Criteo S.A.(CRTO) - 2024 Q2 - Quarterly Report

PART I Item 1. Unaudited Financial Statements This section presents the unaudited condensed consolidated financial statements for Criteo S.A. as of June 30, 2024, including statements of financial position, income, comprehensive income, shareholders' equity, and cash flows, along with accompanying notes, reflecting a key accounting policy change in segment reporting Condensed Consolidated Statements of Financial Position As of June 30, 2024, Criteo's total assets decreased to $2.17 billion from $2.43 billion at year-end 2023, primarily due to reduced cash and trade receivables, while total liabilities also decreased to $1.09 billion from $1.32 billion Condensed Consolidated Statements of Financial Position (in thousands USD) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $1,139,086 | $1,352,562 | | Cash and cash equivalents | $216,698 | $336,341 | | Trade receivables, net | $632,749 | $775,589 | | Total assets | $2,167,866 | $2,431,919 | | Total current liabilities | $955,892 | $1,180,487 | | Trade payables | $635,208 | $838,522 | | Total liabilities | $1,094,676 | $1,320,528 | | Total equity | $1,073,190 | $1,111,391 | Condensed Consolidated Statements of Income In Q2 2024, Criteo's revenue slightly increased to $471.3 million, with gross profit rising to $232.8 million, resulting in a net income of $28.1 million compared to a net loss in Q2 2023 Q2 and H1 2024 vs 2023 Income Statement Highlights (in thousands USD, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $471,307 | $468,934 | $921,362 | $913,950 | | Gross Profit | $232,845 | $199,782 | $450,068 | $381,291 | | Income (loss) from operations | $36,938 | $959 | $47,292 | $(22,534) | | Net Income (loss) | $28,059 | $(1,971) | $36,625 | $(14,042) | | Diluted EPS | $0.46 | $(0.05) | $0.58 | $(0.26) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, cash from operating activities decreased to $31.2 million, while cash used for investing activities significantly reduced to $35.2 million, and financing activities used $102.1 million primarily for share repurchases Six Months Ended Cash Flow Summary (in thousands USD) | Cash Flow Activity | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Cash from operating activities | $31,204 | $43,292 | | Cash used for investing activities | $(35,157) | $(88,337) | | Cash used for financing activities | $(102,098) | $(96,117) | | Net decrease in cash | $(119,558) | $(150,017) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including a Q1 2024 segment reporting change to Retail Media and Performance Media, and disclose a €40 million CNIL fine appeal and a $31.9 million indemnified provision for Iponweb acquisition tax risks - Beginning in Q1 2024, the company changed its segment reporting structure to two reportable segments: Retail Media and Performance Media. This change led to a reassessment of goodwill allocation, with no impairment identified[26][27][28] Segment Revenue and Contribution ex-TAC (Q2 2024 vs Q2 2023, in thousands USD) | Segment | Q2 2024 Revenue | Q2 2023 Revenue | Q2 2024 Contribution ex-TAC | Q2 2023 Contribution ex-TAC | | :--- | :--- | :--- | :--- | :--- | | Retail Media | $54,777 | $44,590 | $53,866 | $43,518 | | Performance Media | $416,530 | $424,344 | $213,227 | $196,699 | | Total | $471,307 | $468,934 | $267,093 | $240,217 | - The company is appealing a €40 million fine from France's CNIL related to past GDPR violations. The payment was made in Q3 2023[87] - A provision of $31.9 million has been recorded for non-income tax risks identified during the Iponweb Acquisition, which is fully covered by an indemnification asset[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2024 financial results, noting a 3% constant currency revenue increase to $471.3 million, driven by 23% Retail Media growth, with Contribution ex-TAC up 14% and Adjusted EBITDA surging 67% to $93.4 million, while maintaining strong liquidity of over $675.5 million amidst privacy changes Results of Operations Q2 2024 saw 3% constant currency revenue growth, led by 23% in Retail Media, with Contribution ex-TAC increasing 14% due to lower traffic acquisition costs, while operating expenses showed mixed trends Q2 2024 Performance vs. Q2 2023 (Constant Currency % Change) | Metric | % Change (Constant Currency) | | :--- | :--- | | Total Revenue | +3% | | Retail Media Revenue | +23% | | Performance Media Revenue | +1% | | Total Contribution ex-TAC | +14% | | Retail Media Contribution ex-TAC | +24% | | Performance Media Contribution ex-TAC | +11% | - Traffic acquisition costs (TAC) in Performance Media decreased by 9% at constant currency in Q2 2024, driven by a 20% decrease in average CPM, partially offset by a 14% increase in impression volume[125] - General and administrative expenses increased 122% in Q2 2024, primarily because the prior-year period included a partial reversal of a loss contingency on regulatory matters[139] Liquidity and Capital Resources As of June 30, 2024, Criteo maintained strong liquidity exceeding $675.5 million, including $291.7 million in cash, and repurchased $102.5 million in shares during H1 2024, with capital expenditures at $34.3 million - The company has total liquidity above $675.5 million, which includes cash, marketable securities, treasury shares, and a €407.0 million ($435.7 million) Revolving Credit Facility[151] - Under its share repurchase program, which was extended to $630.0 million, the company repurchased $102.5 million of shares in the first six months of 2024[152] - Capital expenditures are expected to be approximately 7% of Contribution ex-TAC for 2024, focused on data center capacity and developing the Commerce Media Platform[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange rate fluctuations, where a hypothetical 10% change in key currencies like EUR, JPY, GBP, and BRL would notably impact net income Hypothetical 10% Currency Fluctuation Impact on Net Income (Six Months Ended June 30, 2024, in thousands USD) | Currency vs. USD | +10% Impact | -10% Impact | | :--- | :--- | :--- | | EUR/USD | $3,215 | $(3,215) | | JPY/USD | $3,099 | $(3,099) | | GBP/USD | $159 | $(159) | | BRL/USD | $127 | $(127) | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2024[169] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[170] PART II OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 14 for details on legal proceedings, including an appeal of a €40 million CNIL fine and an ongoing claim in the U.S. District Court for the Northern District of California - For a discussion of legal proceedings, the report refers to Note 14, which covers commitments and contingencies[173] Item 1A. Risk Factors This section updates risk factors, emphasizing dependency on data collection, highlighting significant risks from browser restrictions, consumer choice, evolving privacy regulations, and the impact of ad-blockers and mobile privacy controls - The company's ability to generate revenue is highly dependent on collecting data, which is at risk from restrictions by browsers, consumer choice, and regulations[175][176] - While Google has delayed the full phase-out of third-party cookies in Chrome, its proposed new framework allowing users to make an informed choice remains a significant uncertainty for the business[177] - The growth of ad-blocking software and privacy controls on mobile devices, such as Apple's required user opt-in for its IDFA identifier, could substantially harm the company's growth and mobile advertising ecosystem[180][182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, Criteo repurchased 1,093,113 ADSs as part of its share repurchase program, with approximately $185.3 million remaining available for future repurchases as of June 30, 2024 Q2 2024 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 235,058 | $34.73 | | May 2024 | 476,104 | $37.65 | | June 2024 | 381,951 | $37.21 | | Total Q2 | 1,093,113 | N/A | - The share repurchase program was extended in February 2024 to a total of $630 million. As of June 30, 2024, approximately $185.3 million may yet be purchased under the plan[186] Item 5. Other Information No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[188] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and XBRL data files - The exhibits filed with this report include CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1) and XBRL data files[190]