 | 32,841 | 22,465 | ||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 3,303 | 2,899 | 9,174 | 12,594 | ||||||||||||||||||||||
| Acquisition-related costs | 2,091 | 112 | 5,138 | 112 | ||||||||||||||||||||||
| Restructuring related and transformation (gain) costs | (1,767) | 12,181 | 19,865 | 15,606 | ||||||||||||||||||||||
| Tax impact of the above adjustments | (114) | (2,986) | (4,686) | (5,611) | ||||||||||||||||||||||
| Adjusted Net Income | $ | 41,033 | $ | 24,302 | $ | 125,041 | $ | 73,037 | ||||||||||||||||||
37
(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. 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 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 | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net income | $ | 24,230 | $ | 5,293 | $ | 62,709 | $ | 27,871 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Financial expense | 154 | 491 | 1,391 | 1,828 | ||||||||||||||||||||||
| Provision for income taxes | 7,801 | 2,267 | 22,033 | 11,943 | ||||||||||||||||||||||
| Equity awards compensation expense | 13,290 | 6,803 | 32,841 | 22,465 | ||||||||||||||||||||||
| Pension service costs | 330 | 572 | 1,005 | 1,649 | ||||||||||||||||||||||
| Depreciation and amortization expense | 22,301 | 21,752 | 66,646 | 66,098 | ||||||||||||||||||||||
| Acquisition-related costs | 2,091 | 112 | 5,138 | 112 | ||||||||||||||||||||||
| Restructuring related and transformation (gain) costs | (1,767) | 12,181 | 19,865 | 15,606 | ||||||||||||||||||||||
| Total net adjustments | 44,200 | 44,178 | 148,919 | 119,701 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 68,430 | $ | 49,471 | $ | 211,628 | $ | 147,572 | ||||||||||||||||||
38
Results of Operations for the Periods Ended September 30, 2021 and September 30, 2020 (Unaudited)
Revenue breakdown by region
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 508,580 | $ | 470,345 | 8 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 1,050 | |||||||||||||||
Revenue at constant currency (1) | 509,630 | 470,345 | 8 | % | |||||||||||||
| Americas | |||||||||||||||||
| Revenue as reported | 204,428 | 204,618 | (0.1) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (538) | |||||||||||||||
Revenue at constant currency (1) | 203,890 | 204,618 | (0.4) | % | |||||||||||||
| EMEA | |||||||||||||||||
| Revenue as reported | 188,354 | 167,800 | 12 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (686) | |||||||||||||||
Revenue at constant currency (1) | 187,668 | 167,800 | 12 | % | |||||||||||||
| Asia-Pacific | |||||||||||||||||
| Revenue as reported | 115,798 | 97,927 | 18 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 2,274 | |||||||||||||||
Revenue at constant currency(1) | $ | 118,072 | $ | 97,927 | 21 | % | |||||||||||
Revenue breakdown by solution
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 508,580 | $ | 470,345 | 8 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 1,050 | |||||||||||||||
Revenue at constant currency (1) | $ | 509,630 | $ | 470,345 | 8 | % | |||||||||||
| Marketing Solutions as reported | $ | 458,622 | $ | 412,126 | 11 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 1,404 | |||||||||||||||
Marketing Solutions at constant currency (1) | 460,026 | 412,126 | 12 | % | |||||||||||||
Retail Media as reported (2) | 49,958 | 58,219 | (14) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (354) | |||||||||||||||
Retail Media at constant currency (1) | 49,604 | 58,219 | (15) | % | |||||||||||||
(1) Revenue at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the 2020 average exchange rates for the relevant period to 2021 figures. We have included revenue at constant currency in this Form 10-Q because it is a key measure used by our management and board of directors to evaluate operating performance. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends.
39
(2) Criteo operates as one operating segment. From January 1,2021 we have disaggregated revenues between Marketing Solutions and Retail Media. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, 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 Revenue ex-TAC margin will likely increase. Revenue ex-TAC will not be impacted by this transition.
Revenue for the three months ended September 30, 2021 increased 8% or (8% on a constant currency basis) to $508.6 million compared to the three months ended September 30, 2020.
In the quarter, 72% of the year-over-year revenue increase was driven by the higher contribution from our existing clients while 28% came from new client additions. We added 1,182 net new clients year-over-year across regions, while revenue from existing clients increased by 5% at constant currency over the period.
Revenue by region
Our revenue in the Americas region was flat (or declined (0.4)% on a constant currency basis), including a decrease of (3)% in the U.S., to $204.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the Retail Media Platform ("RMP"). On a Revenue ex-TAC basis, our Americas business was up 19% year-over-year (or 18% on a constant currency basis), driven by positive retail trends across Marketing Solutions with strong performance among strategic accounts and continued momentum in Omnichannel, as well as continued strength in Retail Media reflecting scaling of the RMP with large retailers and brands.
Our revenue in EMEA increased 12% (or 12% on a constant currency basis), to $188.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, driven by strength in retail in our main markets, in particular in Germany, and solid traction in Retail Media, especially in the U.K. and France, offsetting continued softness from a well-known large travel client.
Our revenue in the Asia-Pacific region increased 18% (or 21% on a constant currency basis), to $115.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, driven by the strong recovery of our retail business in the region, in particular among strategic accounts, and improving Classifieds trends.
Revenue by solution
Marketing Solutions revenue increased 11% (or 12% on a constant currency basis), to $458.6 million for the three months ended September 30, 2021, driven by healthy demand from retail clients, both on our retargeting and audience targeting solutions, partially offset by continued identity and privacy changes, as expected, and continued softness from a well-known large travel client.
Retail Media revenue decreased (14)% (or (15)% on a constant currency basis), to $50.0 million for the three months ended September 30, 2021, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the RMP. Criteo's RMP accounts for a fast-growing share of Retail Media revenue, or about 62% in the third quarter of 2021, and its revenue is accounted for on a net basis. In the prior year period, less than 5% of retail media revenue was accounted for on a net basis, and as a result of this transition to a full RMP business, the growth of Retail Media revenue is temporarily impacted. Reflecting the underlying economic performance, Retail Media's Revenue ex-TAC increased 65% (or 65% on a constant currency basis) in the third quarter of 2021, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the RMP.
Additionally, our $508.6 million of revenue for the three months ended September 30, 2021 was negatively impacted by $1.1 million of currency fluctuations, particularly as a result of the depreciation of the Turkish Lira, Russian Ruble, Japanese Yen and the Brazilian real, partially offset by the appreciation of the Euro and the British pound sterling, compared to the U.S. dollar.
40
Revenue breakdown by region
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 1,600,968 | $ | 1,411,335 | 13 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (34,266) | |||||||||||||||
Revenue at constant currency (1) | 1,566,702 | 1,411,335 | 11 | % | |||||||||||||
| Americas | |||||||||||||||||
| Revenue as reported | 629,555 | 582,037 | 8 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 1,156 | |||||||||||||||
Revenue at constant currency (1) | 630,711 | 582,037 | 8 | % | |||||||||||||
| EMEA | |||||||||||||||||
| Revenue as reported | 609,753 | 517,535 | 18 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (31,004) | |||||||||||||||
Revenue at constant currency (1) | 578,749 | 517,535 | 12 | % | |||||||||||||
| Asia-Pacific | |||||||||||||||||
| Revenue as reported | 361,660 | 311,763 | 16 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (4,418) | |||||||||||||||
Revenue at constant currency(1) | $ | 357,242 | $ | 311,763 | 15 | % | |||||||||||
Revenue breakdown by solution
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 1,600,968 | $ | 1,411,335 | 13 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (34,266) | |||||||||||||||
Revenue at constant currency (1) | $ | 1,566,702 | $ | 1,411,335 | 11 | % | |||||||||||
| Marketing Solutions as reported | $ | 1,429,277 | $ | 1,263,169 | 13 | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (31,096) | |||||||||||||||
Marketing Solutions at constant currency (1) | 1,398,181 | 1,263,169 | 11 | % | |||||||||||||
Retail Media as reported (2) | 171,691 | 148,166 | 16 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (3,170) | |||||||||||||||
Retail Media at constant currency (1) | 168,521 | 148,166 | 14 | % | |||||||||||||
(1) Revenue at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the 2020 average exchange rates for the relevant period to 2021 figures. We have included revenue at constant currency in this Form 10-Q because it is a key measure used by our management and board of directors to evaluate operating performance. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends.
41
(2) Criteo operates as one operating segment. From January 1,2021 we have disaggregated revenues between Marketing Solutions and Retail Media. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, 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 Revenue ex-TAC margin will likely increase. Revenue ex-TAC will not be impacted by this transition.
Revenue for the nine months ended September 30, 2021 increased 13% (or 11% on a constant currency basis, as defined in footnote 1 above) to $1,601.0 million, compared to the nine months ended September 30, 2020.
In the first nine months of 2021, 84% of the year-over-year increase in revenue was driven by the higher contribution from our existing clients while 16% came from new client additions. We added 1,182 net new clients year-over-year across regions.
Revenue by region
Our revenue in the Americas region increased 8% (or 8% on a constant currency basis), including 6% in the U.S., to $629.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, driven by positive retail trends, in particular with large customers across Marketing Solutions, and continued strong performance of Retail Media, as the RMP continues to scale with consumer brands and large retailers, and reflecting the impact of recognizing revenue on a net basis for clients transitioning to the RMP.
Our revenue in EMEA increased 18% (or 12% on a constant currency basis) to $609.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, driven by positive retail trends in our main markets, in particular in Germany, positive traction with large customers across our retargeting and new solutions, and continued strong performance of Retail Media.
Our revenue in the Asia-Pacific region increased 16% (or 15% on a constant currency basis) to $361.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, mainly driven by the recovery of retail accounts in the region.
Revenue by solution
Marketing Solutions revenue increased 13% (or 11% on a constant currency basis) to $1,429.3 million for the nine months ended September 30, 2021, reflecting increased spend from Retail clients, both on our retargeting and audience targeting solutions, partially offset by continued identity and privacy changes, as expected, and continued softness from a large travel client.
Retail Media revenue increased 16% (or 14% on a constant currency basis) to $171.7 million for the nine months ended September 30, 2021, driven by strong performance with large retailers across the U.S. and EMEA, partially offset by the technical and transitory impact related to the ongoing client migration to the RMP. Criteo's RMP accounts for a fast-growing share of Retail Media revenue, or about 39% for the first nine months ended September 30, 2021, and its revenue is accounted for on a net basis. In the prior year period, less than 5% of Retail Media revenue was accounted for on a net basis, and as a result of this transition to a full RMP business, the growth of Retail Media revenue is temporarily impacted. Reflecting the underlying economic performance, Retail Media's Revenue ex-TAC increased 73% (or 70% on a constant currency basis) in the nine months ended September 30, 2021, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the RMP.
Additionally, our $1,601.0 million of revenue for the nine months ended September 30, 2021 was positively impacted by $(34.3) of currency fluctuations, particularly as a result of the depreciation of the Turkish Lira, Russian Ruble, Japanese Yen and the Brazilian real, partially offset by the appreciation of the Euro and the British pound sterling, compared to the U.S. dollar.
42
Cost of Revenue
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Traffic acquisition costs* | $ | (297,619) | $ | (284,401) | 5% | ||||||||||||
| Other cost of revenue | $ | (34,935) | $ | (34,608) | 1% | ||||||||||||
| Total Cost of Revenue | $ | (332,554) | $ | (319,009) | 4% | ||||||||||||
| % of revenue | (65) | % | (68) | % | |||||||||||||
| Gross profit % | 35 | % | 32 | % | |||||||||||||
*Traffic acquisition costs breakdown by solution:
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Marketing Solutions | $ | (276,498) | $ | (243,616) | 13% | ||||||||||||
Retail Media (1) | $ | (21,121) | $ | (40,785) | (48)% | ||||||||||||
| Traffic Acquisition Costs | $ | (297,619) | $ | (284,401) | 5% | ||||||||||||
Cost of revenue for the three months ended September 30, 2021 increased $13.5 million, or 4%, compared to the three months ended September 30, 2020. This increase was primarily the result of an increase of $13.2 million, or 5% (or 5% on a constant currency basis) in traffic acquisition costs driven by higher volume, and an increase of $0.3 million, or 1% (or 2% on a constant currency basis) in other cost of revenue.
Traffic acquisition costs in Marketing Solutions increased by 13%. This was driven by an 8% increase (or 9% at constant currency) in the average cost per thousand impressions ("CPM") for inventory purchased, reflecting the year-over-year recovery in the digital advertising market following the trough of the pandemic-related recession in the second quarter of 2020 and our preferred relationships with media owners, and a 5% 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 (48)%, reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our RMP. Because we recognize revenue on a net basis in all arrangements running on the RMP, we expect our Traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the RMP.
The increase in other cost of revenue included a $(0.8) million increase in allocated depreciation and amortization expense following the acquisitions of servers and other equipment used in our data centers and a $(0.6) million increase in other costs of sales mainly due to the digital tax, offset by a $1.1 million decrease in hosting and data acquisition costs.
(1) Criteo operates as one operating segment. From January 1,2021 we have disaggregated revenues between Marketing Solutions and Retail Media. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, 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 Revenue ex-TAC margin will likely increase. Revenue ex-TAC will not be impacted by this transition.
43
We consider Revenue ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing the growth of our Revenue 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 Engine’s performance, allowing it to deliver more relevant advertisements at scale. As part of this focus, we continue to invest in building relationships with direct publishers and pursuing access to leading advertising exchanges.
Our performance-based business model allows us to control our level of Revenue ex-TAC margin.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Traffic acquisition costs* | $ | (956,364) | $ | (839,463) | 14% | ||||||||||||
| Other cost of revenue | $ | (107,011) | $ | (102,328) | 5% | ||||||||||||
| Total Cost of Revenue | $ | (1,063,375) | $ | (941,791) | 13% | ||||||||||||
| % of revenue | (66) | % | (67) | % | |||||||||||||
| Gross profit % | 34 | % | 33 | % | |||||||||||||
*Traffic acquisition costs breakdown by solution:
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Marketing Solutions | $ | (861,503) | $ | (735,663) | 17% | ||||||||||||
Retail Media (1) | $ | (94,861) | $ | (103,800) | (9)% | ||||||||||||
| Traffic Acquisition Costs | $ | (956,364) | $ | (839,463) | 14% | ||||||||||||
Cost of revenue for the nine months ended September 30, 2021 increased $121.6 million, or 13%, compared to the nine months ended September 30, 2020. This increase was primarily the result of an increase of $116.9 million, or 14% (or 11% on a constant currency basis), in traffic acquisition costs and an increase of $4.7 million, or 5% (or 4% on a constant currency basis), in other cost of revenue.
Traffic acquisition costs in Marketing Solutions increased by 17%, driven by a 8% increase (or 6% at constant currency) in the average CPM for inventory purchased, reflecting the year-over-year recovery in the digital advertising market following the trough of the pandemic-related recession in the second quarter of 2020 and our preferred relationships with media owners, as well as a 8% 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.
(1) Criteo operates as one operating segment. From January 1,2021 we have disaggregated revenues between Marketing Solutions and Retail Media. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, 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 Revenue ex-TAC margin will likely increase. Revenue ex-TAC will not be impacted by this transition.
44
Traffic acquisition costs in Retail Media(1) decreased by (9)%, reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our RMP. Because we recognize revenue on a net basis in all arrangements running on the RMP, we expect our Traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the RMP.
The increase in other cost of revenue included a $(5.9) million increase in allocated depreciation and amortization expense following the acquisitions of servers and other equipment used in our data centers, a $(3.2) million increase in other costs, including the provision for digital taxes offset by a $3.8 million decrease in hosting costs and a $0.8 million decrease in data acquisition costs.
We consider Revenue ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing the growth of our Revenue 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 Engine’s performance, allowing it to deliver more relevant advertisements at scale. As a part of this focus, we continue to invest in building relationships with direct publishers and pursuing access to leading advertising exchanges.
Our performance-based business model allows us to control our level of Revenue ex-TAC margin.
(1) Criteo operates as one operating segment. From January 1,2021 we have disaggregated revenues between Marketing Solutions and Retail Media. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, 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 Revenue ex-TAC margin will likely increase. Revenue ex-TAC will not be impacted by this transition.
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Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region
The following table sets forth our revenue, traffic acquisition costs and Revenue ex-TAC by geographic region, including the Americas (North and South America), Europe, Middle East and Africa, or EMEA, and Asia-Pacific.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| Region | September 30, 2021 | September 30, 2020 | YoY Change | YoY Change at Constant Currency | September 30, 2021 | September 30, 2020 | YoY Change | YoY Change at Constant Currency | ||||||||||||||||||||||||||||||||||||||||||
| Revenue | (amounts in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 204,428 | $ | 204,618 | — | % | — | % | $ | 629,555 | $ | 582,037 | 8 | % | 8 | % | ||||||||||||||||||||||||||||||||||
| EMEA | 188,354 | 167,800 | 12 | % | 12 | % | 609,753 | 517,535 | 18 | % | 12 | % | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 115,798 | 97,927 | 18 | % | 21 | % | 361,660 | 311,763 | 16 | % | 15 | % | ||||||||||||||||||||||||||||||||||||||
| Total | 508,580 | 470,345 | 8 | % | 8 | % | 1,600,968 | 1,411,335 | 13 | % | 11 | % | ||||||||||||||||||||||||||||||||||||||
| Traffic Acquisition Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | (116,796) | (130,756) | (11) | % | (11) | % | (378,756) | (366,095) | 3 | % | 4 | % | ||||||||||||||||||||||||||||||||||||||
| EMEA | (111,869) | (97,272) | 15 | % | 15 | % | (363,264) | (295,822) | 23 | % | 16 | % | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | (68,954) | (56,373) | 22 | % | 25 | % | (214,344) | (177,546) | 21 | % | 19 | % | ||||||||||||||||||||||||||||||||||||||
| Total | (297,619) | (284,401) | 5 | % | 5 | % | (956,364) | (839,463) | 14 | % | 11 | % | ||||||||||||||||||||||||||||||||||||||
Revenue ex-TAC (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | 87,632 | 73,862 | 19 | % | 18 | % | 250,799 | 215,942 | 16 | % | 16 | % | ||||||||||||||||||||||||||||||||||||||
| EMEA | 76,485 | 70,528 | 8 | % | 8 | % | 246,489 | 221,713 | 11 | % | 6 | % | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 46,844 | 41,554 | 13 | % | 15 | % | 147,316 | 134,217 | 10 | % | 8 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 210,961 | $ | 185,944 | 13 | % | 14 | % | $ | 644,604 | $ | 571,872 | 13 | % | 10 | % | ||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| Solution | September 30, 2021 | September 30, 2020 | YoY Change | YoY Change at Constant Currency | September 30, 2021 | September 30, 2020 | YoY Change | YoY Change at Constant Currency | ||||||||||||||||||||||||||||||||||||||||||
| Revenue | (amounts in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing Solutions | $ | 458,622 | $ | 412,126 | 11 | % | 12 | % | $ | 1,429,277 | $ | 1,263,169 | 13 | % | 11 | % | ||||||||||||||||||||||||||||||||||
| Retail Media | 49,958 | 58,219 | (14) | % | (15) | % | 171,691 | 148,166 | 16 | % | 14 | % | ||||||||||||||||||||||||||||||||||||||
| Total | 508,580 | 470,345 | 8 | % | 8 | % | 1,600,968 | 1,411,335 | 13 | % | 11 | % | ||||||||||||||||||||||||||||||||||||||
| Traffic Acquisition Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing Solutions | (276,498) | (243,616) | 13 | % | 14 | % | (861,503) | (735,663) | 17 | % | 15 | % | ||||||||||||||||||||||||||||||||||||||
| Retail Media | (21,121) | (40,785) | (48) | % | (49) | % | (94,861) | (103,800) | (9) | % | (10) | % | ||||||||||||||||||||||||||||||||||||||
| Total | (297,619) | (284,401) | 5 | % | 5 | % | (956,364) | (839,463) | 14 | % | 11 | % | ||||||||||||||||||||||||||||||||||||||
Revenue ex-TAC (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing Solutions | 182,124 | 168,510 | 8 | % | 8 | % | 567,774 | 527,506 | 8 | % | 5 | % | ||||||||||||||||||||||||||||||||||||||
| Retail Media | 28,837 | 17,434 | 65 | % | 65 | % | 76,830 | 44,366 | 73 | % | 70 | % | ||||||||||||||||||||||||||||||||||||||
| Total | 210,961 | 185,944 | 13 | % | 14 | % | 644,604 | 571,872 | 13 | % | 10 | % | ||||||||||||||||||||||||||||||||||||||
46
(1) We define Revenue ex-TAC as our revenue excluding traffic acquisition costs generated over the applicable measurement period. Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region are not measures calculated in accordance with U.S. GAAP. We have included Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region in this Form 10-Q because they are key measures used by our management and board of directors to evaluate operating performance and generate future operating plans. In particular, we believe that the elimination of TAC from revenue and review of these measures by region can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region 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 Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region has limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region or similarly titled measures but define the regions differently, which reduces their effectiveness as a comparative measure; and (c) other companies may report Revenue ex-TAC or similarly titled measures but calculate them differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region alongside our other U.S. GAAP financial results, including revenue. The above table provides a reconciliation of revenue ex-TAC by region to revenue by region. Please also refer to footnote 3 to the Other Financial and Operating Data table in "Item 2—Management's Discussion and Analysis" of this Form 10-Q for a reconciliation of revenue ex-TAC to revenue, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
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Constant Currency Reconciliation
Information in this Form 10-Q with respect to results presented on a constant currency basis was calculated by applying the 2020 average exchange rates for the relevant period to 2021 figures. We have included information with respect to our results presented on a constant currency basis because it is a key measure used by our management and board of directors to evaluate operating performance. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends. 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 | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | YoY Change | September 30, 2021 | September 30, 2020 | YoY Change | |||||||||||||||||||||||||||||||||
| (amounts in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 508,580 | $ | 470,345 | 8 | % | $ | 1,600,968 | $ | 1,411,335 | 13 | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 1,050 | — | (34,266) | — | ||||||||||||||||||||||||||||||||||
| Revenue at constant currency | $ | 509,630 | $ | 470,345 | 8 | % | $ | 1,566,702 | $ | 1,411,335 | 11 | % | ||||||||||||||||||||||||||
| Traffic acquisition costs as reported | $ | (297,619) | $ | (284,401) | 5 | % | $ | (956,364) | $ | (839,463) | 14 | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (771) | — | 20,829 | — | ||||||||||||||||||||||||||||||||||
| Traffic Acquisition Costs at constant currency | $ | (298,390) | $ | (284,401) | 5 | % | $ | (935,535) | $ | (839,463) | 11 | % | ||||||||||||||||||||||||||
| Revenue ex-TAC as reported | $ | 210,961 | $ | 185,944 | 13 | % | $ | 644,604 | $ | 571,872 | 13 | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 279 | — | (13,436) | — | ||||||||||||||||||||||||||||||||||
| Revenue ex-TAC at constant currency | $ | 211,240 | $ | 185,944 | 14 | % | $ | 631,168 | $ | 571,872 | 10 | % | ||||||||||||||||||||||||||
| Revenue ex-TAC/Revenue as reported | 41 | % | 40 | % | 40 | % | 41 | % | ||||||||||||||||||||||||||||||
| Other cost of revenue as reported | $ | (34,935) | $ | (34,608) | 1 | % | $ | (107,011) | $ | (102,328) | 5 | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (334) | — | 547 | — | ||||||||||||||||||||||||||||||||||
| Other cost of revenue at constant currency | $ | (35,269) | $ | (34,608) | 2 | % | $ | (106,464) | $ | (102,328) | 4 | % | ||||||||||||||||||||||||||
| Adjusted EBITDA as reported | $ | 68,430 | $ | 49,471 | 38 | % | $ | 211,628 | $ | 147,572 | 43 | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (674) | — | (9,698) | — | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA at constant currency | $ | 67,756 | $ | 49,471 | 37 | % | $ | 201,930 | $ | 147,572 | 37 | % | ||||||||||||||||||||||||||
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Research and Development Expenses
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Research and development expenses | $ | (33,345) | $ | (30,954) | 8% | ||||||||||||
| % of revenue | (7) | % | (7) | % | |||||||||||||
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Research and development expenses | $ | (106,957) | $ | (99,716) | 7% | ||||||||||||
| % of revenue | (7) | % | (7) | % | |||||||||||||
Research and development expenses for the three months ended and the nine months ended September 30, 2021, respectively, increased $(2.4) million and $(7.2) million or 8% and 7%, compared to the three months ended and the nine months ended September 30, 2020. This increase mainly relates to the negative impact of our increasing stock price on compensation expense.
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Sales and Operations Expenses
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Sales and operations expenses | $ | (75,619) | $ | (83,659) | (10)% | ||||||||||||
| % of revenue | (15) | % | (18) | % | |||||||||||||
Sales and operations expenses for the three months ended September 30, 2021 decreased $8.0 million or (10)% compared to the three months ended September 30, 2020. This decrease mainly related to a decrease of net bad debt expense, lower rent and facilities and depreciation and amortization costs, offset by a higher share-based compensation expense and marketing costs.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Sales and operations expenses | $ | (235,724) | $ | (244,414) | (4)% | ||||||||||||
| % of revenue | (15) | % | (17) | % | |||||||||||||
Sales and operations expenses for the nine months ended September 30, 2021, decreased $8.7 million or (4)%, compared to the nine months ended September 30, 2020. This decrease was mainly driven by lower net bad debt expense, lower depreciation and amortization costs and lower rent and facilities costs due to the right-sizing of our real estate footprint, partially offset by the reversal of a provision that was settled in 2020 and the negative impact of our increasing stock price on compensation expense.
50
General and Administrative Expenses
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| General and administrative expenses | $ | (34,877) | $ | (28,672) | 22% | ||||||||||||
| % of revenue | (7) | % | (6) | % | |||||||||||||
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| General and administrative expenses | $ | (108,779) | $ | (83,772) | 30% | ||||||||||||
| % of revenue | (7) | % | (6) | % | |||||||||||||
General and administrative expenses for the three months ended and the nine months ended September 30, 2021, respectively, increased $(6.2) million and $(25.0) million or 22% and 30%, compared to the three months ended and the nine months ended September 30, 2020. This increase was mainly related to an increase in third-party services as part of our on-going transformation program and an increase in headcount related costs including the negative impact of our increasing stock price on compensation expense.
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Financial Expense
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Financial expense | $ | (154) | $ | (491) | (69)% | ||||||||||||
| % of revenue | — | % | (0.1) | % | |||||||||||||
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Financial expense | $ | (1,391) | $ | (1,828) | (24)% | ||||||||||||
| % of revenue | (0.1) | % | (0.1) | % | |||||||||||||
Financial expense for the three months ended and the nine months ended September 30, 2021, decreased by $(0.3) million and $(0.4) million or (69)% and (24)%, respectively, compared to the three months ended and the nine months ended period September 30, 2020. The $0.2 million and $1.4 million financial expense for the three months ended and nine months ended September 30, 2021, respectively, was driven by the up-front fees amortization, the non-utilization costs and the financial expense relating to our available Revolving Credit Facility financing and the negative impact of foreign exchange reevaluations net of related hedging. At September 30, 2021, 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.
52
Provision for Income Taxes
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Provision for income taxes | $ | (7,801) | $ | (2,267) | 244% | ||||||||||||
| % of revenue | (2) | % | (0.5) | % | |||||||||||||
| Effective tax rate | 24 | % | 30 | % | |||||||||||||
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Provision for income taxes | $ | (22,033) | $ | (11,943) | 84% | ||||||||||||
| % of revenue | (1) | % | (1) | % | |||||||||||||
| Effective tax rate | 26 | % | 30 | % | |||||||||||||
For the nine months ended September 30, 2021 and September 30, 2020, we used an annual estimated tax rate of 26% and 30%, respectively, to calculate the provision for income taxes.
53
Net Income
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Net income | $ | 24,230 | 5,293 | 358% | |||||||||||||
| % of revenue | 5 | % | 1 | % | |||||||||||||
Net income for the three months ended September 30, 2021, increased $18.9 million, or 358%, compared to the three months ended September 30, 2020. This increase was the result of the business dynamics discussed above, in particular, a $24.1 million increase in income from operations and a $0.3 million decrease in financial expense, partially offset by a $(5.5) million increase in provision for income taxes compared to the three months ended September 30, 2020.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2021 | September 30, 2020 | 2021 vs 2020 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Net income | $ | 62,709 | 27,871 | 125% | |||||||||||||
| % of revenue | 4 | % | 2 | % | |||||||||||||
Net income for the nine months ended September 30, 2021, increased $34.8 million, or 125%, compared to the nine months ended September 30, 2020. This increase was the result of the business dynamics discussed above, in particular, a $44.5 million increase in income from operations and a $0.4 million decrease in financial expense partially offset by a $(10.1) million increase in provision for income taxes compared to the nine months ended September 30, 2020.
54
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, for which the duration is estimated to be until December, 2021. 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 are invested primarily in demand deposit accounts that currently provide only a minimal return. Our cash and cash equivalents at September 30, 2021 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $497.5 million as of September 30, 2021. The $9.4 million increase in cash and cash equivalents compared with December 31, 2020 primarily resulted from $154.9 million in cash from operating activities, partially offset by $(66.2) million in cash used for investing activities and $(55.8) million in cash used for financing activities over the period. The cash used for financing activities was mainly related to $(72.6) million in cash used for the share repurchase programs, partially offset by $21.7 million in proceeds from a capital increase following the exercises of stock options. In addition, the increase in cash includes an $(23.4) 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 €350 ($405.3 million) from the Revolving Credit Facility, which, combined with our cash position, marketable securities and treasury shares as of September 30, 2021, provides total liquidity in excess of $1.0 billion. Overall, we believe that our current financial liquidity, combined with our expected cash-flow generation in 2021, enables financial flexibility.
Operating and Capital Expenditure Requirements
For the nine months ended September 30, 2021 and 2020, our capital expenditures were $42.9 million and $43.2 million, respectively. During the nine months ended September 30, 2021, 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 2021, 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.
55
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.
56
Historical Cash Flows
The following table sets forth our cash flows for the nine month period ended September 30, 2021 and September 30, 2020:
| Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Cash (used for) from operating activities | $ | 154,901 | $ | 141,276 | |||||||
| Cash (used for) from investing activities | $ | (66,195) | $ | (63,799) | |||||||
| Cash (used for) from financing activities | $ | (55,821) | $ | 111,758 | |||||||
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 nine months ended September 30, 2021, net cash provided by operating activities was $154.9 million and consisted of net income of $62.7 million, $103.6 million in adjustments for certain non-cash and non-operating items and changes in working capital of $(11.4) million. Adjustments for certain non-operating items primarily consisted of amortization and provision expense of $67.9 million, equity awards compensation expense of $32.2 million, $4.7 million on disposal of non-current assets and $4.6 million changes in deferred tax assets, partially offset by a $(5.8)million change in income taxes. The $(11.4) million decrease in cash used for changes in working capital primarily consisted of a $16.7 million decrease in trade receivables, partially offset by a $(12.7) million increase in other current assets including prepaid expenses and value-added tax ("VAT") receivables, a $(3.9) million change in lease liabilities and right of use assets, a $(5.7) million decrease in trade payables, and a $(5.8) million decrease 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 nine months ended September 30, 2021, net cash used for investing activities was $66.2 million and primarily consisted of $42.9 million in capital expenditures, mainly comprised of purchases of servers and other data-center equipment and capitalized software development costs, a $13.8 million negative change in other non-current financial assets resulting from the investments in Marketable Securities and a $9.5 million payment net of cash acquired for the Mabaya acquisition.
Financing Activities
For the nine months ended September 30, 2021, net cash used for financing activities was $55.8 million, resulting mainly from a $72.6 million payment for our share repurchase program, a $3.6 million change in other financial liabilities and a $1.3 million repayment of borrowings partially offset by $21.7 million of proceeds from capital increase following the exercises of stock options.
57
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
We are mainly exposed to foreign currency exchange rate fluctuations. There have been no material changes to our exposure to market risk during the nine months ended September 30, 2021.
For a description of our foreign exchange risk, please see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - B. Liquidity and Capital Resources" in our Annual Report on Form 10-K for the year ended December 31, 2020.
A hypothetical 10% increase or decrease of the Pound Sterling, the Euro, the Japanese yen or the Brazilian real against the U.S. dollar would have impacted the Condensed Consolidated Statements of Income as follows:
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| GBP/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income impact | $ | (278) | $ | 278 | $ | (10) | $ | 10 | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| BRL/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income impact | $ | 180 | $ | (180) | $ | (37) | $ | 37 | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| JPY/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income impact | $ | 392 | $ | (392) | $ | 302 | $ | (302) | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| EUR/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income impact | $ | 8,075 | $ | (8,075) | $ | 7,416 | $ | (7,416) | |||||||||||||||
Credit Risk and Trade receivables
For a description of our credit risk and trade receivables, please see "Note 3. Financial instruments" and "Note 4. Trade Receivables" in the Notes to the Consolidated Financial Statements.
58
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Based on their evaluation as of September 30, 2021, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to provide reasonable assurance that (i) the information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
Limitation on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Criteo have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error of fraud may occur and may not be detected.
59
PART II
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
You should carefully consider the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our subsequent quarterly reports on Form 10-Q. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any such risks materialize, our business, financial condition and results of operations could be materially harmed and the trading price of our American Depositary Shares could decline. These risks are not exclusive and additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. There have been no material changes to the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the issuer and Affiliated Purchasers
The following table provides certain information with respect to our purchases of our ADSs during the third fiscal quarter of 2021:
| Period | Total Number of Shares Purchased(1) | Average Price Paid per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1) | ||||||||||||||||||||||
| July 1 to 31, 2021 | 310,220 | $ | 42.07 | 310,220 | $ | 52,027,085.50 | ||||||||||||||||||||
| August 1 to 31, 2021 | 328,373 | $ | 38.01 | 328,373 | $ | 39,541,084.50 | ||||||||||||||||||||
| September 1 to 30, 2021 | 341,775 | $ | 35.63 | 341,775 | $ | 27,388,888.50 | ||||||||||||||||||||
| Total | 980,368 | $ | 38.56 | 980,368 | — | |||||||||||||||||||||
(1) On February 5, 2021, Criteo's Board of Directors authorized a share repurchase program of up to $100.0 million of the Company's outstanding American Depositary Shares. The Company intends to use repurchased shares to satisfy employee equity plan vesting in lieu of issuing new shares, and potentially in connection with M&A transactions. The repurchase program commenced in March 2021 and the duration is estimated to be until December 2021.
(2) Average price paid per share excludes any broker commissions paid.
60
Item 6. Exhibits.
Exhibit Index
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | |||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101. | |||||||||||||||||||||||||||||||
# Filed herewith.
* Furnished herewith.
61
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CRITEO S.A. | ||||||||
| (Registrant) | ||||||||
| By: | /s/ Sarah Glickman | |||||||
| Date: November 3, 2021 | Name: | Sarah Glickman | ||||||
| Title: | Chief Financial Officer | |||||||
| (Principal financial officer and duly authorized signatory) | ||||||||
62
Exhibit 31.1
Certification by the Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Megan Clarken, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Criteo S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 3, 2021
| /s/ Megan Clarken | ||
| Megan Clarken | ||
| Chief Executive Officer (Principal Executive Officer) | ||
Exhibit 31.2
Certification by the Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Sarah Glickman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Criteo S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 3, 2021
| /s/ Sarah Glickman | ||
| Sarah Glickman | ||
| Chief Financial Officer | ||
Exhibit 32.1
Certification by the Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Megan Clarken, Chief Executive Officer of Criteo S.A. (the “Company”), and Sarah Glickman, Chief Financial Officer of the Company, each hereby certifies that, to the best of their knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 3, 2021
| /s/ Megan Clarken | /s/ Sarah Glickman | |||||||
| Megan Clarken | Sarah Glickman | |||||||
| Chief Executive Officer | Chief Financial Officer | |||||||
This certification accompanies the Quarterly Report, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Quarterly Report), irrespective of any general incorporation language contained in such filing.