NEW YORK,– Criteo S.A. (NASDAQ: CRTO), the global technology company powering the world’s marketers with trusted and impactful advertising, today announced financial results for the fourth quarter and fiscal year ended December 31, 2019.
Q4 2019
Fiscal Year 2019
“Megan has already demonstrated her impactful leadership,” said JB Rudelle, Chairman. “She has the full support of the Board and we’re all confident in her success in driving Criteo forward.”
“I am thrilled to lead Criteo into its next chapter,” said Megan Clarken, CEO. “We have unbelievable assets and compelling opportunities. I’m confident in our strategic priorities and determined to deliver on them.”
“We’ve delivered on our margin and cash generation targets in a challenging year,” said Benoit Fouilland, CFO. “We’re committed to maintaining solid profitability and cash flows to support the business in the long run.”
Q4 2019 Operating Highlights
Revenue and Revenue ex-TAC
Q4 2019
Revenue declined 3% year-over-year, or 2% at constant currency, to $653 million (Q4 2018: $670 million). Revenue ex-TAC decreased 2% year-over-year, or 1% at constant currency, to $266 million (Q4 2018: $272 million). This better-than-expected performance was driven by the decline in our business with existing clients, despite continued adoption of our new solutions across our client base and a strong Holiday Season across regions, partially offset by our growing business with new clients, in particular in the midmarket. Revenue ex-TAC as a percentage of revenue, or Revenue ex-TAC margin, was 41% (Q4 2018: 41%).
Fiscal Year 2019
Revenue decreased 2% year-over-year to $2,262 million (2018: $2,300 million), and increased 1% at constant currency. Revenue ex-TAC decreased 2% year-over-year to $947 million (2018: $966 million), and increased 0.3% at constant currency. The performance at constant currency was primarily driven by our business with new clients, in particular in the midmarket, offsetting a slight decline in our business with existing clients, in particular with large customers, despite continued adoption of our new solutions across our client base. The Revenue ex-TAC margin was 42% (2018: 42%).
Net Income and Adjusted Net Income
Q4 2019
Net income decreased 2% year-over-year to $41 million (Q4 2018: $42 million). Net income margin as a percentage of revenue was 6% (Q4 2018: 6%). Net income available to shareholders of Criteo S.A. increased 11% year-over-year to $42 million, or $0.65 per share on a diluted basis (Q4 2018: $38 million, or $0.57 per share on a diluted basis).
Adjusted Net Income, or net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, increased 23% year-over-year to $70 million, or $1.08 per share on a diluted basis (Q4 2018: $56 million, or $0.84 per share on a diluted basis).
Fiscal Year 2019
Net income was flat year-over-year at $96 million (2018: $96 million). Net income margin as a percentage of revenue was 4% (2018: 4%). Net income available to shareholders of Criteo S.A. increased 2% year-over-year to $91 million, or $1.38 per share on a diluted basis (2018: $89 million, or $1.31 per share on a diluted basis).
Adjusted Net Income increased 4% year-over-year to $175 million, or $2.67 per share on a diluted basis (2018: $169 million, or $2.49 per share on a diluted basis).
Adjusted EBITDA and Operating Expenses
Q4 2019
Adjusted EBITDA increased 5% year-over-year, or 6% at constant currency, to $109 million (Q4 2018: $105 million), largely driven by the positive impact of our disciplined expense management, offsetting the slight Revenue ex-TAC decline over the period. Adjusted EBITDA as a percentage of Revenue ex-TAC, which we refer to as Adjusted EBITDA margin, was 41% (Q4 2018: 39%), an approximately 300-basis point increase year-over-year at constant currency.
Operating expenses increased 3% to $176 million (Q4 2018: $171 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, decreased 7% to $138 million (Q4 2018: $149 million), demonstrating the positive impact of our disciplined expense management.
Fiscal Year 2019
Adjusted EBITDA declined 7% year-over-year, or 3% at constant currency, to $299 million (2018: $321 million), primarily driven by the Revenue ex-TAC performance over the period and despite a stronger focus on a more disciplined expense management. Adjusted EBITDA as a percentage of Revenue ex-TAC was 32% (2018: 33%), an approximately 120-basis point decrease year-over-year at constant currency.
Operating expenses were flat year-over-year at $688 million (2018: $687 million). Non-GAAP Operating Expenses declined 1% to 575 million (2018: $581 million), demonstrating our disciplined approach to expense management throughout the year.
Cash Flow and Cash Position
Q4 2019
Cash flow from operating activities decreased 31% year-over-year to $59 million (Q4 2018: $86 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, increased 4% year-over-year to $42 million (Q4 2018: $40 million), representing 38% of Adjusted EBITDA (Q4 2018: 38%).
Cash and cash equivalents increased $54 million year-over-year to $419 million.
Fiscal Year 2019
Cash flow from operating activities decreased 15% year-over-year to $223 million (2018: $261 million).
Free Cash Flow decreased 8% year-over-year to $125 million (2018: $135 million), representing 42% of Adjusted EBITDA (2018: 42%).
Business Outlook
The following forward-looking statements reflect Criteo’s expectations as of February 11, 2020.
First quarter 2020 guidance:
Fiscal year 2020 guidance:
The above guidance for the first quarter and the fiscal year ending December 31, 2020, assumes the following exchange rates for the main currencies impacting our business: a U.S. dollar-euro rate of 0.901, a U.S. dollar-Japanese Yen rate of 110.0, a U.S. dollar-British pound rate of 0.775 and a U.S. dollar-Brazilian real rate of 4.050.
The above guidance assumes no acquisitions are completed during the first quarter and the fiscal year ending December 31, 2020.
Reconciliation of Revenue ex-TAC and Adjusted EBITDA guidance to the closest corresponding U.S. GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures; in particular, the measures and effects of equity awards compensation expense specific to equity compensation awards that are directly impacted by unpredictable fluctuations in our share price. The variability of the above charges could potentially have a significant impact on our future U.S. GAAP financial results.
Non-GAAP Financial Measures
This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission (the “SEC”): Revenue ex-TAC, Revenue ex-TAC by Region, Revenue ex-TAC margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted diluted EPS, Free Cash Flow and Non-GAAP Operating Expenses. These measures are not calculated in accordance with U.S. GAAP.
Revenue ex-TAC is our revenue excluding Traffic Acquisition Costs (“TAC”) generated over the applicable measurement period and Revenue ex-TAC by Region reflects our Revenue ex-TAC by our geographies. Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin are key measures used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue can provide a useful measure for period-to-period comparisons of our business and across our geographies.
Accordingly, we believe that Revenue ex-TAC, Revenue ex-TAC by Region and Revenue ex-TAC margin provide useful information to investors and the market generally in understanding and evaluating our operating results in the same manner as our management and board of directors. Adjusted EBITDA is our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration.
We define Adjusted EBITDA as our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA and Adjusted EBITDA margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short‑ and long-term operational plans. In particular, we believe that by eliminating equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration, Adjusted EBITDA and Adjusted EBITDA margin can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments. Adjusted Net Income and Adjusted diluted EPS are key measures used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.
In particular, we believe that by eliminating equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, restructuring costs and the tax impact of these adjustments, Adjusted Net Income and Adjusted diluted EPS can provide useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted Net Income and Adjusted diluted EPS provide useful information to investors and the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.
Free Cash Flow is defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment and change in accounts payable related to intangible assets, property, plant and equipment. Free Cash Flow is a key measure used by our management and board of directors to evaluate the Company’s ability to generate cash. Accordingly, we believe that Free Cash Flow permits a more complete and comprehensive analysis of our available cash flows.
Non-GAAP Operating Expenses are our consolidated operating expenses adjusted to eliminate the impact of depreciation and amortization, equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. The Company uses Non-GAAP Operating Expenses to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short-term and long-term operational plans, and to assess and measure our financial performance and the ability of our operations to generate cash. We believe Non-GAAP Operating Expenses reflects our ongoing operating expenses in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. As a result, we believe that Non-GAAP Operating Expenses provides useful information to investors in understanding and evaluating our core operating performance and trends in the same manner as our management and in comparing financial results across periods. In addition, Non-GAAP Operating Expenses is a key component in calculating Adjusted EBITDA, which is one of the key measures the Company uses to provide its quarterly and annual business outlook to the investment community.
Please refer to the supplemental financial tables provided in the appendix of this press release for a reconciliation of Revenue ex-TAC to revenue, Revenue ex-TAC by Region to revenue by region, Revenue ex-TAC for Retail Media, 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 and the fiscal year ending December 31, 2020, our expectations regarding our market opportunity and future growth prospects and other statements that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure related to our technology and our ability to innovate and respond to changes in technology, uncertainty regarding our ability to access a consistent supply of internet display advertising inventory and expand access to such inventory, investments in new business opportunities and the timing of these investments, whether the projected benefits of acquisitions materialize as expected, uncertainty regarding international growth and expansion, the impact of competition, uncertainty regarding legislative, regulatory or self-regulatory developments regarding data privacy matters and the impact of efforts by other participants in our industry to comply therewith, the impact of consumer resistance to the collection and sharing of data, our ability to access data through third parties, failure to enhance our brand cost-effectively, recent growth rates not being indicative of future growth, our ability to manage growth, potential fluctuations in operating results, our ability to grow our base of clients, and the financial impact of maximizing Revenue ex-TAC, as well as risks related to future opportunities and plans, including the uncertainty of expected future financial performance and results and those risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in the Company’s SEC filings and reports, including the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2019, and in subsequent Quarterly Reports on Form 10-Q 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.