Criteo S.A 10-Q for FY2022 Q3
Criteo S.A. (CRTO)
10-Q
2022-11-01
For: 2022-09-30
View Original
Added on
April 08, 2026
About this 10-Q
Criteo S.A filed this 10-Q on November 1, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $446.92M
- down 12.1% from $508.58M a year earlier
- Net income
- $6.58M
- down 72.0% from net income of $23.48M a year earlier
- Diluted EPS
- $0.10
- down 73.0% from $0.37 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, 2022
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 75 85 09 39
(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 31, 2022, the registrant had 60,210,797 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 and potential effect of inflation and rising interest rates in the U.S., including the macroeconomic effects, on our business, operations, and financial results;
•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;
•the invasion of Ukraine by Russia and the effect of resulting sanctions on our business;
•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, 2021, 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
2
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, 2022 | December 31, 2021 | ||||||||||||
| (in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | 4 | $ | $ | |||||||||||
Trade receivables, net of allowances of $ | 5 | |||||||||||||
| Income taxes | 13 | |||||||||||||
| Other taxes | ||||||||||||||
| Other current assets | 6 | |||||||||||||
| Restricted cash - current | 4 | |||||||||||||
| Marketable securities - current portion | 4 | |||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Goodwill | 2 | |||||||||||||
| Right of use assets - operating lease | 8 | |||||||||||||
| Restricted cash - non-current | 4 | |||||||||||||
| Marketable securities - non-current portion | 4 | |||||||||||||
| Non-current financial assets | ||||||||||||||
| Other non-current assets | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Total non-current assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and shareholders' equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Trade payables | $ | $ | ||||||||||||
| Contingencies - current portion | 15 | |||||||||||||
| Income taxes | 13 | |||||||||||||
| Financial liabilities - current portion | 4 | |||||||||||||
| Lease liability - operating - current portion | 8 | |||||||||||||
| Other taxes | ||||||||||||||
| Employee - related payables | ||||||||||||||
| Other current liabilities | 7 | |||||||||||||
| Total current liabilities | ||||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Defined benefit plans | 9 | |||||||||||||
| Financial liabilities - non-current portion | 4 | |||||||||||||
| Lease liability - operating - non-current portion | 8 | |||||||||||||
| Contingencies - non-current portion | 15 | |||||||||||||
| Other non-current liabilities | 7 | |||||||||||||
| 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.
3
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| Notes | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
| (in thousands, except share per data) | |||||||||||||||||||||||||||||
| Revenue | 10 | $ | $ | $ | $ | ||||||||||||||||||||||||
| 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 (loss) from operations | ( | ||||||||||||||||||||||||||||
| Financial and Other income (expense) | 12 | ( | ( | ||||||||||||||||||||||||||
| Income (loss) before taxes | ( | ||||||||||||||||||||||||||||
| Provision for income taxes | 13 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income (loss) available to shareholders of Criteo S.A. | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income (loss) available to non-controlling interests | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Weighted average shares outstanding used in computing per share amounts: | |||||||||||||||||||||||||||||
| Basic | 14 | ||||||||||||||||||||||||||||
| Diluted | 14 | ||||||||||||||||||||||||||||
| Net income (loss) allocated to shareholders per share: | |||||||||||||||||||||||||||||
| Basic | 14 | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Diluted | 14 | $ | $ | $ | ( | $ | |||||||||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
4
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Foreign currency translation differences, net of taxes | ( | ( | ( | ( | |||||||||||||||||||
| Actuarial gains on employee benefits, net of taxes | |||||||||||||||||||||||
| Other comprehensive income (loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Total comprehensive income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| 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.
5
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
| Share capital | Treasury Stock | Additional paid-in capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interest | Total equity | |||||||||||||||||||||||||
| Common shares | Shares | |||||||||||||||||||||||||||||||
| (in thousands, except share amounts ) | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $( | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | |||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | — | — | ( | ( | — | ( | |||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | |||||||||||||||||||||||||||
| Change in treasury stocks | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | ( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||
| Issuance of ordinary shares | ( | — | — | — | — | — | ||||||||||||||||||||||||||
| Change in treasury stocks | — | ( | ( | ( | — | ( | ( | — | ( | |||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | ( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||
(*) 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.
6
| Share capital | Treasury Stock | Additional paid-in capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interest | Total equity | |||||||||||||||||||||||||||||||
| Common shares | Shares | |||||||||||||||||||||||||||||||||||||
| (in thousands, except share amounts ) | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||
| Issuance of ordinary shares | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Change in treasury stocks(*) | — | — | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||
| Issuance of ordinary shares | ( | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Change in treasury stocks(*) | — | ( | ( | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||
| Issuance of ordinary shares | ( | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Change in treasury stocks(*) | — | ( | ( | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | ( | $( | $ | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(*) On February 3, 2022, Criteo's board of directors authorized an extension of the share repurchase program to up to $280.0 million of the Company's outstanding American Depositary Shares. The change in treasury stocks is comprised of 2,195,411 shares repurchased at an average price of $26.7 offset by 1,401,489 treasury shares used for RSUs and LUSs vesting, 952,386 shares retired.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
7
CRITEO S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended | ||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net income (loss) | $ | ( | $ | |||||||||||
| Non-cash and non-operating items | ||||||||||||||
| - Amortization and provisions | ||||||||||||||
| - Net gain or (loss) on disposal of non-current assets | ( | |||||||||||||
- Equity awards compensation expense (1) | ||||||||||||||
| - Interest accrued and non-cash financial income and expenses | ( | |||||||||||||
| - Change in deferred taxes | ( | |||||||||||||
| - Change in income taxes | ( | ( | ||||||||||||
- Other (2) | ( | |||||||||||||
| 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) from 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 | ( | |||||||||||||
Other (2) | ||||||||||||||
| Cash used for financing activities | ( | ( | ||||||||||||
| Effect of exchange rates changes on cash and cash equivalents | ( | ( | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||||||||
| Net cash and cash equivalents at beginning of period | ||||||||||||||
| Net cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||
| Cash paid for taxes, net of refunds | ( | ( | ||||||||||||
| Cash paid for interest | ( | ( | ||||||||||||
(1) Of which $41.1 million and $30.8 million of equity awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the nine months ended September 30, 2022 and 2021, respectively.
(2) Primarily consists of realized gains in FX hedges.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
8
CRITEO S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Criteo S.A. was initially incorporated as a société par actions simplifiée, or S.A.S., under the laws of the French Republic on November 3, 2005, for a period of 99 years and subsequently converted to a société anonyme, or S.A.
We are a global technology company that enables marketers and media owners to drive better commerce outcomes through the world’s leading Commerce Media Platform. We bring richer experiences to every consumer by supporting a fair and open internet that enables discovery, innovation, and choice — powered by trusted and impactful advertising from the world’s marketers and media owners.
We are leading the way of commerce media — a new approach to advertising that combines commerce data and machine learning to target consumers throughout their shopping journey and help marketers and media owners drive commerce outcomes (sales, leads, advertising revenue).
Our strategy is to help marketers and media owners activate 1st-party, privacy-safe data and drive better commerce outcomes through our Commerce Media Platform, a suite of products:
•that offer marketers (brands, retailers, and agencies) the ability to easily reach consumers anywhere throughout their shopping journey and measure their advertising campaigns
•that offer media owners (publishers and retailers) the ability to monetize their advertising and promotions inventory for commerce anywhere where consumers spend their time
•sitting on top of a dataset and technology that power our entire offering.
In these notes, Criteo S.A. is referred to as the "Parent" company and together with its subsidiaries, collectively, as "Criteo," the "Company," the "Group," or "we".
9
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements included herein (the "Unaudited Condensed Consolidated Financial Statements") have been prepared by Criteo pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.
Conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in the condensed consolidated financial statements and accompanying notes. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. Our actual results may differ from these estimates. U.S. GAAP requires us to make estimates and judgments in several areas, including, but not limited to: (1) revenue recognition criteria, (2) allowances for credit losses, (3) research tax credits, (4) income taxes, including (i) recognition of deferred tax assets arising from the subsidiaries projected taxable profit for future years, (ii) evaluation of uncertain tax positions associated with our transfer pricing policy and (iii) recognition of income tax position in respect with tax reforms recently enacted in countries we operate, (5) assumptions used in valuing acquired assets and assumed liabilities in business combinations, (6) assumptions used in the valuation of goodwill, intangible assets and right of use assets - operating lease, and (7) assumptions used in the valuation model to determine the fair value of share-based compensation plan.
10
Accounting Pronouncements Adopted in 2022
Effective January 1, 2022, we have adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance (ASU 2021-10), which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. The impacts on our annual consolidated financial statements will be limited as a result of adoption of this standard.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s Consolidated Financial Statements upon adoption.
Note 2. Business acquisitions
On August 1, 2022, the Company, Iponweb Holding Limited, Exezars Limited (a subsidiary of Iponweb Holding Limited and collectively with Iponweb Holding Limited, the “Sellers”), Mr. Ljubisa Bogunovic, in his capacity as trustee of the “IW General Management Trust” and Mr. Boris Mouzykantskii, founder and Chief Executive Officer of Iponweb Holding Limited (the “Founder”) entered into an amended and restated Framework Purchase Agreement (the “FPA”), amending and restating the previously disclosed framework purchase agreement, dated December 22, 2021, which provided for the acquisition of the business of Iponweb Holding Limited (the "Iponweb business"), a market-leading AdTech company with world-class media trading capabilities, by the Company (the “Iponweb Acquisition”).
This business combination is composed of an asset purchase of Iponweb intellectual property and other intangible rights and a share purchase of 100 % of the share capital and voting rights of nine Iponweb operational legal entities.
Purchase price. The purchase price, as per ASC 805, was $287.6 million (subject to post-close purchase price adjustments) for the Iponweb business, out of which $61.2 million represents the fair value of the contingent consideration and is payable based upon the achievement of certain net revenue targets by the Iponweb business for the 2022 and 2023 fiscal years. The FPA also provides for contingent consideration payable in cash to the Sellers in an amount up to $100 million, conditioned upon the achievement of certain net revenue targets by the Iponweb business for the 2022 and 2023 fiscal years.
Separate compensation arrangement. The Company transferred Treasury shares with a fair value of $70.2 million to Iponweb's Sellers, subject to lock-up conditions. As these shares are subject to a lock-up period that expires in three installments on each of the first anniversaries of the Iponweb Acquisition, unless the Founder's employment agreement is terminated under certain circumstances during the pendency of such lock-up period, the $70.2 million fair value was not included in the purchase price consideration above and will be accounted for separately from the business combination as a stock compensation expense. See Note 11 for further discussion.
Financing. The acquisition was financed by available cash resources, and in connection with the Acquisition, the Company drew down €50.0 million ($51.1 million) for a one-month period on its then-current revolving credit facility (repaid prior to quarter end) to provide additional liquidity.
Assets acquired and liabilities assumed. The transaction was accounted for as a business acquisition. The purchase price allocation is in progress and we expect to complete this analysis within one year from the Acquisition Date.
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| Estimated fair values | ||||||||
| (in millions) | ||||||||
| Cash and cash equivalents | ||||||||
| Trade receivables | ||||||||
| Other current assets | ||||||||
| Other non-current assets | ||||||||
| Trade Payables | ( | |||||||
| Other current liabilities | ( | |||||||
| Other non-current liabilities | ( | |||||||
Net assets acquired | $ | |||||||
In the Iponweb business's opening balance sheet, Criteo recognized an $18.0 million liability related to the Iponweb business's uncertain tax positions in accordance with ASC 740. The Company also recognized a $32.7 million provision in connection with the Iponweb business, accounted for under ASC 450 Contingencies. As part of the Acquisition, the Sellers agreed to indemnify Criteo for losses related to certain liabilities, up to an amount of $50.0 million. As such, we have recognized an indemnification asset of $50.0 million which is recorded as part of "Other non-current assets" on the consolidated statement of financial position.
Preliminary goodwill. The Company is assessing the fair value estimate of assets acquired and liabilities assumed as part of the Iponweb Acquisition, based on facts and circumstances that existed as of the Acquisition Date. This measurement period will not exceed one year from the Acquisition Date. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. The preliminary goodwill of $282.3 million is primarily attributable to synergies expected to be realized from leveraging our technological capabilities and from the existence of an assembled workforce.
Our fair value estimate of assets acquired and liabilities assumed is pending the completion of certain items including the final determination of the purchase price and the final assessment of the fair value of the assets acquired and liabilities assumed, including those related to intangible assets. Accordingly, there could be material adjustments to our consolidated financial statements, including changes in our amortization expense related to the valuation of intangible assets and their respective useful lives, among other adjustments.
Acquisition costs. Acquisition related costs of $7.1 million and $11.5 million were recorded within general and administrative expenses on the consolidated statements of comprehensive income for the three and nine months ended September 30, 2022, respectively.
Impact on profit and loss. The Company's consolidated statements of operations for the nine months ended September 30, 2022 includes Iponweb's revenues of $18.5 million and pretax income (loss) of $0.5 million for the period from the Acquisition Date to September 30, 2022.
On a pro-forma basis, assuming the Acquisition occurred on January 1, 2021, Criteo's consolidated pro-forma revenue and net income or loss would have been as follows:
| Pro Forma Consolidated Statement of Operations Data | ||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Net Income (loss) | ( | $ | ||||||||||||||||||||||||
12
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Note 3. Segment information
Reportable segments
The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments. As a result of the Iponweb Acquisition, the Company reassessed its operating and reportable segments in accordance with ASC 280, Segment Reporting. Effective August 1, 2022, the Company reports its results of operations through the following three
–Marketing Solutions: This segment allows commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
–Retail Media: This segment allows retailers to generate advertising revenues from consumer brands, and/or to drive sales for themselves, by monetizing their data and audiences through personalized ads, either on their own digital property or on the open Internet, that address multiple marketing goals.
–Iponweb: This segment specializes in building real-time advertising technology and trading infrastructure, delivering advanced media buying, selling, and packaging capabilities for media owners, agencies, performance advertisers, and 3rd-party ad tech platforms.
Segment operating results, Contribution ex-TAC, is Criteo's segment profitability measure and reflects our gross profit plus other costs of revenue.
The following table shows revenue by reportable segment:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Marketing Solutions | $ | $ | |||||||||||||||||||||
| Retail Media | |||||||||||||||||||||||
| Iponweb | |||||||||||||||||||||||
| Total Revenue | $ | $ | $ | $ | |||||||||||||||||||
The following table shows Contribution ex-TAC by reportable segment and its reconciliation to the Company’s Consolidated Statements of Operation:
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Contribution ex-TAC | |||||||||||||||||||||||
| Marketing Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Retail Media | |||||||||||||||||||||||
| Iponweb | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Other costs of sales | ( | ( | ( | ( | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development expenses | ( | ( | ( | ( | |||||||||||||||||||
| Sales and operations expenses | ( | ( | ( | ( | |||||||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Total Operating expenses | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) from operations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Financial and Other Income (Expense) | ( | ( | |||||||||||||||||||||
| Income (loss) before tax | $ | $ | $ | ( | $ | ||||||||||||||||||
The Company's chief operating decision maker, or CODM, does not review any other financial information for our three
15
Note 4. Financial Instruments
Financial assets
The maximum exposure to credit risk at the end of each reported period is represented by the carrying amount of financial assets and summarized in the following table:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Trade receivables, net of allowances | |||||||||||||||||
| Other taxes | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Non-current financial assets | |||||||||||||||||
| Restricted cash | |||||||||||||||||
| 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, 2022 | December 31, 2021 | |||||||||||||
| (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, 2022 | December 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Derivative Assets: | ||||||||||||||
| Included in other current assets | $ | $ | ||||||||||||
| 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, 2022 | December 31, 2021 | |||||||||||||
| (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.
In addition to the cash and cash equivalents, we have $25.0 million of restricted cash - current and $75.0 million of restricted cash - non-current due to the Iponweb Acquisition (refer to Note 2). The balance of cash and cash equivalents of $307.3 million and restricted cash of $100.0 million reconciles to Net cash and cash equivalents and restricted cash at the end of period presented in the Statement of Cash Flows. We have not reported restricted cash as of December 31, 2021 or as of September 30, 2021.
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Marketable Securities
The following table presents for each reporting period, the breakdown of the fair value of marketable securities:
| September 30, 2022 | December 31, 2021 | |||||||||||||
| (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, 2022.
Term deposits are considered a level 2 financial instrument as they are measured using valuation techniques based on observable market data.
The following table classifies our marketable securities by contractual maturities:
| Held-to-maturity | Available-for-sale | |||||||||||||
| September 30, 2022 | ||||||||||||||
| (in thousands) | ||||||||||||||
| Due in one year | $ | $ | ||||||||||||
| Due in one to five years | $ | $ | ||||||||||||
| Total | $ | $ | ||||||||||||
Restricted Cash
As part of the Iponweb Acquisition (refer to Note 2), we have deposited $100.0 million of cash into an escrow account containing withdrawal conditions. The cash secures the Company's potential payment of Iponweb Acquisition contingent consideration to the Sellers, which is conditioned upon the achievement of certain revenue targets by the Iponweb business for the 2022 and 2023 fiscal years.
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Restricted cash – current | $ | $ | |||||||||||||||||||||||||||
| Restricted cash – non-current | $ | $ | |||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||
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Note 5. Trade Receivables
The following table shows the breakdown in trade receivables net book value for the presented periods:
| September 30, 2022 | December 31, 2021 | ||||||||||
| (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:
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
| Balance at January 1 | $ | ( | $ | ( | |||||||
| Allowance for credit losses | ( | ( | |||||||||
| Reversal of provision | |||||||||||
| Other | ( | ||||||||||
| Currency translation adjustment | |||||||||||
| Balance at September 30 | $ | ( | $ | ( | |||||||
We write off accounts receivable balances once the receivables are no longer deemed collectible.
During the nine month period ended September 30, 2022, and September 30, 2021, the Company recovered $2.4 million, and $2.0 million, respectively, previously reserved for, and accounted for this as a reversal of provision. Other includes $(4.7 ) million related to the Iponweb acquisition.
As of September 30, 2022 and December 31, 2021 no customer accounted for 10% or more of trade receivables.
Note 6. Other Current Assets
The following table shows the breakdown in other current assets net book value for the presented periods:
| September 30, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Prepayments to suppliers | $ | $ | |||||||||
| Other debtors | |||||||||||
| Prepaid expenses | |||||||||||
| Derivative instruments | |||||||||||
| Net book value at end of period | $ | $ | |||||||||
Prepaid expenses mainly consist of cash paid related to SaaS arrangements.
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Note 7. Other Current and Non-Current Liabilities
Other current liabilities are presented in the following table:
| September 30, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Current liabilities to clients | $ | $ | |||||||||
| Rebates | |||||||||||
| Accounts payable relating to capital expenditures | |||||||||||
| Other creditors | |||||||||||
| Earn out liability – current | $ | ||||||||||
| Total | $ | $ | |||||||||
Other non-current liabilities are presented in the following table:
| September 30, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Earn out liability – non-current | $ | $ | |||||||||
| Uncertain tax positions | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
Earn out liability
As part of the Iponweb Acquisition (refer to Note 2), the Sellers are entitled to contingent consideration of a maximum of $100.0 million, which is conditioned upon the achievement of certain revenue targets by the Iponweb business for the 2022 and 2023 fiscal years. The related earn out liability is valued and discounted using management's best estimate of the consideration that will be paid in 2023 (current portion) and 2024 (non-current portion).
Uncertain tax positions
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Note 8. Leases
The components of lease expense are as follows:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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, 2022 | September 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
As of September 30, 2022, we have additional operating leases, that have not yet commenced which will result in additional operating lease liabilities and right of use assets:
| Offices | Data Centers | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Additional operating lease liabilities | $ | $ | |||||||||||||||
| Additional right of use assets | $ | $ | |||||||||||||||
These operating leases will commence during the fiscal years ending December 31, 2022, December 31, 2023 and December 31, 2024.
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Note 9. Employee Benefits
Defined Benefit Plans
According to the French law and the Syntec Collective Agreement, French employees are entitled to compensation paid on retirement.
The following table summarizes the changes in the projected benefit obligation:
| Projected benefit obligation | |||||
| (in thousands) | |||||
Projected benefit obligation present value at January 1, 2021 | $ | ||||
Service cost | |||||
Interest cost | |||||
Actuarial losses (gains) | ( | ||||
Currency translation adjustment | ( | ||||
Projected benefit obligation present value at December 31, 2021 | $ | ||||
Service cost | |||||
Interest cost | |||||
Actuarial losses (gains) | ( | ||||
Currency translation adjustment | ( | ||||
Projected benefit obligation present value at September 30, 2022 | $ | ||||
The Company does not hold any plan assets for any of the periods presented.
The main assumptions used for the purposes of the actuarial valuations are listed below:
| Nine Months Ended | Year ended | ||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
Defined contributions plans included in personnel expenses | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||
Note 10. Revenue
Disaggregation of revenue
The following table presents our disaggregated revenues:
| Marketing Solutions | Retail Media | Iponweb | Total | ||||||||||||||||||||
| For the three months ended | (in thousands) | ||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Marketing Solutions | Retail Media | Iponweb | Total | ||||||||||||||||||||
| For the nine months ended | (in thousands) | ||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
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Note 11. Share-Based Compensation
Criteo's board of directors ("board of directors") has been authorized by the general meeting of the shareholders to grant employee warrants (Bons de Souscription de Parts de Créateur d’Entreprise or "BSPCEs"), share options (Options de Souscription d'Actions or "OSAs"), restricted share units ("RSUs") and non-employee warrants (Bons de Souscription d'Actions or "BSAs").
During the nine months ended September 30, 2022, there were three grants of RSUs under the Employee Share Option Plan 14 and Plan 15 as defined in Note 20 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
On February 24, 2022, 348,133 RSUs were granted to Criteo employees subject to continued employment and 384,277 PSUs were granted to members of the management subject to continued employment.
On April 28, 2022, 1,626,911 RSUs were granted to Criteo employees subject to continued employment and 79,907 PSUs were granted to members of the management subject to continued employment.
On July 28, 2022 193,420 RSUs were granted to Criteo employees subject to continued employment.
On August 1, 2022, 2,960,243 Treasury shares were transferred to the Founder (referred to as Lock Up Shares or "LUS"), as partial consideration for the Iponweb Acquisition. As these shares are subject to a lock-up period that expires in three installments on each of the first anniversaries of the Iponweb Acquisition, unless the Founder's employment agreement is terminated under certain circumstances during the pendency of such lock-up period, they are considered as equity settled share-based payments under ASC 718 and are accounted over the three-year
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 20 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.
Change in number of outstanding BSPCE / OSA / RSU / PSU / LUS / BSA
| OSA/BSPCE | RSU/PSU/LUS | BSA | Total | ||||||||||||||||||||
| Balance at January 1, 2022 | |||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised (OSA/BSPCE/BSA) | ( | ( | |||||||||||||||||||||
| Vested (RSU/LUS) | ( | ( | |||||||||||||||||||||
| Forfeited | ( | ( | ( | ||||||||||||||||||||
| Expired | |||||||||||||||||||||||
| Balance at September 30, 2022 | |||||||||||||||||||||||
Breakdown of the Closing Balance
| OSA/BSPCE | RSU/PSU/LUS | 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 | ||||||||||||||||
24
Reconciliation with the Unaudited Consolidated Statements of Income
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| R&D | S&O | G&A | Total | R&D | S&O | G&A | Total | ||||||||||||||||||||||||||||||||||||||||
| RSUs / LUSs | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Share options / BSPCE | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Total share-based compensation | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| BSAs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total equity awards compensation expense | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| R&D | S&O | G&A | Total | R&D | S&O | G&A | Total | ||||||||||||||||||||||||||||||||||||||||
| RSUs / LUSs | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Share options / BSPCE | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Total share-based compensation | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| BSAs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total equity awards compensation expense | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
25
Note 12. Financial and Other Income and Expenses
The condensed consolidated statements of income line item “Financial income (expense)” can be broken down as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Financial income from cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Interest and fees | ( | ( | ( | ( | |||||||||||||||||||
| Interest on debt | ( | ( | ( | ( | |||||||||||||||||||
| Fees | ( | ( | ( | ( | |||||||||||||||||||
| Foreign exchange gain (loss) | ( | ||||||||||||||||||||||
| Other financial expense | ( | ( | ( | ||||||||||||||||||||
| Total Financial and Other income (expense) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The $3.5 million financial and other income and the $23.9 million financial and other income for the three months and nine months ended September 30, 2022, respectively, were driven by the recognition of a positive impact of foreign exchange reevaluations net of related hedging and the up-front fees amortization, the non-utilization costs, and the financial expense relating to our available Revolving Credit Facility financing.
At September 30, 2022, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps or forward purchases or sales of foreign currencies.
26
Note 13. 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.
On August 16, 2022, the "Inflation Reduction Act" (H.R. 5376) (the "IRA") was signed into law in the United States. Among other things, the IRA imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. We are still in the process of analyzing the provisions of the IRA. We do not currently expect the IRA to have a material impact on the Company's Consolidated Financial Statements.
The following table presents provision for income taxes:
| Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Provision for income tax expense (benefit) | $ | $ | |||||||||
For the nine months ended September 30, 2022 and September 30, 2021, provision for incomes taxes is $4.7 million and $22.0 million, respectively. The nine months ended September 30, 2022 provision for income taxes differs from the nominal standard French rate of 25.0% due to non-tax deductibility of the loss contingency related to the CNIL matter as described in Note 15 and a discrete tax expense related to change in valuation allowance for certain US deferred tax assets.
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 14. Earnings Per Share
Basic Earnings Per Share
We calculate basic earnings per share by dividing the net income or loss 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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Net income (loss) 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 or loss attributable to shareholders of the Parent by the weighted average number of shares outstanding plus any potentially dilutive shares not yet issued from share-based compensation plans (refer to Note 10). There were no other potentially dilutive instruments outstanding as of September 30, 2022 and September 30, 2021. Consequently, all potential dilutive effects from shares are considered.
For each period presented, a contract to issue a certain number of shares (i.e., share option, non-employee warrant, employee warrant ("BSPCE")) is assessed as potentially dilutive if it is “in the money” (i.e., the exercise or settlement price is lower than the average market price).
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Net income (loss) 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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Restricted share awards | ||||||||||||||||||||||||||
| Share options and BSPCE | ||||||||||||||||||||||||||
| Weighted average number of anti-dilutive securities excluded from diluted earnings per share | ||||||||||||||||||||||||||
Note 15. Commitments and contingencies
Commitments
Revolving Credit Facilities, Credit Line Facilities and Bank Overdrafts
On September 27, 2022, we entered into a new Revolving Credit Facility ("RCF") with a five year tenor with a syndicate of banks which allows us to draw up to €407.0 million ($396.7 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 ($21.0 million) in the aggregate under the short-term credit lines and overdraft facilities. As of September 30, 2022, we had not drawn on any of these facilities. Any loans or overdrafts under these short-term facilities bear interest based on the one month EURIBOR rate or three month EURIBOR rate. As these facilities are exclusively short-term credit and overdraft facilities, our banks have the ability to terminate such facilities on short notice.
Contingencies
| Provision for employee-related litigation | Other provisions | Total | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Balance at January 1, 2022 | ||||||||||||||||||||||||||
| Increase | ||||||||||||||||||||||||||
| Provision used | ( | ( | ( | |||||||||||||||||||||||
| Provision released not used | ( | ( | ( | |||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Currency translation adjustments | ( | ( | ( | |||||||||||||||||||||||
| Balance at September 30, 2022 | ||||||||||||||||||||||||||
| - of which current | ||||||||||||||||||||||||||
| - of which non-current | ||||||||||||||||||||||||||
The amount of the provisions represents management’s latest estimate of the expected impact.
Other includes $32.7 million provisions related to certain items accounted for under "ASC 450 Contingencies". These risks were identified and recognized as part of the Iponweb Acquisition. We have recorded an indemnification asset in the full amount of the provision as the Company is indemnified against certain tax liabilities under the the FPA. The indemnification asset is recorded as part of "Other non current assets" on the consolidated statement of financial position.
29
Regulatory matters
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2021, in November 2018, Privacy International filed a complaint with certain data protection authorities, including France's Commission Nationale de l'Informatique et des Libertés ("CNIL"), against Criteo and a number of other similarly situated advertising technology companies, arguing that certain of these companies' practices were not in compliance with the European Union's General Data Protection Regulation ("GDPR"). In January 2020, CNIL opened a formal investigation into Criteo in response to this complaint, and on June 23, 2021, CNIL notified the Company of the appointment of an investigator(rapporteur) for the ongoing investigation. The investigation also covers another complaint against Criteo received in November 2018 by CNIL from the European Center for Digital Rights ("NOYB").
On August 3, 2022, the assigned rapporteur issued a report that claimed certain GDPR violations, in particular relating to the Company’s contractual relationships with its advertisers and publishers with respect to consent collection oversight. The report includes a proposed financial sanction against the Company of €60.0 million ($65.4 million).Under the CNIL sanction procedures, Criteo has the right to respond in writing to the report, both with respect to the GDPR findings and the value of the sanction, following which there will be a formal hearing before the CNIL Sanction Committee. The CNIL Sanction Committee will then issue a draft decision that will be submitted for consultation to other European data protection authorities as part of the cooperation mechanism mandated by GDPR. Any final decision, including regarding potential financial penalties, will likely not occur until 2023.
Pursuant to U.S. GAAP, we establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and these accruals are reviewed and adjusted each quarter based on the information available at that time.
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Note 16. 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, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
Revenue generated in France, the country of incorporation of the Parent, amounted to $23.2 million and $33.5 million for the three months ended September 30, 2022 and 2021, respectively.
| Americas | EMEA | Asia-Pacific | Total | ||||||||||||||||||||
| For the nine months ended: | (in thousands) | ||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | |||||||||||||||||||
Revenue generated in France amounted to $83.3 million and $110.3 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (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 | Of which | ||||||||||||||||||||||||||||||||||||||||||
| Americas | United States | EMEA | France | Asia-Pacific | Japan | Singapore | Total | |||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
Note 17. Related Parties
32
Note 18. Subsequent Events
33
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, 2021, filed with the Securities and Exchange Commission, or "SEC", on February 25, 2022.
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, 2021.
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 2022.
Use of Non-GAAP Financial Measures
This Form 10-Q includes the following financial measures defined as non-GAAP financial measures by the SEC: Contribution ex-TAC, Adjusted EBITDA and Adjusted Net Income. These measures are not calculated in accordance with U.S. GAAP.
Contribution ex-TAC is a profitability measure akin to gross profit. It is calculated by deducting traffic acquisition costs ("TAC") from revenue and reconciled to gross profit through the exclusion of other cost of revenue. Contribution ex-TAC is not a measure calculated in accordance with U.S. GAAP. We have included Contribution ex-TAC because it is a key measure used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions. In particular, we believe that this measure can be useful for period-to-period comparisons of our business. Accordingly, we believe that Contribution ex-TAC provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors.
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 and transformation costs, certain acquisition and integration costs and a loss contingency related to a regulatory matter. Adjusted EBITDA and Adjusted EBITDA margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, we believe that Adjusted EBITDA and Adjusted EBITDA margin can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related assets, restructuring and transformation costs, certain acquisition and integration costs, a loss contingency related to a regulatory matter, and the tax impact of these adjustments. Adjusted Net Income and Adjusted diluted EPS are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that Adjusted Net Income and Adjusted diluted EPS can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted diluted EPS provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
Please refer to the supplemental financial tables provided for a reconciliation of Contribution ex-TAC to gross profit, 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.
34
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 Contribution 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.
Condensed Consolidated Statements of Income Data (Unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||||||||||||||
| Revenue | $ | 446,921 | $ | 508,580 | $ | 1,452,578 | $ | 1,600,968 | ||||||||||||||||||
Cost of revenue (1) | ||||||||||||||||||||||||||
| Traffic acquisition costs | (233,543) | (297,619) | (807,758) | (956,364) | ||||||||||||||||||||||
| Other cost of revenue | (33,771) | (34,935) | (96,214) | (107,011) | ||||||||||||||||||||||
| Gross profit | 179,607 | 176,026 | 548,606 | 537,593 | ||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
Research and development expenses (1) | (42,725) | (33,345) | (118,248) | (106,957) | ||||||||||||||||||||||
Sales and operations expenses (1) | (90,051) | (75,619) | (278,363) | (235,724) | ||||||||||||||||||||||
General and administrative expenses (1) | (42,353) | (34,877) | (176,361) | (108,779) | ||||||||||||||||||||||
| Total operating expenses | (175,129) | (143,841) | (572,972) | (451,460) | ||||||||||||||||||||||
| Income from operations | 4,478 | 32,185 | (24,366) | 86,133 | ||||||||||||||||||||||
| Financial and Other income (expense) | 3,485 | (154) | 23,927 | (1,391) | ||||||||||||||||||||||
| Income (loss) before taxes | 7,963 | 32,031 | (439) | 84,742 | ||||||||||||||||||||||
| Provision for income taxes | (1,442) | (7,801) | (4,735) | (22,033) | ||||||||||||||||||||||
| Net income (loss) | $ | 6,521 | $ | 24,230 | $ | (5,174) | $ | 62,709 | ||||||||||||||||||
| Net income (loss) available to shareholders of Criteo S.A. | $ | 6,579 | $ | 23,481 | $ | (6,448) | $ | 60,691 | ||||||||||||||||||
| Net income (loss) allocated to shareholders per share: | ||||||||||||||||||||||||||
| Basic | $ | 0.11 | $ | 0.39 | $ | (0.11) | $ | 1.00 | ||||||||||||||||||
| Diluted | $ | 0.10 | $ | 0.37 | $ | (0.10) | $ | 0.94 | ||||||||||||||||||
| Weighted average shares outstanding used in computing per share amounts: | ||||||||||||||||||||||||||
| Basic | 60,318,114 | 60,873,594 | 60,431,597 | 60,759,613 | ||||||||||||||||||||||
| Diluted | 63,235,811 | 64,197,686 | 63,050,355 | 64,313,526 | ||||||||||||||||||||||
(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:
35
Detailed Information on Selected Items (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Equity awards compensation expense | ||||||||||||||||||||||||||
| Research and development expenses | $ | 11,621 | $ | 4,858 | $ | 21,166 | $ | 11,572 | ||||||||||||||||||
| Sales and operations expenses | 4,577 | 3,875 | 9,695 | 9,880 | ||||||||||||||||||||||
| General and administrative expenses | 4,886 | 4,557 | 11,733 | 11,389 | ||||||||||||||||||||||
| Total equity awards compensation expense | $ | 21,084 | $ | 13,290 | $ | 42,594 | $ | 32,841 | ||||||||||||||||||
| Pension service costs | ||||||||||||||||||||||||||
| Research and development expenses | 130 | 170 | 408 | 520 | ||||||||||||||||||||||
| Sales and operations expenses | 40 | 52 | 119 | 158 | ||||||||||||||||||||||
| General and administrative expenses | 77 | 108 | 259 | 327 | ||||||||||||||||||||||
Total pension service costs (a) | $ | 247 | $ | 330 | $ | 786 | $ | 1,005 | ||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of revenue (data center equipment) | 11,972 | 15,520 | 39,229 | 46,508 | ||||||||||||||||||||||
Research and development expenses (b) | 3,208 | 2,557 | 9,682 | 6,517 | ||||||||||||||||||||||
Sales and operations expenses (c) | 3,540 | 3,545 | 10,878 | 11,201 | ||||||||||||||||||||||
| General and administrative expenses | 563 | 679 | 1,779 | 2,420 | ||||||||||||||||||||||
| Total depreciation and amortization expense | $ | 19,283 | $ | 22,301 | $ | 61,568 | $ | 66,646 | ||||||||||||||||||
| Acquisition-related costs | ||||||||||||||||||||||||||
| Sales and operations | (11) | — | 167 | — | ||||||||||||||||||||||
| General and administrative expenses | 6,981 | 2,091 | 11,324 | 5,138 | ||||||||||||||||||||||
| Total acquisition-related costs | $ | 6,970 | $ | 2,091 | $ | 11,491 | $ | 5,138 | ||||||||||||||||||
| Loss contingency on regulatory matter | ||||||||||||||||||||||||||
| General and administrative | (1,764) | — | 63,920 | — | ||||||||||||||||||||||
| Total loss contingency on regulatory matter | $ | (1,764) | $ | — | $ | 63,920 | $ | — | ||||||||||||||||||
Restructuring related and transformation (gain) costs | ||||||||||||||||||||||||||
| Research and development expenses | (53) | (1,029) | 985 | 5,238 | ||||||||||||||||||||||
| Sales and operations expenses | (624) | (106) | 3,908 | 8,812 | ||||||||||||||||||||||
| General and administrative expenses | 596 | (632) | 1,661 | 5,815 | ||||||||||||||||||||||
| Total Restructuring related and transformation (gain) costs | $ | (81) | $ | (1,767) | $ | 6,554 | $ | 19,865 | ||||||||||||||||||
(a) Effective January 1, 2012, actuarial gains and losses are recognized in other comprehensive income.
(b) Includes acquisition-related amortization of intangible assets of $1.4 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively and $4.4 million and $2.6 million for the nine months ended September 2022 and, 2021, respectively.
(c) Includes acquisition-related amortization of intangible assets of $2.1 million and $2.2 million for the three months ended September 30, 2022 and 2021, respectively and $6.5 million and $6.6 million for the nine months ended September 30, 2022 and 2021, respectively.
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Detailed Information on Restructuring related and Transformation costs (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| (Gain) from forfeitures of share-based compensation awards | — | — | — | (666) | ||||||||||||||||||||||
| Facilities related (gain) costs | (284) | (1,645) | 1,002 | 14,692 | ||||||||||||||||||||||
| Payroll related (gain) costs | (306) | (334) | 4,686 | 4,637 | ||||||||||||||||||||||
| Consulting costs related to transformation | 509 | 212 | 866 | 1,202 | ||||||||||||||||||||||
| Total restructuring related and transformation (gain) costs | $ | (81) | $ | (1,767) | $ | 6,554 | $ | 19,865 | ||||||||||||||||||
For the three months ended and the nine months ended September 30, 2022 and September 30, 2021, respectively, the cash outflows related to restructuring related and transformation costs were $6.6 million, and $4.4 million and 9.7 million, and $20.9 million respectively, and were mainly comprised of payroll costs, broker and termination penalties related to real-estate facilities and other consulting fees.
Other Financial and Operating Data (unaudited):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands, except client data) | ||||||||||||||||||||||||||
| Number of clients | 21,673 | 21,747 | 21,673 | 21,747 | ||||||||||||||||||||||
Contribution ex-TAC (3) | $ | 213,378 | $ | 210,961 | $ | 644,820 | $ | 644,604 | ||||||||||||||||||
Adjusted Net Income (4) | $ | 33,225 | $ | 41,033 | $ | 121,260 | $ | 125,041 | ||||||||||||||||||
Adjusted EBITDA (5) | $ | 50,176 | $ | 68,430 | $ | 162,994 | $ | 211,628 | ||||||||||||||||||
37
(3) We define Contribution ex-TAC as a profitability measure akin to gross profit. It is calculated by deducting traffic acquisition costs from revenue and reconciled to gross profit through the exclusion of other cost of revenue. Contribution ex-TAC is not a measure calculated in accordance with U.S. GAAP. We have included Contribution ex-TAC because it is a key measure used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions. In particular, we believe that this measure can be useful for measuring for period-to-period comparisons of our business. Accordingly, we believe that Contribution ex-TAC provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Contribution ex-TAC has limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Contribution ex-TAC or similarly titled measures but calculate them differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Contribution ex-TAC alongside our other U.S. GAAP financial result measures. The below table provides a reconciliation of Contribution ex-TAC to gross profit:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands, except client data) | ||||||||||||||||||||||||||
| Gross Profit | $ | 179,607 | $ | 176,026 | $ | 548,606 | $ | 537,593 | ||||||||||||||||||
| Other Cost of Revenue | $ | 33,771 | 34,935 | 96,214 | 107,011 | |||||||||||||||||||||
Contribution ex-TAC (1) | $ | 213,378 | $ | 210,961 | $ | 644,820 | $ | 644,604 | ||||||||||||||||||
38
(4) We define Adjusted Net Income as our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related assets, restructuring and transformation costs, certain acquisition and integration costs, a loss contingency related to a regulatory matter, and the tax impact of these adjustments. Adjusted Net Income and Adjusted diluted EPS are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that Adjusted Net Income and Adjusted diluted EPS can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted diluted EPS provide useful information to investors and 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-based financial results, including net income. The following table presents a reconciliation of Adjusted Net Income to net income:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net income (loss) | $ | 6,521 | $ | 24,230 | $ | (5,174) | $ | 62,709 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Equity awards compensation expense | 21,084 | 13,290 | 42,594 | 32,841 | ||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 3,531 | 3,303 | 10,853 | 9,174 | ||||||||||||||||||||||
| Acquisition-related costs | 6,970 | 2,091 | 11,491 | 5,138 | ||||||||||||||||||||||
| Loss contingency on regulatory matter | (1,764) | — | 63,920 | — | ||||||||||||||||||||||
| Restructuring related and transformation (gain) costs | (81) | (1,767) | 6,554 | 19,865 | ||||||||||||||||||||||
| Tax impact of the above adjustments | (3,036) | (114) | (8,978) | (4,686) | ||||||||||||||||||||||
| Adjusted Net Income | $ | 33,225 | $ | 41,033 | $ | 121,260 | $ | 125,041 | ||||||||||||||||||
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(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, depreciation and amortization expense and certain restructuring and transformation costs, certain acquisition and integration costs and a loss contingency related to a regulatory matter. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted EBITDA 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-term and long-term operational plans. In particular, we believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our 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 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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net income (loss) | $ | 6,521 | $ | 24,230 | $ | (5,174) | $ | 62,709 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Financial income (expense) | (3,526) | 154 | (23,480) | 1,391 | ||||||||||||||||||||||
| Provision for income taxes | 1,442 | 7,801 | 4,735 | 22,033 | ||||||||||||||||||||||
| Equity awards compensation expense | 21,084 | 13,290 | 42,594 | 32,841 | ||||||||||||||||||||||
| Pension service costs | 247 | 330 | 786 | 1,005 | ||||||||||||||||||||||
| Depreciation and amortization expense | 19,283 | 22,301 | 61,568 | 66,646 | ||||||||||||||||||||||
| Acquisition-related costs | 6,970 | 2,091 | 11,491 | 5,138 | ||||||||||||||||||||||
| Loss contingency on regulatory matter | (1,764) | — | 63,920 | — | ||||||||||||||||||||||
| Restructuring related and transformation (gain) costs | (81) | (1,767) | 6,554 | 19,865 | ||||||||||||||||||||||
| Total net adjustments | 43,655 | 44,200 | 168,168 | 148,919 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 50,176 | $ | 68,430 | $ | 162,994 | $ | 211,628 | ||||||||||||||||||
40
Results of Operations for the Periods Ended September 30, 2022 and September 30, 2021 (Unaudited)
Revenue breakdown by segment
Effective August 1, 2022, the Company reports its results of operations through the following three segments: Marketing Solutions, Retail Media and Iponweb.
–Marketing Solutions: This segment allows commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
–Retail Media: This segment allows retailers to generate advertising revenues from consumer brands, and/or to drive sales for themselves, by monetizing their data and audiences through personalized ads, either on their own digital property or on the open Internet, that address multiple marketing goals.
–Iponweb: This segment specializes in building real-time advertising technology and trading infrastructure, delivering advanced media buying, selling, and packaging capabilities for media owners, agencies, performance advertisers, and 3rd-party ad tech platforms.
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 446,921 | $ | 508,580 | (12) | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 46,392 | |||||||||||||||
Revenue at constant currency (1) | $ | 493,313 | $ | 508,580 | (3) | % | |||||||||||
| Marketing Solutions revenue as reported | $ | 387,288 | $ | 458,622 | (16) | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 44,830 | |||||||||||||||
Marketing Solutions revenue at constant currency (1) | 432,118 | 458,622 | (6) | % | |||||||||||||
Retail Media revenue as reported (2) | 41,170 | 49,958 | (18) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 1,562 | |||||||||||||||
Retail Media revenue at constant currency (1) | 42,732 | 49,958 | (14) | % | |||||||||||||
| Iponweb revenue as reported | 18,463 | — | N/A | ||||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | — | |||||||||||||||
| Iponweb revenue at constant currency | 18,463 | — | N/A | ||||||||||||||
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
(2) The Retail Media Platform, introduced in June 2020, is a strategic building block of Criteo’s Commerce Media Platform and is reported under the retail media segment. It is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
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Revenue by segment
Revenue for the three months ended September 30, 2022 decreased (12)%, or (3)% on a constant currency basis, to $446.9 million compared to the three months ended September 30, 2021.
In the quarter, 88% of revenue came from existing clients while 12% came from new client additions. Our number of clients was flat year-over-year.
Marketing Solutions revenue decreased (16)%, or (6)% on a constant currency basis, to $387.3 million for the three months ended September 30, 2022, driven by anticipated identity and privacy changes and the suspension of the Company's operations in Russia, partially offset by a rebound in travel and traction in upselling and cross-selling of existing clients.
Retail Media revenue decreased (18)%, or (14)% on a constant currency basis, to $41.2 million for the three months ended September 30, 2022, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the Company's platform. Criteo's platform accounts for a growing share of Retail Media onsite revenue, or about 95% in the third quarter of 2022, and its revenue is accounted for on a net basis. In the prior year period, approximately 63% of retail media onsite revenue was accounted for on a net basis, and as a result of this transition to a full platform business, the growth of Retail Media revenue has been temporarily impacted.
Reflecting the underlying economic performance, Retail Media's Contribution ex-TAC increased 28%, or 32% on a constant currency basis, in the third quarter of 2022, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the platform.
Iponweb revenue for the three months ended September 30, 2022 was $18.5 million following the closing of the acquisition on August 1, 2022.
Additionally, our $446.9 million of revenue for the three months ended September 30, 2022 was negatively impacted by $46.4 million of currency fluctuations, particularly as a result of the depreciation of the Euro, Japanese Yen, British Pound, Turkish Lira, Russian Ruble and the Brazilian real compared to the U.S. dollar.
42
Revenue breakdown by region
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 446,921 | $ | 508,580 | (12) | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 46,392 | |||||||||||||||
Revenue at constant currency (1) | 493,313 | 508,580 | (3) | % | |||||||||||||
| Americas | |||||||||||||||||
| Revenue as reported | 201,274 | 204,428 | (2) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 3,027 | |||||||||||||||
Revenue at constant currency (1) | 204,301 | 204,428 | — | % | |||||||||||||
| EMEA | |||||||||||||||||
| Revenue as reported | 150,915 | 188,354 | (20) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 27,071 | |||||||||||||||
Revenue at constant currency (1) | 177,986 | 188,354 | (6) | % | |||||||||||||
| Asia-Pacific | |||||||||||||||||
| Revenue as reported | 94,732 | 115,798 | (18) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 16,294 | |||||||||||||||
Revenue at constant currency (1) | $ | 111,026 | $ | 115,798 | (4) | % | |||||||||||
Revenue by region
Our revenue in the Americas region decreased (2)%, or (0.06)% on a constant currency basis, to $201.3 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This primarily reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by continued strong performance of Retail Media as the platform continues to scale with large retailers and consumer brands, as well as a rebound in travel.
Our revenue in EMEA decreased (20)%, or (6)% on a constant currency basis, to $150.9 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting the suspension of the Company's operations in Russia and mixed retail trends with strength in Germany, the U.K., and emerging markets offsetting softness in France. This also reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by continued traction in Retail Media.
Our revenue in the Asia-Pacific region decreased (18)%, or decreased (4)% on a constant currency basis, to $94.7 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting mixed retail trends and a slow recovery of classifieds and travel in the region.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
43
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
Revenue breakdown by segment
| Nine Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 1,452,578 | $ | 1,600,968 | (9) | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 110,110 | |||||||||||||||
Revenue at constant currency (1) | $ | 1,562,688 | $ | 1,600,968 | (2) | % | |||||||||||
| Marketing Solutions revenue as reported | $ | 1,291,599 | $ | 1,429,277 | (10) | % | |||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 106,833 | |||||||||||||||
Marketing Solutions revenue at constant currency (1) | 1,398,432 | 1,429,277 | (2.2) | % | |||||||||||||
Retail Media revenue as reported (2) | 142,516 | 171,691 | (17) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | 3,277 | |||||||||||||||
Retail Media revenue at constant currency (1) | 145,793 | 171,691 | (15) | % | |||||||||||||
| Iponweb revenue as reported | 18,463 | — | N/A | ||||||||||||||
| Conversion impact U.S. dollar/other currencies | |||||||||||||||||
| Iponweb revenue at constant currency | 18,463 | — | N/A | ||||||||||||||
Revenue by segment
Revenue for the nine months ended September 30, 2022 decreased (9)%, or (2)% on a constant currency basis, to $1.5 billion compared to the nine months ended September 30, 2021.
In the nine months of 2022, 88% of revenue came from existing clients while 12% came from new client additions. Our number of clients was flat year-over-year.
Marketing Solutions revenue decreased (10)%, or (2.2)% on a constant currency basis, to $1.4 billion for the nine months ended September 30, 2022, driven by anticipated identity and privacy changes and the suspension of the Company's operations in Russia, partially offset by a rebound in travel and mixed retail trends.
Retail Media revenue decreased (17)%, or (15)% on a constant currency basis, to $142.5 million for the nine months ended September 30, 2022, reflecting the impact of recognizing revenue on a net basis for clients transitioning to the Company's platform. Criteo's platform accounts for a fast-growing share of Retail Media onsite revenue, or about 84% in the first nine months of 2022, and its revenue is accounted for on a net basis. In the prior year period, approximately 40% of retail media onsite revenue was accounted for on a net basis, and as a result of this transition to a full platform business, the growth of Retail Media revenue has been temporarily impacted. Reflecting the underlying economic performance, Retail Media's Contribution ex-TAC increased 36%, or 40% on a constant currency basis, for the nine months ended September 30, 2022, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of onboarding brands and retailers to the platform.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
(2) The Retail Media Platform, introduced in June 2020, is a strategic building block of Criteo’s Commerce Media Platform and is reported under the retail media segment. It is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
44
Iponweb revenue for the nine months ended September 30, 2022 was $18.5 million following the closing of the acquisition on August 1, 2022.
Additionally, our $1.5 billion of revenue for the nine months ended September 30, 2022 was negatively impacted by $110.1 million of currency fluctuations, particularly as a result of the depreciation of the Euro, Japanese Yen, British Pound, Turkish Lira, Russian Ruble and the Brazilian real compared to the U.S. dollar.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
Revenue breakdown by region
| Nine Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue as reported | $ | 1,452,578 | $ | 1,600,968 | (9) | % | |||||||||||
| Conversion impact U.S. dollar / other currencies | $ | 110,110 | |||||||||||||||
Revenue at constant currency (1) | 1,562,688 | 1,600,968 | (2) | % | |||||||||||||
| Americas | |||||||||||||||||
| Revenue as reported | 609,461 | 629,555 | (3) | % | |||||||||||||
| Conversion impact U.S. dollar / other currencies | $ | 2,090 | |||||||||||||||
Revenue at constant currency (1) | 611,551 | 629,555 | (3) | % | |||||||||||||
| EMEA | |||||||||||||||||
| Revenue as reported | 521,736 | 609,753 | (14) | % | |||||||||||||
| Conversion impact U.S. dollar / other currencies | $ | 64,474 | |||||||||||||||
Revenue at constant currency (1) | 586,210 | 609,753 | (4) | % | |||||||||||||
| Asia-Pacific | |||||||||||||||||
| Revenue as reported | 321,381 | 361,660 | (11) | % | |||||||||||||
| Conversion impact U.S. dollar / other currencies | $ | 43,546 | |||||||||||||||
Revenue at constant currency (1) | $ | 364,927 | $ | 361,660 | 1 | % | |||||||||||
Revenue by region
Our revenue in the Americas region decreased (3)%, or (3)% on a constant currency basis, to $609.5 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This primarily reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by continued strong performance of Retail Media as the platform continues to scale with large retailers and consumer brands and a rebound in travel.
Our revenue in EMEA decreased (14)%, or (4)% on a constant currency basis, to $521.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting mixed retail trends with strength in Germany and emerging markets, offsetting softness in France. This also reflects the impact of recognizing revenue on a net basis for Retail Media clients transitioning to the Company's platform, partially offset by solid traction in Retail Media.
Our revenue in the Asia-Pacific region decreased (11)%, or increased 1% on a constant currency basis, to $321.4 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting the recovery of our retail business in the region and soft Classifieds trends.
(1) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
45
Cost of Revenue
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Traffic acquisition costs | $ | (233,543) | $ | (297,619) | (22) | % | |||||||||||
| Other cost of revenue | $ | (33,771) | $ | (34,935) | (3) | % | |||||||||||
| Total cost of revenue | $ | (267,314) | $ | (332,554) | (20) | % | |||||||||||
| % of revenue | (60) | % | (65) | % | |||||||||||||
| Gross profit % | 40 | % | 35 | % | |||||||||||||
Cost of revenue for the three months ended September 30, 2022 decreased $(65.2) million, or (20)%, compared to the three months ended September 30, 2021. This decrease was primarily the result of a decrease of $(64.1) million, or (22)%, or (15)% on a constant currency basis, in traffic acquisition costs driven by a lower average price partially offset by an increase in volume, and a decrease of $(1.2) million, or (3)% in other cost of revenue.
*Traffic acquisition costs breakdown by solution:
| Three Months Ended | % change | % change at Constant Currency (2) | |||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | 2022 vs 2021 | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Marketing Solutions | $ | (229,266) | $ | (276,498) | (17) | % | (10) | % | |||||||||||||||
Retail Media (1) | $ | (4,277) | $ | (21,121) | (80) | % | (78) | % | |||||||||||||||
| Traffic Acquisition Costs | $ | (233,543) | $ | (297,619) | (22) | % | (15) | % | |||||||||||||||
(1) The Retail Media Platform, introduced in June 2020, is a strategic building block of Criteo’s Commerce Media Platform and is reported under the retail media segment. It is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
46
Traffic acquisition costs in Marketing Solutions decreased by (17)% (or (10.5)% at constant currency). This was driven by a (31)% decrease (or (26)% at constant currency) in the average cost per thousand impressions ("CPM") for inventory purchased, including lower CPMs for signal-limited environments where Criteo continues to perform, and a 18% 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 (80)% (or (78.3)% at constant currency), reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our platform. Because we recognize revenue on a net basis in all arrangements running on the platform, we expect our traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the platform.
As Iponweb reports revenues on a net basis, it has no traffic acquisition costs.
The decrease in other cost of revenue included a decrease in depreciation and amortization expense of $3.5 million and a decrease of $0.1 million in other costs of sales mainly due to the digital tax offset by an increase in hosting costs of $(2.3) million following the replacement of certain data centers and a $0.2 million in data acquisition.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Traffic acquisition costs | $ | (807,758) | $ | (956,364) | (16) | % | |||||||||||
| Other cost of revenue | $ | (96,214) | $ | (107,011) | (10) | % | |||||||||||
| Total cost of revenue | $ | (903,972) | $ | (1,063,375) | (15) | % | |||||||||||
| % of revenue | (62) | % | (66) | % | |||||||||||||
| Gross profit % | 38 | % | 34 | % | |||||||||||||
*Traffic acquisition costs breakdown by solution:
| Nine Months Ended | % change | % change at Constant Currency (2) | |||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | 2022 vs 2021 | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Marketing Solutions | $ | (769,520) | $ | (861,503) | (11) | % | (5) | % | |||||||||||||||
Retail Media (1) | $ | (38,238) | $ | (94,861) | (60) | % | (60) | % | |||||||||||||||
| Traffic Acquisition Costs | $ | (807,758) | $ | (956,364) | (16) | % | (11) | % | |||||||||||||||
Cost of revenue for the nine months ended September 30, 2022 decreased $(159.4) million, or (15)%, compared to the nine months ended September 30, 2021. This decrease was primarily the result of a decrease of $(148.6) million, or (16)% (or (11)% on a constant currency basis) in traffic acquisition costs driven by a lower average price partially offset by an increase in volume, and a decrease of $(10.8) million, or (10)% in other cost of revenue.
(1) The Retail Media Platform, introduced in June 2020, is a strategic building block of Criteo’s Commerce Media Platform and is reported under the retail media segment. It is a self-service solution providing transparency, measurement and control to brands and retailers. In all arrangements running on this platform, Criteo recognizes revenue on a net basis, whereas revenue from arrangements running on legacy Retail Media solutions are accounted for on a gross basis. We expect most clients using Criteo’s legacy Retail Media solutions to transition to this platform by the second half of 2022. As new clients onboard and existing clients transition to the Retail Media Platform, Revenue may decline but Contribution ex-TAC margin is expected to increase. Contribution ex-TAC is not impacted by this transition.
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
47
Traffic acquisition costs in Marketing Solutions decreased by (11)% (or (5)% at constant currency). This was driven by a (21)% decrease (or (17)% at constant currency) in the average cost per thousand impressions ("CPM") for inventory purchased, including lower CPMs for signal-limited environments where Criteo continues to perform, and a 10% 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 (60)% (or (60)% at constant currency), reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our platform. Because we recognize revenue on a net basis in all arrangements running on the platform, we expect our traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the platform.
As Iponweb reports revenues on a net basis, it has no traffic acquisition costs.
The decrease in other cost of revenue included a decrease in hosting costs of $3.3 million and depreciation and amortization expense of $7.3 million, and a decrease in other costs of sales mainly due to the digital tax.
48
Contribution excluding Traffic Acquisition Costs
We consider Contribution ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing our Contribution ex-TAC on an absolute basis over maximizing our near-term gross margin. We believe this focus builds sustainable long-term value for our business by fortifying a number of our competitive strengths, including access to advertising inventory, breadth and depth of data and continuous improvement of the Criteo AI Engine’s performance, allowing it to deliver more relevant advertisements at scale. As part of this focus, we continue to invest in building preferred relationships with direct publishers and pursue access to leading advertising exchanges.
The following table sets forth our revenue and Contribution ex-TAC by segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| Segment | September 30, 2022 | September 30, 2021 | YoY Change | YoY Change at Constant Currency (2) | September 30, 2022 | September 30, 2021 | YoY Change | YoY Change at Constant Currency (2) | ||||||||||||||||||||||||||||||||||||||||||
| Revenue | (amounts in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing Solutions | $ | 387,288 | $ | 458,622 | (16) | % | (6) | % | $ | 1,291,599 | $ | 1,429,277 | (10) | % | (2) | % | ||||||||||||||||||||||||||||||||||
| Retail Media | 41,170 | 49,958 | (18) | % | (14) | % | 142,516 | 171,691 | (17) | % | (15) | % | ||||||||||||||||||||||||||||||||||||||
| Iponweb | 18,463 | — | N/A | N/A | 18,463 | — | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Total | 446,921 | 508,580 | (12) | % | (3) | % | 1,452,578 | 1,600,968 | (9) | % | (2) | % | ||||||||||||||||||||||||||||||||||||||
Contribution ex-TAC (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing Solutions | 158,022 | 182,124 | (13) | % | 1 | % | 522,079 | 567,774 | (8) | % | 2 | % | ||||||||||||||||||||||||||||||||||||||
| Retail Media | 36,893 | 28,837 | 28 | % | 32 | % | 104,278 | 76,830 | 36 | % | 40 | % | ||||||||||||||||||||||||||||||||||||||
| Iponweb | 18,463 | — | N/A | N/A | 18,463 | — | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Total | 213,378 | 210,961 | 1 | % | 14 | % | 644,820 | 644,604 | — | % | 10 | % | ||||||||||||||||||||||||||||||||||||||
(1) We define Contribution ex-TAC as a profitability measure akin to gross profit. It is calculated by deducting traffic acquisition costs from revenue and reconciled to gross profit through the exclusion of other cost of revenue. We have included Contribution ex-TAC in this Form 10-Q because it is a key measures used by our management and board of directors to evaluate operating performance and generate future operating plans. In particular, we believe that this can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Contribution ex-TAC provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Contribution ex-TAC has limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Contribution ex-TAC or similarly titled measures but calculate them differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Contribution ex-TAC alongside our other U.S. GAAP financial results, including gross profit.
(2) Constant currency measures exclude the impact of foreign currency fluctuations and is computed by applying the prior year monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
49
Constant Currency Reconciliation
Information in this Form 10-Q with respect to results presented on a constant currency basis was calculated by applying the 2021 monthly exchange rates to transactions denominated in settlement or billing currencies other than the US dollar.
Beginning in the second quarter of 2022, the Company updated its methodology for calculating revenue and traffic acquisition costs on a constant currency basis, which are non-GAAP measures. The Company will use the prior year’s monthly exchange rates where the settlement or billing currencies are in currencies other than US dollars. The Q1 2022 revenue and traffic acquisition costs have been revised consistent with this updated methodology.
Below is a table which reconciles the actual results presented in this section with the results presented on a constant currency basis:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | YoY Change | September 30, 2022 | September 30, 2021 | YoY Change | |||||||||||||||||||||||||||||||||
| (amounts in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 446,921 | $ | 508,580 | (12) | % | $1,452,578 | $1,600,968 | (9) | % | ||||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 46,390 | — | 110,109 | — | ||||||||||||||||||||||||||||||||||
| Revenue at constant currency | $ | 493,311 | $ | 508,580 | (3) | % | $1,562,687 | $1,600,968 | (2) | % | ||||||||||||||||||||||||||||
| Traffic acquisition costs as reported | $ | (233,543) | $ | (297,619) | (22) | % | $ | (807,758) | $ | (956,364) | (16) | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (18,558) | — | (47,369) | — | ||||||||||||||||||||||||||||||||||
| Traffic Acquisition Costs at constant currency | $ | (252,101) | $ | (297,619) | (15) | % | $ | (855,127) | $ | (956,364) | (11) | % | ||||||||||||||||||||||||||
| Contribution ex-TAC as reported | $ | 213,378 | $ | 210,961 | 1 | % | $ | 644,820 | $ | 644,604 | — | % | ||||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 27,832 | — | 62,740 | — | ||||||||||||||||||||||||||||||||||
| Contribution ex-TAC at constant currency | $ | 241,210 | $ | 210,961 | 14 | % | $ | 707,560 | $ | 644,604 | 10 | % | ||||||||||||||||||||||||||
| Contribution ex-TAC/Revenue as reported | 48 | % | 41 | % | 44 | % | 40 | % | ||||||||||||||||||||||||||||||
| Other cost of revenue as reported | $ | (33,771) | $ | (34,935) | (3) | % | $ | (96,214) | $ | (107,011) | (10) | % | ||||||||||||||||||||||||||
| Gross Profit as reported | $ | 179,607 | $ | 176,026 | 2 | % | $ | 548,606 | $ | 537,593 | 2 | % | ||||||||||||||||||||||||||
50
Research and Development Expenses
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Research and development expenses | $ | (42,725) | $ | (33,345) | 28% | ||||||||||||
| % of revenue | (10) | % | (7) | % | |||||||||||||
Research and development expenses for the three months ended September 30, 2022, increased $9.4 million or 28%, compared to the three months ended September 30, 2021. This increase mainly related to higher share-based compensation expense and rent and facilities costs offset by lower facilities and supplies costs.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Research and development expenses | $ | (118,248) | $ | (106,957) | 11% | ||||||||||||
| % of revenue | (8) | % | (7) | % | |||||||||||||
Research and development expenses for the nine months ended September 30, 2022, increased $11.3 million or 11% compared to the nine months ended September 30, 2021. This increase mainly related to higher share-based compensation expense related to higher grant amount and headcount related costs, depreciation and amortization offset by a decrease in RSU social charges and facilities costs.
51
Sales and Operations Expenses
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Sales and operations expenses | $ | (90,051) | $ | (75,619) | 19% | ||||||||||||
| % of revenue | (20) | % | (15) | % | |||||||||||||
Sales and operations expenses for the three months ended September 30, 2022 increased $14.4 million or 19% compared to the three months ended September 30, 2021. This increase mainly related to an increase in headcount-related costs, marketing costs, and net bad debt expense, partially offset by a decrease in rent and facilities.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Sales and operations expenses | $ | (278,363) | $ | (235,724) | 18% | ||||||||||||
| % of revenue | (19) | % | (15) | % | |||||||||||||
Sales and operations expenses for the nine months ended September 30, 2022 increased $42.6 million or 18% compared to the nine months ended September 30, 2021. This increase mainly related to an increase in headcount-related costs, marketing costs, and net bad debt expense, partially offset by a decrease in rent and facilities.
52
General and Administrative Expenses
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| General and administrative expenses | $ | (42,353) | $ | (34,877) | 21% | ||||||||||||
| % of revenue | (9) | % | (7) | % | |||||||||||||
General and administrative expenses for the three months ended September 30, 2022, increased $7.5 million or 21%, compared to the three months ended September 30, 2021. This increase was mainly related to an increase in headcount related costs.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| General and administrative expenses | $ | (176,361) | $ | (108,779) | 62% | ||||||||||||
| % of revenue | (12) | % | (7) | % | |||||||||||||
General and administrative expenses for the nine months ended September 30, 2022, increased $67.6 million or 62%, compared to the nine months ended September 30, 2021. This significant increase was mainly related to the loss contingency related to the CNIL matter as described in Note 15 and the increase of headcount.
53
Financial and Other Income / (Expense)
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Financial and Other Income / (Expense) | $ | 3,485 | $ | (154) | 2363% | ||||||||||||
| % of revenue | 0.8 | % | — | % | |||||||||||||
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Financial and Other Income / (Expense) | $ | 23,927 | $ | (1,391) | 1820% | ||||||||||||
| % of revenue | 1.6 | % | (0.1) | % | |||||||||||||
Financial and Other income for the three months ended and the nine months ended September 30, 2022, increased by $3.6 million and by $25.3 million, respectively, compared to the three months ended and nine months ended September 30, 2021. The $3.5 million and $23.9 million financial and other income for the three months ended and nine months ended September 30, 2022, respectively, were driven by the recognition of a positive impact of foreign exchange reevaluations net of related hedging and the up-front fees amortization, the non-utilization costs, and the financial expense relating to our available Revolving Credit Facility ("RCF") financing. At September 30, 2022, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps or forward purchases or sales of foreign currencies.
54
Provision for Income Taxes
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Provision for income tax expense (benefit) | $ | 1,442 | $ | 7,801 | (82)% | ||||||||||||
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Provision for income tax expense (benefit) | $ | 4,735 | $ | 22,033 | (79)% | ||||||||||||
For the nine months ended September 30, 2022 and September 30, 2021, provision for incomes taxes is $4.7 million and $22.0 million, respectively. The nine months ended September 30, 2022 provision for income taxes differs from the nominal standard French rate of 25.0% due to non-tax deductibility of the loss contingency related to the CNIL matter as described in Note 15 and a discrete tax expense related to change in valuation allowance for certain US deferred tax assets.
55
Net Income
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
| Three Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Net income | $ | 6,521 | 24,230 | (73)% | |||||||||||||
| % of revenue | 1 | % | 5 | % | |||||||||||||
Net income for the three months ended September 30, 2022, decreased $(17.7) million, or (73)%, compared to the three months ended September 30, 2021. This decrease was the result of the business dynamics discussed above, in particular, a $(27.7) million decrease in income from operations, offset by a $3.6 million increase in financial and other income and by a $(6.4) million decrease in provision for income taxes compared to the three months ended September 30, 2021.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
| Nine Months Ended | % change | ||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Net income (loss) | $ | (5,174) | 62,709 | (108)% | |||||||||||||
| % of revenue | — | % | 4 | % | |||||||||||||
Net income or loss for the nine months ended September 30, 2022, decreased $(67.9) million, or (108)%, compared to the nine months ended September 30, 2021. This decrease was the result of the business dynamics discussed above, in particular, a $(110.5) million decrease in income from operations, offset by $25.3 million increase in financial and other income and by a $(17.3) million decrease in provision for income taxes compared to the nine months ended September 30, 2021.
56
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 February 2021, the board of directors approved a new, long-term share repurchase program of up to $100 million of the Company's outstanding American Depositary Shares, which we completed in December 2021. In October 2021, the board of directors approved an extension of the long-term share repurchase program of up to $175 million of the Company's outstanding American Depositary Shares, and in February 2022, the board of directors further extended this long-term share repurchase program to a total of $280 million.
Other than these repurchase programs, we intend to retain all available funds from any future earnings to fund our growth. As discussed in Note 15 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 and restricted cash at September 30, 2022 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $407.3 million as of September 30, 2022. The $(108.2) million decrease in cash and cash equivalents compared with December 31, 2021 primarily resulted from a decrease $(133.7) million in cash from investing activities and by $(36.2) million in cash used for financing activities over the period, partially offset by an increase of $130.5 million in cash from operating activities. The cash used for financing activities was mainly related to $(59.2) million in cash used for the share repurchase programs, offset by the recognition of $22.2 million positive impact of foreign exchange reevaluations net of related hedging, and by $0.6 million of proceeds from a capital increase following the exercises of stock options. In addition, the decrease in cash includes an $(68.8) 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.
On September 27, 2022, the Company entered into a new five year Revolving Credit Facility (the "RCF") that allows immediate access to an additional €407.0 million ($396.7 million) of liquidity, which, combined with our cash position, marketable securities and treasury shares as of September 30, 2022, provides total liquidity above $740 million. On July 29, 2022, we drew down €50 million under our prior revolving credit facility for a one month period to provide additional liquidity in connection with the Iponweb Acquisition. This draw down was repaid by the end of August 2022. Overall, we believe that our current financial liquidity, combined with our expected cash-flow generation in 2022, enables financial flexibility.
Operating and Capital Expenditure Requirements
For the nine months ended September 30, 2022 and 2021, our capital expenditures were $41.3 million and $42.9 million, respectively. During the nine months ended September 30, 2022, these capital expenditures were mainly comprised of purchases of servers and other data-center equipment and capitalized software development costs. We expect our capital expenditures to remain at, or slightly above, 3% of revenue for 2022, as we plan to continue to build and maintain additional data center equipment capacity in all regions and significantly increase our redundancy capacity to strengthen our infrastructure.
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.
Our future working capital requirements will depend on many factors, including the impact of the macro environment on customer budgets that they spend with us, the rate of our revenue growth and the pace at which we implement and launch new products and enhancements as part of the Commerce Media Platform, Investments in new capabilities and new capital equipment, including renewal of data center contracts.
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.
57
We may also need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies, assets or products.
If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing will be dilutive to our shareholders.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
58
Historical Cash Flows
The following table sets forth our cash flows for the nine month period ended September 30, 2022 and September 30, 2021:
| Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Cash (used for) from operating activities | $ | 130,530 | $ | 154,901 | |||||||
| Cash (used for) from investing activities | $ | (133,724) | $ | (66,195) | |||||||
| Cash (used for) from financing activities | $ | (36,196) | $ | (55,821) | |||||||
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 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, 2022, net cash provided by operating activities was $130.5 million and consisted of net loss of $(5.2) million, and $122.0 million in adjustments for certain non-cash and non-operating items. Adjustments for certain non-operating items primarily consisted of amortization and provision expense of $134.7 million, equity awards compensation expense of $42.6 million, partially offset by $(16.1) million of changes in deferred tax assets, by a $(12.9) million change in income taxes and by other non-operating items of $(26.3) million. The $13.7 million increase in cash from changes in working capital primarily consisted of a $75.4 million increase in trade receivables, and a $1.1 million change in lease liabilities and right of use assets partially offset by a $(23.2) million change in other current assets including prepaid expenses and value-added tax ("VAT") receivables, a $(19.5) million change in trade payables, and a $(20.2) million change in other current liabilities such as payroll and payroll related expenses and VAT payables and change in fair value of derivatives.
Investing Activities
Our investing activities to date have consisted primarily of the consideration paid to acquire the Iponweb business and purchases of servers and other data-center equipment. For the nine months ended September 30, 2022, net cash from investing activities was $(133.7) million and primarily consisted of $(135.5) million of consideration paid for the Iponweb business, $(41.3) million change in capital expenditures mainly comprised of purchases of servers and other data-center equipment and capitalized software development costs, partially offset by a $43.1 million positive change from the maturity of investments in Marketable Securities.
Financing Activities
For the nine months ended September 30, 2022, net cash used for financing activities was $(36.2) million, resulting mainly from a $(59.2) million payment for our share repurchase program, partially offset by a $22.2 million change relating to the recognition of a positive impact of foreign exchange reevaluations net of related hedging, and $0.6 million of proceeds from capital increase following the exercises of stock options and a $0.1 million change in other financial liabilities.
59
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 three months ended September 30, 2022.
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, 2021.
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, 2022 | September 30, 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| GBP/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income (loss) impact | $ | (331) | $ | 331 | $ | (278) | $ | 278 | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| BRL/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income (loss) impact | $ | 37 | $ | (37) | $ | 180 | $ | (180) | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| JPY/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income (loss) impact | $ | 1,649 | $ | (1,649) | $ | 392 | $ | (392) | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| EUR/USD | +10% | -10% | +10% | -10% | |||||||||||||||||||
| Net income (loss) impact | $ | (1,968) | $ | 1,968 | $ | 8,075 | $ | (8,075) | |||||||||||||||
Credit Risk and Trade receivables
For a description of our credit risk and trade receivables, please see "Note 4. Financial instruments" and "Note 5. Trade Receivables" in the Notes to the Consolidated Financial Statements.
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Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Based on their evaluation as of September 30, 2022, 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.
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 or fraud may occur and may not be detected.
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PART II
Item 1. Legal Proceedings.
For a discussion of our legal proceedings, refer to Note 15. Commitments and contingencies.
Item 1A. Risk Factors.
The following risk factor is provided to update the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022. Except as presented below, 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, 2021 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.
The current conflict between Russia and Ukraine and related government actions are evolving and beyond our control, and given our global operations, such conflict may adversely affect our business and results of operations. As a result of this conflict, we decided to suspend all ad campaigns and digital advertising activities in Russia until further notice, and we ultimately reduced personnel attached to supporting these activities. Our current business in Russia and Ukraine is limited, and in 2021, it represented less than 2% of our Contribution ex-TAC. In addition, as part of the acquisition of the Iponweb business, we have entered into a transitional services agreement to cover certain R&D and back office functions that are delivered to the acquired Iponweb entities from contractors and/or employees based in Russia until June 2023.
The current conflict between Russia and Ukraine may also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to: adverse effects on global macroeconomic conditions; regional instability and geopolitical shifts; supply chain disruption; increased exposure to cyberattacks; limitations in our ability to implement and execute our business strategy, including our completed acquisition of the Iponweb business; risks to employees and contractors that we have in the region; and exposure to foreign currency fluctuations.
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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 2022:
| 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, 2022 | — | $ | — | — | ||||||||||||||||||||||
| August 1 to 31, 2022 | 448,868 | $ | 27.66 | 448,868 | 238,245,963 | |||||||||||||||||||||
| September 1 to 30, 2022 | 628,670 | $ | 27.71 | 628,670 | 220,818,656 | |||||||||||||||||||||
| Total | 1,077,538 | 1,077,538 | — | |||||||||||||||||||||||
(1) In October 2021, the board of directors approved an extension of the long-term share repurchase program of up to $175 million of the Company's outstanding American Depositary Shares, and in February 2022, the board of directors further extended this long-term share repurchase program to a total of $280 million.
(2) Average price paid per share excludes any broker commissions paid.
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Item 6. Exhibits.
Exhibit Index
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | |||||||||||||||||||||||||||
| 8-K | 001-36153 | 10.1 | September 28, 2022 | |||||||||||||||||||||||||||||
| 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.
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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 1, 2022 | Name: | Sarah Glickman | ||||||
| Title: | Chief Financial Officer | |||||||
| (Principal financial officer and duly authorized signatory) | ||||||||
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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 1, 2022
| /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 1, 2022
| /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 her knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022, 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 1, 2022
| /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.