Criteo Reports Strong Results for the Third Quarter 2017 and Increases Adjusted Ebitda Margin Guidance For Fiscal Year 2017 | Criteo

Criteo Reports Strong Results for the Third Quarter 2017 and Increases Adjusted Ebitda Margin Guidance For Fiscal Year 2017

NEW YORK – November 1, 2017 – Criteo S.A. (NASDAQ: CRTO), the leading commerce marketing technology company, today announced financial results for the third quarter ended September 30, 2017.

  • Revenue increased 33% (or 32% at constant currency1) to $564 million.
  • Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC,2 grew 33% (or 32% at constant currency) to $234 million, or 42% of revenue.
  • Adjusted EBITDA2 grew 48% (or 45% at constant currency) to $79 million, or 34% of Revenue ex-TAC.
  • Cash flow from operating activities increased 41% to $62 million.
  • Free Cash Flow2 increased 43% to $34 million.
  • Net Income increased 51% to $22 million.
  • Adjusted Net Income per diluted share2 increased 37% to $0.65.

“Criteo Commerce Marketing Ecosystem is seeing very positive acceptance from chief marketing officers worldwide,” said Eric Eichmann, CEO. “Our open ecosystem approach brings large opportunities for us.”

“Our solid Q3 results and increased profitability outlook for 2017 highlight the strengths of our business,” said Benoit Fouilland, CFO. “We are confident in our position and growth prospects.”

Operating Highlights

  • The growth in same-client Revenue ex-TAC3 remained strong with 14% at constant currency, the result of better technology and inventory access.
  • We added a total of 930 net clients, ending the quarter with over 17,000 commerce and brand clients, while maintaining a 90% client retention for the core product.
  • Criteo Identity Graph continued to grow in scale and efficiency, providing as good or better CRM onboarding rates than the largest Internet players.
  • Criteo Direct Bidder, our next generation header bidding technology, is now connected to 950 large publishers worldwide.
  • We recently introduced two new products in beta version to the Criteo Commerce Marketing Ecosystem with very promising results: Criteo Audience Match and Criteo Customer Acquisition.

Revenue and Revenue ex-TAC

Revenue grew 33%, or 32% at constant currency, to $564 million (Q3 2016: $424 million).

Revenue ex-TAC grew 33%, or 32% at constant currency, to $234 million (Q3 2016: $177 million). This increase was primarily driven by continued innovation across existing and new products, a broader and improved access to publisher inventory and new clients of various sizes across regions and products.

  • In the Americas, Revenue ex-TAC grew 36%, or 35% at constant currency, to $86 million and represented 37% of total Revenue ex-TAC.
  • In EMEA, Revenue ex-TAC grew 29%, or 24% at constant currency, to $92 million and represented 39% of total Revenue ex-TAC.
  • In Asia-Pacific, Revenue ex-TAC grew 33%, or 40% at constant currency, to $56 million and represented 24% of total Revenue ex-TAC.

Revenue ex-TAC margin as a percentage of revenue was 42%, in line with expectations and the prior year.

Net Income and Adjusted Net Income

Net income increased 51% to $22 million (Q3 2016: $15 million). Net income available to shareholders of Criteo S.A. was $20 million, or $0.29 per share on a diluted basis (Q3 2016: $14 million, or $0.21 per share on a diluted basis). Net income in the period was impacted by the acquisition of HookLogic, which was completed in the fourth quarter 2016, including the one-time grant of equity awards in connection with the acquisition, the amortization of intangible assets identified as a result of the preliminary purchase price allocation, and increased financial expense related to the funding of 30% of the purchase price. Excluding non-cash accounting impacts from the HookLogic acquisition on equity awards compensation and amortization of intangible assets, net income increased 98% to $29 million.

Adjusted Net income, or net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, increased 42% to $44 million, or $0.65 per share on a diluted basis (Q3 2016: $31 million, or $0.48 per share on a diluted basis).

Adjusted EBITDA and Operating Expenses

Adjusted EBITDA grew 48%, or 45% at constant currency, to $79 million (Q3 2016: $54 million). This increase in Adjusted EBITDA was primarily driven by the strong Revenue ex-TAC performance across all regions, as well as continued operating leverage across the organization.

Adjusted EBITDA margin as a percentage of Revenue ex-TAC was 34% (Q3 2016: 30%).

Operating expenses increased 31% to $171 million (Q3 2016: $131 million). Operating expenses, excluding the impact of equity awards compensation expense, pension costs, restructuring costs, depreciation and amortization and acquisition-related costs and deferred price consideration, which we refer to as Non-GAAP Operating Expenses, increased 26% to $140 million (Q3 2016: $111 million). This increase is primarily related to the year-over-year growth in headcount in Research and Development (37%), Sales and Operations (18%) and General and Administrative (21%), as we continued to grow the organization.

Cash Flow and Cash Position

Cash flow from operating activities increased 41% to $62 million (Q3 2016: $44 million).

Free Cash Flow, defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment, grew by 43% to $34 million (Q3 2016: $24 million).

Total cash and cash equivalents were $358 million as of September 30, 2017 (December 31, 2016: $270 million).

Business Outlook

Apples’ Intelligent Tracking Prevention feature, or ITP, was released on mobile on September 19, 2017.  We believe our solution for Safari users currently allows us to mitigate about half of the potential impact from ITP. In the third quarter, ITP had a minimal net negative impact on our Revenue ex-TAC of less than $1 million. Given our expectations of the roll out of Apple’s iOS11 and our coverage of Safari users, we expect ITP to have a net negative impact on our Revenue ex-TAC in the fourth quarter of between 8% and 10% relative to our base case projections for the quarter. We will continue to improve and deploy our solution for Safari users over the coming quarters.

The following forward-looking statements reflect Criteo’s expectations as of November 1, 2017.

Fourth Quarter 2017 Guidance:

  • We expect Revenue ex-TAC to be between $260 million and $263 million.
  • We expect Adjusted EBITDA to be between $106 million and $109 million.

Fiscal Year 2017 Guidance:

  • We are adjusting our guidance to reflect the impact from ITP in the fourth quarter and now expect Revenue ex-TAC growth for fiscal year 2017 to be between 26% and 27% at constant currency.
  • We are increasing our guidance for Adjusted EBITDA margin improvement for fiscal 2017 to between 100 basis points and 120 basis points.

The above guidance for the fourth quarter and fiscal year ending December 31, 2017, assumes the following exchange rates for the fourth quarter for the main currencies impacting our business: a U.S. dollar-euro rate of 0.855, a U.S. dollar-Japanese Yen rate of 115, a U.S. dollar-British pound rate of 0.76 and a U.S. dollar-Brazilian real rate of 3.25.

The above guidance assumes no acquisitions are completed during the fourth quarter and fiscal year ending December 31, 2017.

Reconciliation of Revenue ex-TAC and Adjusted EBITDA guidance to the closest corresponding U.S. GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of equity awards compensation expense specific to equity compensation awards that are directly impacted by unpredictable fluctuations in our share price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future U.S. GAAP financial results.

Non-GAAP Financial Measures

This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission (the “SEC”): Revenue ex-TAC, Revenue ex-TAC by Region, Revenue ex-TAC margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted Net Income per diluted share, Free Cash Flow and Non-GAAP Operating Expenses. These measures are not calculated in accordance with U.S. GAAP.

Revenue ex-TAC is our revenue excluding Traffic Acquisition Costs (“TAC”) generated over the applicable measurement period and Revenue ex-TAC by Region reflects our Revenue ex-TAC by our geographies. Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin are key measures used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue can provide a useful measure for period-to-period comparisons of our business and across our geographies. Accordingly, we believe that Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin provide useful information to investors and the market generally in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA is our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA and Adjusted EBITDA margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short‑ and long-term operational plans. In particular, we believe that by eliminating equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration, Adjusted EBITDA and Adjusted EBITDA margin can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.

Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments. Adjusted Net Income and Adjusted Net Income per diluted share are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that by eliminating equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, Adjusted Net Income and Adjusted Net Income per diluted share can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted Net Income per diluted share provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.

Free Cash Flow is defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment. Free Cash Flow is a key measure used by our management and board of directors to evaluate the Company’s ability to generate cash. Accordingly, we believe that Free Cash Flow permits a more complete and comprehensive analysis of our available cash flows.

Non-GAAP Operating Expenses are our consolidated operating expenses adjusted to eliminate the impact of depreciation and amortization, equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. The Company uses Non-GAAP Operating Expenses to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short-term and long-term operational plans, and to assess and measure our financial performance and the ability of our operations to generate cash. We believe Non-GAAP Operating Expenses reflects our ongoing operating expenses in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. As a result, we believe that Non-GAAP Operating Expenses provides useful information to investors in understanding and evaluating our core operating performance and trends in the same manner as our management and in comparing financial results across periods. In addition, Non-GAAP Operating Expenses is a key component in calculating Adjusted EBITDA, which is one of the key measures the Company uses to provide its quarterly and annual business outlook to the investment community.

Please refer to the supplemental financial tables provided in the appendix of this press release for a reconciliation of Revenue ex-TAC to revenue, Revenue ex-TAC by Region to revenue by region, Adjusted EBITDA to net income, Adjusted Net Income to net income, Free Cash Flow to cash flow from operating activities, and Non-GAAP Operating Expenses to operating expenses, in each case, the most comparable U.S. GAAP measure. Our use of non-GAAP financial measures has limitations as an analytical tool, and you should not consider such non-GAAP measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (1) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; and (2) other companies may report Revenue ex-TAC, Revenue ex-TAC by Region, Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, Non-GAAP Operating Expenses or similarly titled measures but calculate them differently or over different regions, which reduces their usefulness as comparative measures. Because of these and other limitations, you should consider these measures alongside our U.S. GAAP financial results, including revenue and net income.

 Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including projected financial results for the quarter ending September 30, 2017 and the fiscal year ending December 31, 2017, our expectations regarding our market opportunity and future growth prospects and other statements that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure related to our technology and our ability to respond to changes in technology, uncertainty regarding our ability to access a consistent supply of internet display advertising inventory and expand access to such inventory, investments in new business opportunities and the timing of these investments, whether the projected benefits of acquisitions materialize as expected, uncertainty regarding international growth and expansion, the impact of competition, uncertainty regarding legislative, regulatory or self-regulatory developments regarding data privacy matters, failure to enhance our brand cost-effectively, recent growth rates not being indicative of future growth, our ability to manage growth, potential fluctuations in operating results, our ability to grow our base of clients, and the financial impact of maximizing Revenue ex-TAC, as well as risks related to future opportunities and plans, including the uncertainty of expected future financial performance and results and those risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in the Company’s SEC filings and reports, including the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2017, as well as future filings and reports by the Company. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events, changes in expectations or otherwise.

 Conference Call Information

Criteo’s earnings conference call will take place today, November 1, 2017, at 8:00 AM ET, 1:00 PM CET. The conference call will be webcast live on the Company’s website http://ir.criteo.com and will be available for replay.

Conference call details:

  • S. callers: +1 855 209 8212
  • International callers: +1 412 317 0788 or +33 1 76 74 05 02

Please ask to be joined into the “Criteo S.A.” call.

About Criteo

 Criteo (NASDAQ: CRTO) the leader in commerce marketing, is building the highest performing and open commerce marketing ecosystem to drive profits and sales for retailers and brands. More than 2,700 Criteo team members partner with over 17,000 customers and thousands of publishers across the globe to deliver performance at scale by connecting shoppers to the things they need and love. Designed for commerce, Criteo Commerce Marketing Ecosystem sees over $550 billion in annual commerce sales data.

For more information, please visit www.criteo.com.

 Contacts

Criteo Investor Relations

Edouard Lassalle, VP, Head of IR, e.lassalle@criteo.com

Friederike Edelmann, IR Director, f.edelmann@criteo.com

Criteo Public Relations

Emma Ferns, Global PR director, e.ferns@criteo.com

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