UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
for the Fiscal Year Ended December 31, 20192021
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
Criteo S.A.
| France | Not Applicable | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
32 rueRue Blanche, 75009 Paris—France, 75009Paris—France
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: +33 1 4040 22 90
Securities registered pursuant to Section 12(b) of the Act:
| (Title of class) | (Trading Symbol(s)) | (Name of exchange on which registered) | ||||||||||||
American Depositary Shares, each representing one ordinary share, nominal value €0.025 per share | CRTO | Nasdaq Global Select Market | ||||||||||||
| Ordinary shares, nominal value €0.025 per share | * | Nasdaq Global Select Market | * | |||||||||||
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x
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 x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x 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.
| Large Accelerated Filer | ☒ | 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $1.1 billion,$2,716 million, based on the closing sale price of the American Depositary Shares as reported by the Nasdaq Global Select Market on June 30, 2019.2021. Ordinary shares, nominal value €0.025 per share, held by each officer and director and by each person who owns or may be deemed to own 10% or more of the outstanding ordinary shares have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 31, 2020,February 24, 2022, the registrant had 61,920,75860,757,635 ordinary shares, nominal value €0.025 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 20202022 Annual Meeting of Shareholders. Such proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2019.2021.
CRITEO S.A.
ANNUAL REPORT ON FORM 10-K
For The Fiscal Year Ended December 31,20192021
ANNUAL REPORT ON FORM 10-K
For The Fiscal Year Ended December 31,
TABLE OF CONTENTS
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General
Except where the context otherwise requires, all references in this Annual Report on Form 10-K ("Form 10-K") to the "Company," "Criteo," "we," "us," "our" or similar words or phrases are to Criteo S.A. and its subsidiaries, taken together. In this Form 10-K, references to "$" and "US$" are to United States dollars. Our audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Unless otherwise indicated, the statistical and financial data contained in this Form 10-K are presented as of December 31, 2019.2021.
Trademarks
"Criteo," the Criteo logo and other trademarks or service marks of Criteo S.A. appearing in this Form 10-K are the property of Criteo S.A.Criteo. Trade names, trademarks and service marks of other companies appearing in this Form 10-K are the property of their respective holders.
Special Note Regarding Forward-Looking Statements
This Form 10-K 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-K, including statements regarding our future results of operations and financial position, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this Form 10-K, the words "anticipate," "believe," "can," "could," "estimate," "expect," "intend," "is designed to," "may," "might," "objective," "plan," "potential," "predict," "objective,"project," "seek," "should," "will," "would" or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
•the ongoing effect of the COVID-19 pandemic, including its macroeconomic effects, on our business, operations, and financial results, and the effect of governmental lockdowns, restrictions and new regulations on our operations and processes;
•our pending acquisition of IPONWEB;
•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;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;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;market, including the increased prevalence of walled gardens and retail media networks;
•our ability to adapt to regulatory, legislative or self-regulatory developments regarding internet privacy matters;
•our ability to protect users’ information and adequately address privacy concerns;
•our ability to enhance our brand;
•our ability to enter new industry verticals, 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 refer to Item 1A "Risk Factors" of this Form 10-K 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-K 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-K and the documents that we reference in this Form 10-K and have filed as exhibits to this Form 10-K 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 statements.
This Form 10-K contains 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-K is generally reliable, such information is inherently imprecise.
Summary Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described in “Item 1A. Risk Factors”, which are summarized below:
•If we fail to innovate, enhance our brand, adapt and respond effectively to rapidly changing technology, our offerings may become less competitive or obsolete. Our investments in new solutions and technologies to address new marketing goals for our clients are inherently risky and may not be successful.
•Failure to complete the IPONWEB Acquisition could have an adverse effect on our business, financial condition and results of operations and could negatively impact our stock price.
•Our business, including our global operations and sales, faces risk related to public health developments, and has been, and we expect will continue to be, negatively impacted by the ongoing COVID-19 pandemic and the global attempt to contain it.
•We face intense and increasing competition for employee talent, and if we do not retain and continue to attract highly skilled talent or retain our senior management team and other key employees, we may not be able to sustain our growth or achieve our business objectives.
•The market in which we participate is intensely competitive, and we may not be able to compete successfully with our current or future competitors.
•If we fail to access a consistent supply of advertising inventory and expand our access to such inventory, our business and results of operations could be harmed.
•The failure by Criteo AI Engine to accurately predict engagement by users could result in significant costs to us, lost revenue and diminished business opportunities.
•Regulatory, legislative or self-regulatory developments regarding internet or online matters could adversely affect our ability to conduct our business.
•Our success depends on our ability to implement our business transformation and achieve our global business strategies.
•Our international operations and expansion expose us to several risks.
•Our future success will depend in part on our ability to expand into new industry verticals.
•We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. Our historical growth rates may not be indicative of our future growth, and we expect our operating and capital investments to continue to increase in the foreseeable future. Accordingly, we may have difficulty sustaining profitability.
•We derive a significant portion of our revenue from companies in the retail, travel and classified industries, and any downturn in these industries or any changes in regulations affecting these industries could harm our business.
•Our ability to generate revenue depends on our collection of significant amounts of data from various sources, which may be restricted by consumer choice, clients, publishers, browsers or other software, changes in technology, and new developments in laws, regulations and industry standards.
•Our business involves the use, transmission and storage of personal data and confidential information, and the failure to properly safeguard such information could result in significant reputational harm and monetary damages.
•Failures in the systems and infrastructure supporting our solutions and operations, including as we scale our offerings, could significantly disrupt our operations and cause us to lose clients.
•If we are unable to protect our proprietary information or other intellectual property, our business could be adversely affected.
•Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.
•The market price for the ADSs have been and may continue to be volatile or may decline regardless of our operating performance.
•ADS holders may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.
•The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the U.S.
•In periods of economic uncertainty, businesses may delay or reduce their spending on advertising, and we are exposed to the credit risk of some of our clients and customers, which could materially harm our business.
PART I
Item 1. Business
History and Development of the Company
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 registered at the Paris Commerce and Companies Register under the number 484 786 249. Our agent for service of process in the United States ("U.S.") is National Registered Agents, Inc. We began selling elements of our offering in France in 2007 and have since expanded our business into other countries in Western Europe. In 2009, we expanded our business into North America and entered the Asia-Pacific region in late 2010. In 2016, we acquired HookLogic, Inc. ("HookLogic"), a New York-based company operating a performance marketing exchange connecting consumer brands with retail ecommerce sites via sponsored product ads.
Business Overview
We are a global technology company poweringdriving superior commerce outcomes for marketers and media owners through the world's marketers withworld’s leading Commerce Media Platform. We operate in commerce media, the future of digital advertising, leveraging commerce data and artificial intelligence ("AI") to connect ecommerce, digital marketing and media monetization to reach consumers throughout their shopping journey. Our vision is to 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. Since 2018, and accelerating since 2020, we have deeply transformed the Company from a single-product to a multi-solution platform provider, fast diversifying our business into new solutions.
We strive to deliver measurable business resultsenable brands', retailers' and media owners’ growth by providing best-in-class marketing and monetization services and infrastructure on the open Internet, driving approximately $40 billion of commerce outcomes for our customers – in the form of product sales for retailers, brands and marketers and advertising revenues for media owners. We differentiate ourselves by delivering the best performing commerce audiences at scale and we deliver this value by activating commerce data in a privacy-by-design way through proprietary AI technology to reach and engage consumers in real time with highly relevant digital advertisements ("ads") across multiple marketing goals for retailers and brands, through our self-service Criteo Platform. Using shopping data, artificial intelligence ("AI") technology and extensiveall stages of the consumer reach, we help marketers drive Awareness, Consideration and Conversion for their products and services1, and help retailers generate advertising revenues from consumer brands.journey. Our data is pooled among our clients and offers deep insights into consumer intent and purchasing habits. To drive trusted and impactful advertising for marketers, we activate our data assets in a privacy-by-design way through proprietary AI technology to engage consumers in real time by designing, pricing and delivering highly relevant digital advertisements ("ads") across devices and environments. We price our offering on a range of pricing models and measure our value based on clear, well-defined performance metrics, making our impact on the business of our clients both transparent and easy to measure.
Our missionfocus is to power the world's marketers, brands, retailers, publishers, content creators and agencies with trusted and impactful advertising. We enable our clients to address multiple goals across the marketing funnel through the Criteo Platform. Our vision is to build the leading advertising platform for the open Internet.
media. Our clients include somemany of the largest and most sophisticated consumer brands, commerce companies and media owners in the world, along with world-class consumer brands.world. We partner with them to capture user activity on their websites and mobile applications ("apps"), which we define as digital properties, and optimizeleverage that data to deliver superior ad performance to help marketers, brands and agencies reach their campaign objectives from top to bottom of the performancefunnel. This includes powering the retail media ecosystem as we enable brands to reach shoppers with relevant ads near the digital point of their ads basedsale on that activityretailer and other data. marketplace websites while enabling retailers to add a new revenue stream.
Demonstrating the depth and scale of our data, we collected data on $900 billionhave exposure to over $1 trillion in online sales transactions2 on our clients' digital properties in the year ended December 31, 2019.2021. Based on this data and other assets, we activated about $3 billion of media spend on behalf of our customers and delivered 1.8 trillion targeted ads that generated over 11 billion clicks2 in the year ended December 31, 2019.2021. As of December 31, 2019,2021, we served more than 20,000approximately 22,000 clients and, in each of the last three years, our average client retention rate, as measured on a quarterly basis, was approximately 90%.
Each day, we are presented with billions of opportunities to connect consumers with relevant advertising messages from our commerce and consumer brand clients.customers in compliance with the highest privacy standards, including the General Data Protection Regulation ("GDPR") and California Consumer Privacy Act ("CCPA"). For each of these opportunities, our algorithms analyze massive volumes of shopping data to predict consumer preferences and intent, and deliver specific messaging for products or services that are likely to engage that particular consumer. The accuracy of our algorithms improves with every ad we deliver, as they incorporate new data while continuing to learn from prior interactions.
2
Historically, the legacy Criteo model had focused solely on converting our clients' website visitors into customers, enabling us to charge our clients only when users engage with an ad we deliver, usually by clicking on it. This pay-for-performance pricing model clearly links the cost of an advertising campaign to its effectiveness and performance in driving conversions, and has long beencontinues to be valued as such by our clients. More recently, weWe have since expanded our solutions to address a broader range of marketing and monetization goals for our clients. Doing so, we also expanded ourclients, including audience targeting and brand awareness. We leverage pricing models and nowconsistent with industry standards that include a combination ofcost-per click, cost-per-impression and cost-per-install, for selected new solutions, in addition to cost-per-click, as well as a transactional-Software as a Service, or SaaS, pricing modelvolume-based fees for brands and large retailers using our Retail Media solutions, and, in certain cases, a set fee for the use of our platform capabilities.
In May 2021, we acquired Doobe In Site Ltd. ("Mabaya"), a leading retail media technology platform as partcompany that powers sponsored products and retail media monetization for major ecommerce marketplaces globally (the “Mabaya Acquisition”). This acquisition immediately enhanced our retail media capabilities to better meet the unique needs of marketplaces and marketplace sellers.
In December 2021, we executed a purchase agreement to acquire the business of IPONWEB Holding Limited ("IPONWEB"), a market-leading AdTech company with world-class media trading capabilities, for $380 million comprised of a fast-growing sharemix of cash and treasury shares of the Company, subject to certain adjustments including for working capital, other current assets and current liabilities and net indebtedness, with the transaction expected to close in the first quarter of 2022 (the "IPONWEB Acquisition"). The transaction is subject to customary closing conditions. This strategic acquisition is expected to accelerate our Criteo RetailCommerce Media offering. In the future,Platform vision by adding scale, complementary products, and stronger first-party data capabilities, further reducing our reliance on third-party cookies and other identifiers.
During 2021, we intend to continue to evolve the pricing models of our solutions, including to provide additional transparency to marketers.operated in 96 countries.
Our financial results include:
•Revenue of $2,296.7$2,254.2 million, $2,300.3$2,072.6 million and 2,261.5$2,261.5 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively;
•Contribution excluding Traffic Acquisition Costs, or Contribution ex-TAC, previously called Revenue ex-TAC, which is a non-U.S. GAAP financial measure,measure, of $941.1$920.8 million, $966.0$825.0 million and $946.6 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively;
•Net incomeincome of $96.7$137.6 million, $95.9$74.7 million and $96.0 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively; and
•Adjusted EBITDA, which is a non-U.S. GAAP financialfinancial measure, of $309.6$322.5 million, $321.1$251.0 million and $299.0 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively.
Please see footnotes 3, 4 and 5 to the "OtherNon-GAAP Financial and Operating Data" tableMeasure Reconciliation, included in "Item 6. Selected7. Management's Discussion and Analysis of Financial Data"Condition and Results of Operations" in this Form 10-K for a reconciliation of revenuereconciliations from Gross Profit to RevenueContribution ex-TAC and net income to Adjusted EBITDA, and net income to Adjusted Net Income, respectively, in each case the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles generally accepted in the United States or "U.S. GAAP".
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Industry Trends
We operate in commerce media, a new approach to advertising at the intersection of ecommerce, digital marketing and media monetization, that uses commerce data and machine learning to reach consumers throughout their shopping journey.
The ability to engage consumers across the various steps of the consumer journey is critical for businesses in the broader commerce and consumer brand sectors, who often dedicate a significant portion of their cost base to developing such an ability. We believe the following trends are relevant in assessing our current and future business.
E-commerce is Booming: According to eMarketer, global retail ecommerce (excluding travel and event tickets and food services) amounted to close to $5 trillion in 2021 or 19% of global retail sales in 2021 and is forecast to represent 23% by 2024, or $7 trillion. The COVID-19 pandemic has accelerated the boom of ecommerce as brands and retailers rapidly transform their ecommerce presence, and gain share from ecommerce giants. As a result of new habits developed by consumers, and as the pandemic has brought in older and less tech-savvy demographics to online shopping, we expect this trend to continue. 81% of online buyers who tried a new retailer indicate that they expect to continue to shop with them in the future2, creating a shift in brand loyalty towards open Internet retailers, which today represent approximately 88% of global e-commerce sales done outside of Amazon3.
First-Party Data Unlocks Huge Potential: Amazon opened the way in the commerce media category, and other large retailers also leverage their shoppers’ first-party data to drive momentum to their advertising revenue. Many more retailers are now following suit in creating media experiences around their content assets utilizing their first-party data to curate and monetize their audiences. Driving advertising spend to their content requires AdTech and a huge network of shared data.
Trade Marketing Shifts to Digital: Brands have been taking advantage of this surge in ecommerce and accelerating the shift of their trade marketing budgets to online. We believe digital trade marketing represents a market opportunity of approximately $80 billion. This potential of digital trade marketing is feeding growth in the supply of retail media, available for brands to bid on to promote their products directly at the point of sale. A Forrester Research report published in 2020, indicated that 92% of EU brand advertisers say their growth depends on retail media.
Brands, Retailers and Publishers Increasingly Depend on AdTech Partners: As technology quickly evolves in today's highly competitive environment, advertising technology (“AdTech”) becomes increasingly critical for marketers. According to Merkle research published in 2020, 34% of retailers see creating deeper partnerships with technology companies and media platforms as their largest opportunity. Consumers' shopping journeys increasingly remain fragmented across multiple environments, websites, apps, devices, and physical stores, and we believe most marketers increasingly look at diversifying their significant reliance on walled-garden digital advertising partners. Changes in online identity make the environment more complex for both marketers and media owners around addressability and measurement, and require brands and retailers to better leverage AdTech providers to solve these problems for them. The ability for media owners, retailers, brands and agencies to identify users, create and monetize commerce audiences, and drive sales and customer loyalty, today relies on having the right technology partner, able to activate the right data in an efficient way and measure the results in a transparent way across channels.
Addressable Market
We estimate that the total addressable market for the marketing and monetization services provided by our Commerce Media Platform on the open Internet represents $100 billion in advertising spend that we can activate on behalf of our customers by 2024. In addition, traditional trade marketing dollars used for brick and mortar in-store promotions are rapidly moving to digital, which represents an additional market opportunity of approximately $80 billion. When adding the full potential of online trade marketing our total addressable market reaches $180 to $200 billion.
1Question Asked: “When you want to buy a new product online, where do you typically start your search?”
1,2 ExcludingSources: Activate Consumer Tech & Media Viewpoint Study April 14, 2020 (n = 2,027), ComScore, Freedive, Marketing Dive, Activate analysis
3 Source: eMarketer
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Criteo's Transformation
Since 2018, and accelerating since 2020, Criteo Retail Media andhas deeply transformed itself from a single-product to a multi-solution platform provider, fast diversifying the business acquired from Manage.com Group, Inc.into new solutions.
The Criteo Commerce Media Platform
Our technology is optimized to efficiently and effectively drive trusted and impactful business results for advertisers across multiple marketing goals. We address a wide range of advertising objectivesoutcomes for our commercebrand, retailer and consumer brand clients, including,media owner customers. These include, for example, consumer visits to a client website, installations of a mobile app, product sales and monetization of retailers' inventory with brands. We deliver these measurable business outcomes by efficiently and effectively driving engagement for our clients'customers' brand, shops,shop, app, property, products and services, driving product sales, driving app installs and generatingconsumer visits, driving product consideration from targeted commerce audiences, or driving advertising revenue for media owners and retailers by monetizing their data and audiences with consumer brands.
The Criteo Commerce Media Platform worksis comprised of:
•Criteo’s large-scale First-Party Media Network
•Criteo’s advanced AI Engine
•Criteo’s powerful solutions: Marketing Solutions and Retail Media
Criteo's solutions work seamlessly across digital devices (desktops, laptops, smartphones and tablets), commerce and advertising environments (web, mobile(browsers, apps, connected TV and physical retail stores), platforms and operating systems (Windows, Android, iOS/MacOS), advertising channels (Display Advertising,and formats (display, including social and native, online video, connected TV and ads on retailers' properties) and publishermedia environments (thousands(retail media, thousands of direct publishers and mobile app developers in the open Internet, and all major real-time bidding exchanges including Alphabet Inc.'s "Google Ad Manager", as well as Facebook, Inc. ("Facebook"))exchanges).
The Criteo platformCommerce Media Platform is currentlymade available as individual products and services as part of our offering.
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Criteo First-Party Media Network
Our First-Party Media Network is a unique and comprehensive offering and cannot be broken down and purchased as separate services, except for individual advertising solutions and campaigns. In the future, we may look at unbundling componentscomponent of the Criteoour Commerce Media Platform and making individual elements available to somerepresents the combination of our clients.
Our Data assets: our first-party data-based BuyerIndex
Our data assets include allprivacy-safe insights derived from our clients'customers' proprietary commerce data about their own consumers, such as transaction activity on their digital properties, representing $900 billiongiving us exposure to over $1 trillion in online sales on a combined basis in 20191,2021, representing approximately 40% of the global retail ecommerce and digital travel marketssales excluding China21., or $2.7 billion worth of transactions per day on average.
Through direct integration with all of our clients' digital properties, we obtain large volumes of browsing behaviorconsented first-party data, expressed consumer shopping intent and engagement, and transactional data at individual product user levels.
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We believe our access to highly granular and qualitativefirst-party commerce data validates the trust that our clients place in us. For example, mostus. Most of our clients typically provide real-time access to the products or services a visitor has viewed, researched, added to their shopping cart, or bought from them, and continuously receive updated information on 10over 4 billion products or services3, across 3,500 product categories, including pricing, images and descriptions, which are typically characterized as non-Personally Identifiable Information ("Non-PII").descriptions. A large number of our clients also provide us with their customers' purchase history data in formats that are also non-PII.preserve privacy.
Over the past few years, we have built three data collectives through data pooling among many of our clients.marketer and media owner customers and partners. The combination of these data collectives forms Criteo Shopper Graph.Criteo’s Buyer Index. For eacheach of these data collectives, we ask our clients to grant us the permission to mutualize a significant portion of their proprietary data in an anonymized way with other clients who also contribute data to this specific collective data pool. With Criteo Shopper Graph,Criteo’s Buyer Index, we are buildinghave built one of the world's largest and most open data sets focused on shoppers and their commerce activity across retailers and brands.brands, and their activity on media owners’ properties.
The Criteo Shopper GraphBuyer Index is comprised of the following three data collectives:collectives:
•The Interest Map collects and organizes consumer intent and purchasing data across the products available in our network of commerce clients, in order to build a comprehensive and accurate non-identifying shopper profile for all consumers on whom we have collected data. Our Interest Map applications include the Universal Catalog, which provides category and/or brand enrichment, as well as a unified view of the 4 billion products SKUs, across 3,500 product categories, available across the combined catalogs of our 22,000 commerce clients2. Every day, we have exposure to data on close to $3 billion in online sales on average through 75 million buyer journeys. With the Interest Map, we seek our clients' permission to use their data, on an aggregated and anonymized basis, to power products that are jointly offered to our clients in the collective.
The design and governance of Criteo’s Buyer Index are based on strict and differentiated guiding principles:
•Openness: we commit to a two-way exchange of data with our marketer and media owner customers and partners, whereby all parties contributing data to the collectives, in return for their contribution, benefit from thecollective dataset via the Commerce Media Platform, and access cross-device user IDs and relevant Key Performance Indicators to better inform and optimize their advertising with us.
•Transparency: our clients' contribution and sharing of data within the data pools are based on a clear and permission-based usage by Criteo for the mutual benefits of all participants in thedata collectives.
•Security: we apply high levels of data security and user privacy standards to the data we hold and manage for ourselves and our clients.
•Fairness: our data collectives are designed and governed in ways such that the value gained by each participant largely exceeds the individual contribution to the collectives,irrespective of the participant’s size.
Consistent with our data minimization principles, our technologies only rely on categories of data that are strictly necessary for the purpose of our services. This means that the user information we collect relates primarily to purchase intent. In addition, we provide consumers with easy-to-use and easy-to-access mechanisms to control their advertising experience and opt out of receiving targeted ads we deliver. This transparent, consumer-centric, and controllable approach to privacy empowers consumers to make better-informed decisions about our use of their data. We also actively encourage our customers and media owner partners to provide transparent and clear information to consumers about our collection and use of data relating to the ads we deliver and monitor.
1 Source: eMarketer.
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Our Media assets: our first-party media integrations and media buying scale We provide our marketer customers with extensive real-time access to advertising inventory through direct relationships with thousands of media owner partners, as well as selective supply side partnerships. We define inventory as the combination of desktop web, mobile web, mobile in-app display, including social and native, online video displays, connected TV, and ad inventory on major retail ecommerce properties, including standard banners, native and sponsored product formats. In some cases, we have negotiated direct and privileged access with publishers, giving us the opportunity to select, buy and price, on an impression-per-impression basis and in real time: (1) inventory that a publisher might otherwise only sell subject to minimum volume commitments; and/or (2) particular ad impressions before such impressions are made available to other potential buyers. Among their multiple benefits, these direct relationships can give us privileged access to first-party publisher data which allow us to bid on impressions without using third-party cookies or other third-party identifiers. Many of our direct publisher partners have granted us preferred access to portions of their inventory as a result of our ability to effectively monetize that inventory. For example, within Criteo Retail Media, we access inventory and first-party data from ecommerce sites that are generally not available to traditional advertising demand. We believe this inventory and data from ecommerce retailers is particularly valuable for consumer brands looking to advertise their products in a multi-brand retail environment. We price and buy inventory in real time and typically do not pre-buy any impression. In addition, in some instances, we may commit to buying minimum volumes of impressions to certain publishers partners. Across both our direct publisher relationships and inventory purchasing done on Real-Time Bidding (RTB) exchanges, we leverage Criteo AI Engine's ability to quickly and accurately value available advertising inventory, and utilize that information to bid for inventory on a programmatic, automated basis. Alongside our existing technologies to integrate directly with publishers, we have developed Criteo Direct Bidder, our header-bidding technology. Header-bidding allows publishers to make their inventory simultaneously available for public auction to several competitive bidders, including RTB exchanges. Thanks to our large scale, Criteo Direct Bidder allows us to connect directly to the ad server of publishers in situations where publishers use header bidding to monetize their inventory, allowing us, among other advantages, to bypass RTB exchanges in the bidding process and to save publishers the take-rate RTBs would typically charge them. As a result, Criteo Direct Bidder helps publishers increase the average monetization of their inventory sold through Criteo Direct Bidder, relative to our overall spend through all channels. Using Criteo Direct Bidder, we were connected to publishers globally, on both web and apps, including: IBM Watson Advertising (The Weather Channel), Globo, OLX, NBC, Forbes, The Wall Street Journal, Leboncoin, Daily Mail, Viber, Axel Springer's websites, Marktplaats, M6, AJA Japan and EstSoft. We take a variety of brand safety measures to ensure that the brand equity of our clients is preserved at all possible times. These measures include determining that each publisher's inventory meets our content requirements and those of our clients to ensure that their ads are not shown in inappropriate content categories, such as, for example, adult, violent or sensitive political content. In addition, we are an active member of the Coalition for Better Ads, supported by Google, and are compliant with their recommendations for user-friendly advertising formats. In 2020, we entered into a partnership with Oracle Advertising to strengthen our existing brand safety offering. Criteo’s AI Engine is now integrated with Oracle Contextual Intelligence, a solution providing real-time content review and page-level pre-bid classification to clients across 11 standard brand safety categories. In recognition of our efforts to combat fraud and ensure a brand safe digital ecosystem for our advertisers, Criteo has been independently certified by the Trustworthy Accountability Group for the Certification Against Fraud and the Brand Safety Certification. For Criteo Marketing Solutions, we typically purchase inventory programmatically on a CPM basis from our direct publisher partners and RTBs, through standard terms and conditions for the purchase of advertising inventory. This means that inventory purchased for Criteo Marketing Solutions is paid to the publisher irrespective of whether the user engages, in whatever form, with the advertisement delivered on that publisher's digital property. Pursuant to such arrangements, we purchase impressions for users that Criteo recognizes on these publishers' digital properties. Such arrangements are cancellable upon short notice and without penalty. For Criteo Retail Media, we historically pay for the inventory of retailer partners |
8 We believe that our ability to efficiently access, value and monetize inventory at scale results in a deeply liquid marketplace for both buyers and sellers of advertising, allowing us to deliver effective ads at the right price for our clients, even as the size and complexity of the marketing campaign increases. |
Criteo AI Engine
Criteo AI Engine has been developed over the past 14 years and consists of multiple artificial intelligence algorithms, and the proprietary global hardware and software infrastructure that enables the CriteoCommerce Media Platform to operate in real time at significant scale.scale, and activate our commerce datasets and unique media for effective marketing and monetization.
Criteo AI Engine leverages Criteo Shopper Graph,leverages the Buyer Index, with thethe goal of maximizing consumer engagement to drive impactful business resultsoutcomes for clients through the delivery of highly relevant and personalized ads in real time.
Criteo AI Engine consists of:
•Lookalike finder algorithms. These algorithms create user audiences, or groups of consumers likely to be interested in and engage with a specific category of our clients’ products or services, from a predetermined audience seed based on other clients’ audiences that were already targeted and exposed to similar products or services in the context of previous |
•Recommendation algorithms.These algorithms create ads tailored to specific consumer interest and intent by determining the specific products or services to include in the ad. These products and services may be ones that the consumer has already been exposed to, or that the algorithms predict the customer could be interested in. Alternatively, these may be products and services that other consumers within Criteo Buyer Index have been interested in.
•Dynamic Creative Optimization+ (DCO+).Based on the results of our dynamic creative algorithms, Criteo AI Engine automatically and dynamically assembles customized creative ad content on an impression-per-impression basis in real time, by optimizing each individual creative component in the ad, from the font, color, size and format of product images to the "call to action" or price discount. Our patented Dynamic Creative Optimization+ technology offers virtually unlimited personalization, with up to 17 trillion visual ad variations, without the need to define ad sizes or layouts upfront, while always maintaining the consistency of our clients' brand image.
•Predictive bidding algorithms.These algorithms predict the probability and nature of a user's engagement with a given ad. Such predicted user engagement can take the form of, for example, customer site visits, clicks, conversions, shopping basket value, specific product categories purchased, or even the gross margin of the purchased product or service that our client generates from such purchase. This prediction of engagement incorporates data from our marketer customers, our media owner customers and partners, including user intent, who our customer is, the products offered in the ad, as well as data on the creative content of the ad and the media context in which the ad is displayed, as well as third-party sources. Together with our recommendation algorithms, the prediction algorithms allow us to determine the most appropriate price to pay for an ad impression, based on an individual user's predictedpredicted engagement, what the clientour customer is willing to pay for that engagement, as well as Criteo's own target Revenue ex-TAC margin (or economic "take rate" retained by Criteo) from placing that individual ad.ad. Our bidding engine executes campaigns based on certain objectives set by our clients (such as cost-per-click, cost-per-order, cost-of-sales, cost-per-visit, cost-per-impression, cost-per-install or total campaign budget). After a bid for an ad impression is placed and won, Criteo AI Engine assembles and delivers individualized ads, and provides campaign reporting in near-real time.
•Software systems and processes. Our algorithms are supported by robust software infrastructure that allows us to operate seamlessly at a large scale through our network of more than 45,000 servers as of the end of 2021. The architecture and processing capabilities of this technology have been designed to match the massive computational demands and complexity of our algorithms in real time. This technology enables data synchronization, storage and analysis across a large-scale distributed computing infrastructure in multiple geographies, as well as fast data collection and retrieval using multi-layered caching infrastructure. 9 •Experimentation platform. Our Research & Development team continuously tunes Criteo AI Engine via experimentation and A/B tests. For example, in 2021, we performed about 800 online A/B tests and over 100,000 offline experiments and tests.We use an online/offline testing platform to improve the capabilities and effectiveness of our prediction models by measuring the correlation of specific parameters with user engagement, usually measured by consumer visits, clicks and conversions, typically in the form of sales. A dedicated team is constantly testing new types and sources of data, as well as new variables, to determine whether they help diminish the gap between, for example, predicted visits, click-throughs and conversions, and actual visits, click-throughs and conversions over the course of a live campaign. |
A key attribute of Criteo AI Engine is the vast metadata of learnings on advertisingmarketing and commerce effectiveness that we have accumulated from having delivered and measured responses to over 7close to 11 trillion advertising impressions since our Company's inception. Our Research & Development team constantly tunes Criteo AI Engine via experimentation and A/B tests. For example, in 2019, we performed about 1,200 online A/B tests and 72,000 offline experiments and tests.
Our Solutions
Criteo Management Centerreports its business results for two operating and reportable segments: Marketing Solutions and Retail Media.
◦Examples of expected business outcomes driven by Criteo Marketing Solutions include:
▪Awareness: creating and building brand awareness for a client's existing or new product or service, by targeting relevant high-quality consumer audiences showing intent for that particular product or service and reaching these audiences, for example, through online video ads across the breadth of our premium publisher network on the open Internet;
▪Audience Targeting: driving visits from new prospects on the website of our clients, or driving installations of our clients' apps by new consumers, by engaging such prospect visitors online (either on the web, in apps or on connected TV), with personalized ads offering products or services tailored to their predicted interest through our audience targeting capabilities, based on our Buying Index data and/or contextual signals;
▪Conversion: driving sales for commerce clients by engaging consumers online, with personalized ads offering products or services for which they have already expressed shopping intent; or driving more salesfrom existing customers of our commerce clients, by accurately targeting and re-engaging these existing customers online with personalized ads offering new products or services that they have not yet purchased nor been exposed to.
◦Our clients' use and consumption of Criteo Marketing Solutions is made flexible through a set of tools and services:
▪Our clients have access to an integrated self-servicecustomer interface, called the Management Center, providing transparency, control and visibility over their advertisingmarketing investments and campaigns with us, whatever their business and marketing goals may be. Criteo Management Center, our unified and easy-to-use self-service userbe. This interface ("UI"), enables the flexible and modular consumption of our various solutions directly by our clients, as well as the execution and management of their campaigns through a suite of software and services that automates key campaign processes. Using our Management Center, clients benefit fromprocesses, and a high level of control over the objectives, parameters and performance of their various campaigns with us. Criteo Management Center reduces unnecessary complexity and cost associated with manual processes of having to use multiple Demand-Side Platforms ("DSPs") and sources of inventory supply, delivering efficiencies across the marketing funnel, even as campaigns grow in size, complexity and mix of marketing goals.
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In addition to self-service access to Criteo Management Center, we also offer a managed-service approach to our larger clients, providing deep business intelligence and analytics services. Our teams of advisers aid our larger clientscustomers in setting goals for, extracting insights from, and evaluating trends and performance of their various advertising campaigns with us across multiple marketing goals, sources of inventory, advertising channels and formats, and the multiple digital devices that consumers may use.
▪In addition, we offer multiple API integrations for certain partners and clients to enable the management of our clients' advertising investments with us in a unified and integrated way with some of their other advertising or marketing technology partners which makes Criteo solutions directly available in their back-office.
▪In parallel with accessing transparent reporting and measurement from Criteo Management Center, a large proportion of our clients regularly use their own attribution tools and solutions from third-party vendors (such as, for example, Nielsen’s Digital Ad Ratings, Google Analytics, IBM Coremetrics or Adobe Analytics) to independently measure and assess the performance of the results that Criteo delivers, including visits, sales and other key metrics.
•Brand awareness: We are extending our offering to allow for more brand awareness campaigns for both brands and retailers on the open Internet, including in online video formats and through the Connected TV channel.
•Audience-first Targeting: We already address customer acquisition as a marketing objective and intend to continue growing it, along with similar use cases building on audiences based on our shopper data. In addition, we are investing resources in enhancing the efficacy and impact of cohort advertising on our ecosystem and help shape the end solution which will replace third-party cookies in the Google Chrome browser environment.
•Contextual advertising: We are also developing new solutions for contextual advertising to accompany our clients in the fast-changing identity landscape. We believe our approach to contextual advertising is different from what currently exists in the market as we are using first-party data to add a commerce “signature” to the content consumers are reading and watching across the Open Internet. This enables us to go beyond traditional contextual inferences of interest and intent to indicate what combinations of content are actually driving purchases.
•Omnichannel: We are fast growing our Omnichannel capabilities that help bridge offline consumer identities and shopping habits with ecommerce and online shopping. While a large portion of our commerce client base operates physical stores and still generates a significant percentage of their sales from these stores, extracting massive amounts of sales data from their physical stores, they often lack the sophisticated technology necessary to activate this dataset for sales generation, both online and offline. As a result, retailers are increasingly interested in accessing a set of differentiated omnichannel advertising solutions that allow them to target their customers everywhere they are and bridge the gap between online and offline. We believe our Omnichannel offering is highly differentiated compared to traditional digital advertising players in the marketplace. We intend to further expand our solutions for omnichannel advertising, including by feeding our clients' offline CRM data into our Identity Graph, in order to further grow the match rate of offline consumers with their online profile.
•Criteo Retail Media assists retailers in generating high-margin advertising revenues from consumer brand clients:
◦Examples of expected business outcomes driven by Criteo Retail Media include:
▪generating advertising revenue for retailers on their online store, by providing retailers with self-service access to address the Awareness marketing goal for clients.
▪driving sales for consumer brand clients on the site of retailer partners, by connecting consumer brands and retailers and engaging consumers on the retailer's digital property with personalized ads offering specific brand products available on the retailer's digital store and for which consumers have expressed interest (also called "onsite");
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▪driving sales for consumer brand clients on the site of retailer partners, by connecting consumer brands and retailers and engaging consumers outsideof the retailer property on the open Internet with personalized ads offering specific brand products available on the retailer's digital store and for which consumers have expressed interest (also called "offsite");
◦Our retailer and brand customers respectively manage their Retail Media revenues and budgets using a fast-growing share of ourself-service interface called the Retail Media Platform. The Retail Media Platform provides flexible pricing options to brands: guaranteed placement (cost-per-impression) and auction-based (cost-per-click). We charge retailers a negotiated supply-side platform fee and sometimes a technology fee, while brands pay us a negotiated demand-side platform fee. In addition, we may charge brands a managed-service fee and other fees for accessing additional insights.
In 2021, Criteo Retail Media offering. In the future, we may further evolve the pricing of our solutions, including to provide additional transparency to marketers.
We believe that many of our direct publisher partners have granted us preferred access to portions of their inventory as a result of our ability to effectively monetize that inventory. For example, in Japan, we have entered into a strategic relationship with Yahoo! Japan, that grants us preferred access to its advertising inventory for delivering personalized display ads. In addition, within Criteo Retail Media we access inventory from ecommerce sites that is generally not availablea particularly differentiated offering in the marketplace with significant potential opportunities. We will continue to traditional advertising demand. We believe this inventory from ecommerce retailers is particularly valuable for consumer brands looking to advertise their products, whether with an Awareness, Consideration or Conversion marketing goal, in a multi-brand retail environment.
In addition, we take a varietyintend to grow the number of brand safety measures to ensure that the brand equity of our clients is preserved at all possible times. These measures include determining that each publisher's inventory meets our content requirements and those of our clients to ensure that their ads are not shown in inappropriate content categories, such as in adult, violent or sensitive political content. For that purpose,retailers we use numerous internal systems and processes to filter out inventory in real time, including the list of suspect IP addresses from the Trustworthy Accountability Group and the lists of invalid traffic from several specialized external vendors. With respect to inventory purchased through RTB exchanges, we utilize a combination of proprietary methodologies as well as third-party software, such as Integral Ad Sciencework with in the webU.S. and PixalateEurope, deepen our share of wallets with existing retailer and brand customers, accelerate our geographic expansion in mobile apps, to verify that inventory where the ad is shown conforms to our advertising guidelinesEurope and the content expectations and branding guidelines of our clients. In addition, we are an active member of the Coalition for Better Ads, supported by Google, and are compliant with their recommendations for the most user-friendly advertising formats.
Our Competitive Strengths
We believe the CriteoCommerce Media Platform is transforming the way marketers use digital advertising.marketing and media monetization for our customers. We makeenable brands' and retailers' growth by making their advertising investments with usmarketing and monetization efforts more efficient, effective and measurable by driving trusted and impactful resultsbusiness outcomes across multiple marketing goals. We believe the following competitive strengths, supported by our first-mover advantage, have enabled us and will continue to enable us to capture a significant share of the digital advertisingour commerce media opportunity:
Shopper Data. Our First Party Media Network leverages massive amounts of granular first-party data focused on commerce and shopping behaviors, through data sharing among our clients. With an estimated 685 million unique Daily Active Users in our Identity Graph, we are building one of the largest data sets focused on shoppers, with a scope and scale among the largest in the industry. Close to $3 billion worth of daily transactions across 4 billion product SKUs from 3,500 product categories are incorporated into our graph, allowing us to analyze about 75 million daily buyer journeys. Our Buyer Index offers a comprehensive, accurate and non-identifying shopper profile for all consumers on whom we have collected information, and is the foundation for the development of compelling advertising solutions - existing and new - that help our customers span the full marketing funnel across brand awareness, audience targeting and conversion marketing goals.
Consumer Reach, Scale and Network Effects. Our large and loyal base of customers and first-party media owner partners provide for stability and positive network effects. As of December 31, 2021, we had approximately 22,000 clients, including some of the largest ecommerce companies in the world, and our client retention rate was approximately 90%. In parallel, as of the same date, we were working with direct publishers on both web and apps, in addition to all of our large global and local RTB partners. These direct integrations on both the demand and supply sides ensure privacy-compliant access to first-party data, shielding from the consequences of third-party cookie limitations. As we continue to grow our client base, we continue to grow the number of users who interact with our ads, increasing our consumer reach and allowing us to benefit from greater scale when buying inventory from publisher partners, many of whom have granted us preferred access to portions of their advertising inventory. Beyond the stability in our business that our large and loyal base of customers and media owner partners provides us, significant opportunities exist to cross-sell and up-sell our product portfolio within our large existing customer base. As clients spend more with us and we attract more media inventory and deliver more ads, our data assets grow, enabling us to deliver even more precisely targeted and personalized ads and generate a greater impact for our customers, both marketers and media owners. As a result, we believe more brands, commerce marketers and media owners may use our offering and potentially increase their spend with us. This, in turn, may enable us to increase monetization for media owners and retailers, further expanding our media network and enhancing our ability to drive performance for all customers. This cycle of self-reinforcing network effects, based on our large scale and loyal base of marketer and media owner customers and partners, may continue to fuel our business in the future.
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Retail Media. Our Retail Media offering provides unique opportunities to both brands and retailers. Our Retail Media value proposition, helping retailers to monetize their data and inventory with brands, is quite unique in the marketplace outside of Amazon. It provides opportunities for brands to advertise on retailers' on-site media, while creating a new source of profitable revenues for large retailers. With the acquisition of Mabaya in 2021, we have also enhanced our retail media capabilities to best meet the unique needs of marketplaces and marketplace sellers. Criteo's Retail Media Platform is the industry's first self-service and transparent software providing an easy way for brands to manage their online marketing budgets to drive immediate, measurable commerce outcome directly where shoppers search and buy their products. We Haveenable brands, agencies, and multiple retailers to buy and sell retail media using a common platform, thus benefiting from meaningful network effects due to our unique position as the technology supporting a multi-retailer ecosystem, whereas most competitors in the retail media space focus on supporting siloed retailer Walled Gardens. Brands and their agencies use our platform to access unique inventory at meaningful scale, and retailers get access to brand marketing budgets at a scale they would not be able to access on their own. This creates a network effect where the value for customers only increases as more brand and retailer participants join the ecosystem. In addition, our deep technical integrations with retailers, requiring meaningful engineering investment from the retailer, make us very sticky with them and enable us to offer preferred or exclusive inventory to brands and agencies, as well as a superior shopper experience to consumers. We primarily use a server-side technology to integrate our platform with retailer sites and apps. In addition, we require multi-year commitments and product ads exclusivity as part of our standard retailer services agreements. Both our unique inventory access and increasingly deep technical integrations with other advertising technology and reporting platforms provide defensible relationships with brands and agencies. For example, our API partner program embeds our technology into ad platforms that brands and agencies already use to buy search, social, and other large platforms' ad inventory. Additionally, with many major brand and agency clients, we directly connect our reporting data directly into client analytics and reporting platforms via our APIs.
Superior Insights and Measurement. We believe we have superior capabilities for Commerce Insights and measurement. Our technology provides our clients with the unique ability to measure against product sales at the product SKU level. For example, our commerce insights can bring together organic shopping data with paid media metrics for brands.
Scaled Global Presence.We do business in 10396 countries and have a direct operating presence through 29 offices in 1915 countries. We have achieved this global presence by replicating and scaling our powerfuleffective business model across all geographic markets. In 2019, 42% of our revenue2 was derived from clients who conducted advertising campaigns with us in more than one national market. Large businesses are increasingly seeking global advertising partners able to provide comprehensive offerings that are effective across multiple geographies. We believe we are able to meet this demand by leveraging our scalable AI technology and global network of relationships and are well positioned to serve our clients in virtually every market in which they seek to drive trusted, impactful and measurable business results.results and commerce outcomes.
Strong Financial Model. Our Large and Loyal Base of Clients and Publisher Partners Provide for Stability and Positive Network Effects. As of December 31, 2019, we had over 20,000 clients, including some of the largest commerce companies in the world, and our client retention rate was approximately 90%. In parallel, as of the same date, we were working with over 4,500 direct publishers on both web and apps, in addition to all of our large global and local RTB partners. As we continue to grow our client base, we continue to grow the number of users who interact with our ads, allowingprofitable, cash-generative financial model allows us to benefit from greater scale when we purchase inventory from publisher partners, many of whom have granted us preferred access to portions of their advertising inventory. We believe this large and loyal base of clients and publisher partners providesinvest for stability in our business, as well as for significant opportunities to cross-sell and up-sell our product portfolio within our large existing client base. As clients may spend more with us and we attract more publisher inventory and deliver more ads, our data assets grow, enabling us to deliver even more precisely targeted and personalized ads and generate a greater impact for our clients. As a result, we believe more commerce and consumer brand clients may use our offering and potentially increase their spend with us. This, in turn, may enable us to increase advertising revenue for publishers, including retailers, further expanding our publisher network and enhancing our ability to drive better performance for clients. We believe this cycle of self-reinforcing network effects, based on our large and loyal base of clients and publishers, may continue to fuel our business in the future.
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Our Business & Growth Opportunities
Our mission is to power the world's marketers brands, retailers, publishers, content creators and agenciesmedia owners with trusted and impactful advertising. We enable our clients to address multiple goals across thecustomers’ business growth through commerce media, by providing best-in-class marketing funnel through the Criteo Platform. Ourand monetization services and driving measurable business outcomes at scale. As described throughout, our vision is to build the leadingbring richer experiences to every consumer by supporting a fair and open internet that enables discovery, innovation, and choice – powered by trusted and impactful advertising technology platform for the open Internet.world’s marketers and media owners.
While our strategic priorities. Thepriorities focus on the three key areas of integration, differentiation and scale, the core elements of our broader business strategy include:
Strengthen the Core. We intend tocontinuously strengthen our legacyretargeting business within Criteo Marketing Solutions,product, aimed at converting our clients' customers in both the web and apps. We intend to achieve this by keepingleveraging our strong differentiators, including around Criteo Shopper GraphBuyer Index and user identification thanks to our first-party media network, continuously improving Criteo's AI Engine technology and the strong performance of our core product in all environments, providing more transparency on our value proposition, and adding new clients and publishers.media owner partners. We may as well bring furtherare also adding multiple capabilities, like third-party measurement, through industry partnerships to enhance our core solution.
Over the past twofour years, the growth of retargeting has been slowing down and turned negative more recently.in 2019 and 2020, before stabilizing in 2021 despite incremental privacy headwinds. Over thethis period, cookie restrictions on several browsers have had a significant negative impact on our business on the web, including on retargeting.retargeting. The COVID-19 pandemic was an additional headwind to this business in 2020 and continued to impact our clients in the Travel and Classifieds verticals in 2021. Beyond these headwinds, and while the growth of retargeting is still healthyhas proven resilient and continued to grow in the midmarket, the softness has been more pronounced with large customers as a result of several factors: higher penetration ofRetail vertical, which is central to our legacy product with large customers in our major markets, the slow transition of our large customers in investing into fully effective mobile apps, occasional shift of their business.
•Maintaining a high level of preferred direct relationships with media owners, allowing us to grow our first-party media network and reduce our exposure to third-party cookies. We expect to continue to expand our first-party media network, sheltered from cookie restriction, including by: acceleratingby increasing the deployment of Criteo Direct Bidder with large publishers, both on the web and on mobile apps, as well as by leveraging our initiativesSupply-Side Platform, including through the pending acquisition of IPONWEB;
•Encouraging our clients and publishers to build outadopt OpenPass, our open-sourced identity framework dedicated to digital advertising and respectful of users' privacy, providing a replacement to third-party cookie bearing users' consent;
•Growing our capabilities as a differentiated full-stack Demand-Side-Platform adding capabilitiesspecifically for commerce, including for upper-funnel marketing on top of our strengths in lower funnel, and offering more flexibility throughout the stack, driving more proactive initiatives around user identity and adjusting our pricing model to increase the transparency of our value proposition for this product.
•Further expanding our global client base across customer categories. We have a track-record of entering new geographic markets, adding new clients successfully and rapidly gaining commercial traction. We intend to continue to grow our client base both inacross the largeStrategic, Core and Tail customer and midmarket categories. In particular, we will continue to build and roll out our self-registration sales channel for smaller clients, and to expand our partnerships with Ecommerce Platform Partners, to increase our penetration of the large opportunity we see in the low end of the midmarket. We believe opportunities also remain to grow our business with large customers in markets where we already operate, including in Western Europe, the U.S. and Japan.Japan; and
Expand Our Product Portfolio. We intend to continue to leverage our existing assets to diversify and strengthen our business outside of the retargeting core,, continue to build orand expand our suite of fast-growing adjacentmarketing and monetization solutions, and build further competitive moats around our core assets.
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In fiscal year 2019,2021, our newnon-retargeting solutions outside of retargeting already represented 12%close to 30% of our total business, as measured on a RevenueContribution ex-TAC basis, including 16%32% in the fourth quarter 2019.2021. We intendare investing in the growth of these non-retargeting solutions and expect them to continue growing all our solutions outside of retargeting, namely our Consideration and Awareness offerings in Marketing Solutions, both online and omnichannel, as well as Retail Media. To achieve this, we intendrepresent close to continue to upsell our existing commerce clients to more or all40% of our new solutions within Criteo Marketing Solutions. We also intend to continue to offer Criteo Retail Media tooverall business in 2022, including the digital storespending acquisition of large retailers as a key advertising channel to generate high gross margin revenue from consumer brands. We believe Criteo Retail Media is a particularly differentiated offering in the marketplace and offers significant growth opportunities for us. Overall, we intend to continue to grow the share of our new solutions as a percentage of our total business over time, and believe this share can reach approximately 30% over the mid term.IPONWEB.
Explore Strategic Game Changers. We intend to look for opportunities to extend and accelerate the growth of our business by exploring and bringing strategic assets and capabilities outside of the current scope of our business,through partnerships and M&A, in line with our strategyaddition to keep us ahead and relevant for the future. These strategic initiatives may involve a combination of organic developments, partnerships and acquisitions.executing organically.
For example, in 2021, we entered and expanded a number of partnerships.
•We migrated our partners to the new and improved Criteo API framework and launched the Criteo Partner Marketplace, an app marketplace that empowers our partner solutions to be discovered by our global customer base;
•We built a Criteo destination within the Adobe Real-Time Customer Data Platform (CDP) to enable advertisers to onboard first party data;
•We implemented the capability to bid natively on incremental traffic from auctions with Liveramp’s RampID pseudonymous identifier;
•We built pipelines to receive the European Foundation’s netID single sign-on;
•We formed a strategic partnership with Bluecore, to provide Criteo advertisers access to Bluecore’s predictive audience capabilities to engage key shoppers through performance display across the open web;
•We extended our relationship with Oracle Advertising to leverage Oracle Contextual Intelligence, a solution providing real-time content review and pre-bid classification to clients across brand-suitable categories as we continue to scale their tools for brand safety across joint clients.
In the future, we intend to continue to collaborate with existing and new industry partners to extend the capabilities and functionalities of the Criteo Commerce Media Platform, beyond what we currently offer on a standalone basis. This may partnerinclude partnerships with other Demand-Side-Platforms orand other ecosystem players to extend our customer reach to new client categories or agencies, and extend the capabilities and functionalities of the Criteo Platform, beyond what we currently do on a standalone basis.agencies. In addition, to support the growth of our Awareness and Consideration solutions and potential other new solutions, we may look at further expanding our access to video inventory, both in the Web and App,mobile apps, as well as accessingextending our access to Connected TV inventory on a much larger scale. This may involve strengthening
We continue to evaluate and expanding our existing partnerships or signing new partnerships in these areas.
•In May 2021, we acquired Mabaya, a leading retail media technology company that powers sponsored products and retail media monetization for major ecommerce marketplaces globally. The Mabaya Acquisition immediately enhanced our acquisition strategyretail media capabilities to better meet the unique needs of marketplaces and marketplace sellers;
•In December 2021, we executed a purchase agreement to acquire IPONWEB, a market-leading AdTech company with world-class media trading capabilities, for $380 million comprised of a mix of cash and treasury shares of the Company, subject to certain adjustments including for working capital, other current assets and current liabilities and net indebtedness, with the transaction expected to close in the future.first quarter of 2022. The IPONWEB Acquisition is subject to customary closing conditions. This strategic acquisition is expected to accelerate our Commerce Media Platform vision by adding scale, complementary products, and stronger first-party data capabilities, further reducing our reliance on third-party cookies and other identifiers.
Drive Technology and Operations Excellence. We take a portfolio management approach to managing our business, organization and expense base: right-sizing or streamlining the parts of the business with stabilizing revenue in order to enable investments on the growing parts of our business into technology innovation and other strategic priorities. We intend to continue to driveinvest in growing our business, while driving productivity and efficiency gains through operational excellence across the entire company in order to reinvest a portion of such gains into technology innovation and other strategic priorities, while maintaining healthy profitability. We believe these are the conditions forinvestments will feed the long-term sustainabilitysustainable growth of our business.
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Infrastructure
Our ability to execute depends on our highly sophisticated global technology software and hardware infrastructure. As of December 31, 2019,2021, our global infrastructure included over 43,00040,000 servers through a global network of eleven data centers, including twoone Hadoop clusters,cluster, that comprise close to 9,8003,000 servers hosting 800,000 processing cores, providing a storage capacity exceeding 750,000624,000 terabytes and 2,0006,590 terabytes of random-access memory. Our global infrastructure is divided into three independent geographic zonesareas in the Americas, Asia-Pacific and EMEA. In each of these geographic zones,areas, our services are delivered through data centers that support this particular zone.area. We generally rely on more than one data center in any given zone.geographic area. Within large zones,areas, the data centers are strategically placed to be close to our clients, publishers and users. This provides the benefit of minimizing the impact of network latency within a particular zone,geographic area, especially for time-constrained services such as RTB. In addition, we replicate data across multiple data centers to maximize availability and performance. We also generally seek to distribute workload across multiple locations to avoid overloads in our systems and increase reliability through redundancy. In addition, we consider sustainability factors as we evaluate our infrastructure footprint, including prioritizing resource efficiency and clean energy to operate sustainable data centers.
Within each data center, computing power is provided by horizontal build-outs of commodity servers arranged in multiple, highly redundant pools. Some of these pools are dedicated to handling incoming traffic and delivering ads while others are devoted to the data analytics involved in creating theseour ads. In particular, we use software specifically designed for processing large data sets, such as Hadoop, to run offline data analyzes and to train our AI and Machine Learning models. The results are then fed back to refresh and improve our prediction and recommendation algorithms.
We use multiple-layered security controls to protect Criteo AI Engine and our data assets, including hardware- and software-based access controls for our source code and production systems, segregated networks for different components of our production systems and centralized production systems management.
Our Clients
Our client base for Criteo Marketing Solutions consists primarily of companies in the retail, travel and classifieds verticals, which we refer to as "commerce companies" or "commerce clients", and includes some of the largest and most sophisticated commerce companies in the world. These companies range from large, global, diversified commerce companies to mid-sized regional companies.
With Criteo Retail Media, we also serve consumer brand manufacturers, which we refer to as "consumer brands" or "consumer brand clients". As of December 31, 2019,2021, we had more than 20,000approximately 22,000 clients (both commerce and consumer brand clients combined). In 2019,
At the end 2021, approximately 75%70% of our client relationships1 were held directly with the client whereby there was noand the remaining 30% with advertising agencyagencies or any other third-party involved inthird-parties on the Criteo Marketing Solutions side of the business, whereas 50% of our client relationship.Criteo Retail Media revenue comes from agencies.
We believe our business is not substantially dependent on any particular client or group of clients. In 2017, 20182021, 2020 and 2019, our largest client represented 1.9%7.0%, 2.0%3.5% and 2.8% of our revenue, respectively, and in 2017, 20182021, 2020 and 2019, our largest 10 clients represented 11.2%16.6%, 11.7%13.7% and 11.4% of our revenue in the aggregate, respectively.
There is no group of customers under common control or customers that are affiliates of each other constituting an aggregate amount equal to 10% or more of our consolidated revenues, the loss of which would have a material adverse effect on Criteo.
We define a client to be a unique party from whom we have received a signed contract or an insertion order and for whom we have delivered an advertisement or monetized an advertising inventory during the previous 12 months. We count specific brands or divisions within the same business as distinct clients so long as those entities have separately signed insertion orders with us. In the case of some solutions within Criteo Retail Media, we count the parent company of the brands as an individual client, even if several distinct brands pertaining to the same parent company have signed separate contracts or insertion orders with us. On the other hand, we count a client who runs campaigns in multiple geographies as a single client, even though multiple insertion orders may be involved. When the insertion order is with an advertising agency, we generally consider the client on whose behalf the advertising campaign is conducted as the "client"“client” for purposes of this calculation. In the event a client has its advertising spend with us managed by multiple agencies, that client is counted as a single client.
Our client base is composed of twothree client categories: the large customerStrategic client category, the Core client category and the midmarketTail client category. We define large customers as the top-50 or the top-100 commerce websites per vertical in a given geographic market, depending on the depth of that market, based on the number of monthly unique visitors as measured by comScore or other third-party providers of such information. We define a midmarketEach client as any client outside of the large customer category per vertical in a given geographic market, depending on the depth of that market, and with a certain minimum threshold number of unique monthly visitors to their digital property, as measured by comScore or other third-party providers of such information. This minimum threshold varies by market, but is generally around 40,000 unique monthly visitors for our more developed markets. The delineation between the large customer and midmarket categories is fluid and the Company may decide, from time to time, to move some clients from one category to another.
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Research and Development
We invest substantial resources in research and development to conduct fundamental research on artificial intelligence, machine-learning models, enhance the algorithms in Criteo AI Engine, develop new features and solutions, conduct quality assurance testing, improve our core technology and enhance our technology infrastructure. Our engineering group is primarily located in research and development centers in Paris, France;France, Grenoble, France; Palo Alto, California (until early 2020)France and Ann Arbor, Michigan. With the expected acquisition of IPONWEB, we will expand our R&D engineering centers to include Berlin, Germany, and Moscow, Russia. We expect to continue to expand capabilities of our technology in the future and to invest significantly in continued research and development and new solutions efforts. We had close to 700682 employees primarily engaged Research and Development and Product as of December 31, 2019.2021. Research and development expenses, including expenses related to the Product group, totaled $173.9$151.8 million, $179.3$132.5 million and $172.6 million for 2017, 20182021, 2020 and 2019, respectively.
Intellectual Property
Our intellectual property rights are a key component of our success. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect our proprietary rights. We generally require employees, consultants, clients, publishers, suppliers and partners to execute confidentiality agreements with us that restrict the disclosure of our intellectual property. We also generally require our employees and consultants to execute invention assignment agreements with us that protect our intellectual property rights.
Intellectual property laws, together with our efforts to protect our proprietary rights, provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. The laws of certain countries do not protect proprietary rights to the same extent as the laws of France and the United StatesU.S. and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology.
Agreements with our employees and consultants may also be breached, and we may not have adequate remedies to address any breach. Further, to the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights to know-how and inventions relating thereto or resulting therefrom. Finally, our trade secrets may otherwise become known or be independently discovered by competitors and unauthorized parties may attempt to copy aspects of the Criteo Commerce Media Platform or obtain and use information that we regard as proprietary.
As of December 31, 2019,2021, we held five17 patents issued by the U.S. Patent and Trademark Office one patent issued by the French Patent Office, one patent issued by the European Patent Office, one patent issued by the Japan Patent Office and one patent issued by the Korean Intellectual Property Office,various foreign counterparts, and had filed 2913 non-provisional U.S. patent applications five European patent applicationsin the U.S. and one international patent application under the Patent Cooperation Treaty.Europe. We also own and use registered and unregistered trademarks on or in connection with our products and services in numerous jurisdictions. In addition, we have also registered numerous internet domain names.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, leading companies in the technology industry have extensive patent portfolios. From time to time, third parties, including certain of these leading companies, have asserted and may assert patent, copyright, trademark and other intellectual property rights against us, our clients or our publishers. Litigation and associated expenses may be necessary to enforce our proprietary rights.
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Privacy, Data Protection and Content Control
Legal and Regulatory
Privacy and data protection laws play a significant role in our business. The regulatory environment for the collection and use of consumer data by advertising networks, advertisers and publishers is frequently evolving in the United States,U.S., Europe and elsewhere. The United StatesU.S. and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict industry participants’ ability to collect, augment, analyze, use and share non-identifyingpersonal data, such as by regulating the level of consumer notice and consent required before a company can utilize cookies or other tracking technologies.
In the United States,U.S., at both the federal and state level, there are laws that govern activities such as the collection and use of data by companies like us. At the federal level, online advertising activities in the United StatesU.S. have primarily been subject to regulation by the Federal Trade Commission, or the FTC, which has regularly relied upon Section 5 of the Federal Trade Commission Act, or Section 5, to enforce against unfair and deceptive trade practices, including alleged violations of consumer privacy interests. Various states have also enacted legislation that governs these practices. For example, on September 27, 2013, the governor of California signed into law AB 370, an amendment to the California Online Privacy Protection Act of 2003, or CalOPPA. This amendment requires that we disclose in our privacy policy how we respond to web browser "do not track" signals. Our current privacy policy discloses that we do not respond to web browser "do not track" signals but that we do respond to opt-out requests made through our proprietary opt-out button or through industry opt-out platforms (namely Network Advertising Initiative and Digital Advertising Alliance). However, the USU.S. privacy law framework may be subject to significant evolutions in the near future both at a federal and at a state level. At a federal level, law makerslawmakers are currently considering the possibility of adopting a federal privacy law. While we cannot anticipate the chances of success and potential output of this initiative,In 2018, the State of California already passed a new law (theadopted the California Consumer Privacy Act) intendedAct, or the CCPA. The CCPA has been characterized as the first “GDPR-like” privacy statute to better protectbe enacted in the U.S. because its scope, and a number of the key provisions, resemble the GDPR. The CCPA establishes a new privacy framework for covered businesses by, among other requirements, creating an expanded definition of consumers.personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of personal data from minors, creating new notice obligations and new limits on the sale of personal information, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. As currently enacted, we and partners in our industry have been required to comply with these requirements since January 1, 2020, when the CCPA became effective. As with GDPR, the advertising technology marketplace may have to adapt to operating under the CCPA where it applies. Our advertising or publishing partners may impose new CCPA restrictions with which we must adapt and comply. This new law came into forcepast November, the voters in California voted to pass the California Privacy Rights Act (“CPRA”), an Act that both amends and expands the scope of the CCPA. The CPRA will become effective on January 1, 20202023, with a look back period to January 1, 2022. The CPRA creates new criteria by which businesses can be regulated, expands the definition of “personal information” to more closely match Europe, a new audit requirement, and will notably impose more stringent obligations on companies regarding the levelcreation of information and control they providean agency to consumers aboutoversee enforcement of the collection and sharing of their data. This actCPRA. The CPRA also offersexplicitly provides an opt-out right for cross-contextual behavioral advertising. We cannot predict the possibility to any consumer who has suffered a violationtiming or outcome of this actadaptation or the effect on our business. Adapting our business to recover statutory damagesthe CCPA and the forthcoming new requirements under the CPRA could therefore open the doorinvolve substantial resources and expense, and may cause us to additional risksdivert resources from other aspects of individual and class-action lawsuits.our business, all of which may adversely affect our business.
In addition, the Criteo Commerce Media Platform reaches users throughout the world, including in Europe, Australia, Canada, South America and Asia-Pacific. As a result, some of our activities may also be subject to the laws of foreign jurisdictions. In particular, data protection laws in Europe can be more restrictive regarding the collection and use of data than those in U.S. jurisdictions.
In the European Union, the two main pillars of the data protection legal framework are the E-Privacy Directive (Directive on Privacy and Electronic Communications) and the General Data Protection Regulation (GDPR), which was implemented in May 2018.
In December 2016, the EU institutions reached an agreement on a draft regulation that was formally adopted in April 2016, referred to as the General Data Protection Regulation ("GDPR").GDPR. The GDPR has updated principles drawn from the 1995 Data Protection Directive while imposing new levels of sanctions for non-compliance. The EU data protection authorities have also been granted power to impose administrative fines of up to a maximum of €20 million or 4% of the data controller's or data processor's global turnover for the preceding financial year, whichever is higher.
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We believe that the regulation has no material impact on our business or the way our technologies operate. However, GDPR is still a relatively recent regulation with no established case law. Therefore interpretations of the GDPR may vary, especially with respect to the articulation between GDPR (lex generali) and E-Privacy Directive (lex speciali) and the conditions for the collection of a valid "cookie" consent, and thus there can be no assurance that this will not have any particular impact on our business, technologies or practices in the medium to long term.
As we continue to expand into other foreign jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Self-Regulation
In addition to complying with extensive government regulations, we voluntarily and actively participate in several trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct relating to targeted advertising. For example, the Internet Advertising Bureau EU & US, the Network Advertising Initiative, the European Digital Advertising Alliance and the Digital Advertising Alliance have developed and implemented guidance for companies to provide notice and choice to users regarding targeted advertising.
We also provide consumers with notice about our use of cookies and our collection and use of data in connection with the delivery of targeted advertising, and allow them to opt out from the use of such data for the delivery of targeted advertising. In an effort to harmonize the industry’s approach to internet-based advertising, these programs facilitate a user's ability to disable services of integrated providers, but also educate users on the potential benefits of online advertising, including access to free content and display of more relevant advertisements to them. The rules and policies of the self-regulatory programs that we participate in are updated from time to time and may impose additional restrictions upon us in the future.
Criteo became one of the first companies to broadly include an "Ad Choices" link in all the advertisements we deliver, which gives users access to clear, transparent, detailed and user-friendly information about personalized advertisements and the data practices associated with the advertisements they receive. In addition, we provide consumers with an easy-to-use and easy-to-access mechanism to control their advertising experience and opt out of receiving targeted advertisements we deliver, either for all campaigns or for a specific client or specific period of time.deliver.
We believe that this transparent consumer-centric approach to privacy empowers consumers to make better-informed decisions about our use of their data. We also actively encourage our clients and publishers to provide information to consumers about our collection and use of data relating to the advertisements we deliver and monitor.
Content Control and Brand Safety
To protect against unlawful advertiser and publisher content, we include restrictions on content in our terms and conditions. We also take a large variety of brand safety measures to ensure that the brand equity of our clients is preserved as much as possible. These measures include determining that each publisher's inventory meets our content requirements and those of our clients to ensure that their display advertisements are not shown in inappropriate content categories. For that purpose, we use numerous internal systems and processes to filter out inventory in real time, including the list of suspect IP addresses from the Trustworthy Accountability Group and the lists of invalid traffic from several specialized external vendors. With respect to our inventory purchased through RTB exchanges, we utilize a mix of proprietary methodologies as well as third-party software to verify that inventory where the advertisement placement is shown conforms to our advertising guidelines and the content expectations and branding guidelines of our clients.
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Competition
We compete in the commerce media market and in the broader market for digital advertising,marketing and media monetization, primarily through Display Advertising. Our market is complex, rapidly evolving, highly competitive, and still fragmented and yet rapidly consolidating. We face significant competition in this market, which we expect to intensify in the future, partially as a result of potential new entrants in our market, including but not limited to large well-established internet publishers and players, in particular as we continue to expand the breadth of the Criteo Commerce Media Platform. We currently compete with large, well-established companies, such as Amazon, Meta Platforms (formerly Facebook), Google, Amazon and Facebook, independentMicrosoft, pure play Demand-Side Platforms ("DSPs"), such as The Trade Desk, Viant Technology or MediaMath,Google's DV360, pure play Supply-Side Platforms (“SSPs”) such as Magnite, PubMatic or Google Ad Manager, and pure play retail SSPs such as Microsoft's PromoteIQ or Publicis' CitrusAd, that only focus on monetizing retailers' media, as well as smaller, privately held companies. Potential competition could emerge from large enterprise marketing platforms, like Adobe Systems Inc. ("Adobe"), Oracle Corporation ("Oracle") and Salesforce.com, Inc. ("Salesforce"), or public and private companies specialized in the Marketing Technology ("MarTech") space. In addition, web browsers, and desktop and mobile operating systems developed by large software companies like Google and Apple Inc. ("Apple") can have a significant influence and impact on the way we operate.
We believe the principal competitive factors in our industry include:
•access to granular data, in particular commerce data on a large scale;
•technology-based ability to activate data, in particular commerce data, for multiple digital marketing and media monetization goals, including customer conversion;along the entire consumer journey;
•technology-based ability to generate advertisers' desired business outcomes, including, but not limited to, high return on advertising spend at scale;
•relevance and breadth of solutions to address numerous digital marketing and media monetization goals;
•breadth and depth of consumer reach;reach, including in all environments and devices across the open Internet;
•measurability of the advertising spend performance, based on clear and transparent measurement metrics;
•completeness and effectiveness of solutions across digital devices, commerce and advertising environments, platforms and operating systems, advertising channels and publisher environments;
•transparency of pricing models, aligning with the value propositions provided to advertisers;marketers;
•openness, transparency, security and fairness of data sharing and data management practices;
•client trust;
•global presence;
•client service and detailed, transparent client reporting available on a self-service basis;
•commitment to data protection and user privacy; and
•ease of use.
We believe that we are well positioned in commerce media with respect to all of these factors and expect to continue to capture an increasing share of digital advertisingmarketing and media monetization budgets worldwide.
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Seasonality
Our client base consists primarily of commerce of companies in the retail, travelRetail, Travel and classifiedsClassifieds industries, which we refer to as “commerce companies” or “commerce clients”. In the digital retailRetail industry and the consumer brand verticals in particular, many businesses devote the largest portion of their advertising spend to the fourth quarter of the calendar year, to coincide with increased holiday spending by consumers. With respect to Criteo Retail Media,As a result, the concentration of advertising spend in the fourth quarter of the calendar year may be particularly pronounced. Our commerceRetail clients in the retail industry typically conduct fewer advertising campaigns in the first and second quarters than they do in other quarters, while our commerceTravel clients in the travel industry typically increase their travel campaigns in the first and third quarters and conduct fewer advertising campaigns in the second quarter. As a result, our revenue tends to be seasonal in nature. If the seasonal fluctuations become more pronounced, our operating cash flows could fluctuate materially from period to period.
We have a demonstrated history of commitment to the well-being and success of our workforce, and our company is driven by our core values of “open, together and impactful”.
As of December 31, 2019,2021, we had 2,7552,781 employees. Our employees employed by French entities (1,032(985 employees) are represented by a labor union and employee representative bodies (works' council, employee delegates and a health and safety committee) and covered by collective bargaining agreements. We consider labor relations to be good and have not experienced any work stoppages, slowdowns or other serious labor problems that have materially impeded our business operations.
Our Board, with assistance from our Compensation Committee, has oversight of and periodically reviews the Company's strategies, initiatives and programs with respect to the Company's culture, talent recruitment, development and retention and employee engagement.
Talent Acquisition & Development
Attracting and retaining top talent is a key objective at Criteo, and we invest significantly in talent acquisition. We are committed to offering an environment in which employees are ensured equal job opportunities and have a chance for advancement. As part of our transformation, we have undertaken a number of initiatives to enhance our employee value proposition and experience, including the recent publication of our Culture book, very flexible working practices and the renovation of our main offices to offer attractive workplaces. Our compelling employee value proposition, attractive compensation packages and vibrant culture are instrumental in our ability to attract and retain talent.
Additionally, we strive to provide exceptional training opportunities and development programs for our employees. In 2021, over 33,000 training hours were delivered to our employees. To assess and improve employee retention and engagement, we periodically survey employees, and take action to address areas of employee concern. In 2021, we carried out two employee surveys specific to COVID-19 concerns, soliciting feedback on a wide range of topics from well-being to productivity and hybrid work to social links with other employees and provided multiple services to our employees, including a hybrid way of working and several wellness interactive sessions.
Diversity, Equity & Inclusion
As a global technology company, we believe that a diverse and inclusive culture is the cornerstone for driving creative collaboration and sustainable change across the industry. We are proud that our employees can be themselves at work and we value diversity in the workforce; as of December 31, 2021, 41% of our 2,781 employees are female. As stated in our Diversity, Equity and Inclusion policy, our mission is to sustain our focus on equity, and building stronger diversity through how we hire, develop, reward, and retain all talent at Criteo. We empower our employees to impact the industry, promoting diversity, equity, and inclusion in everything we do, delivering richer experiences for all. In 2021, we achieved gender pay parity and extended our parental leave to be inclusive of our diverse workforce. Our efforts to foster a diverse and inclusive workplace are led by a dedicated Diversity, Equity and Inclusion leadership team who partner through the business and leverage our seven active Employees Resource Groups (“ERGs”) who engage with employees, support allyship and sponsorship to encourage community, networking and safe spaces for all diverse groups throughout Criteo. In 2021, over half of our employees volunteered across our seven ERGs. This work extends to our efforts to strengthen our inclusive culture and drive sustainable efforts that impact our environment and societal interests throughout and beyond Criteo.
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Health, Safety and Wellness
Employee health and safety is a priority for Criteo. We devote time and effort across all of our locations to provide positive working conditions, work-life balance and a healthy office environment for our employees. In response to the COVID-19 pandemic, we immediately implemented a remote working arrangement that complied with all applicable government regulations and protected our employees while allowing them to continue to be effective in their jobs. We continue to stay updated on changes in government regulations and implement them to meet our employees’ changing health and wellness needs.
Total Rewards
We are focused on offering competitive compensation and comprehensive benefit packages designed to meet the needs of our employees and reward their efforts and contributions. We seek fairness in total compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management compensation. Our total compensation package includes base pay, bonuses, equity awards, 401(k) plan, healthcare and insurance benefits, flexible spending accounts, paid time off, family leave and employee assistance programs among many others.
Financial Information about Segments and Regions
•Criteo Marketing Solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
•Criteo Retail Mediasolutions allow 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.
For information about revenues, net income and total assetscontribution ex-TAC of our reporting segment,segments, please see our audited consolidated financial statements included elsewhere in this Form 10-K. For a breakdown of our revenue and non-current assets by region, please see Note 26 to our audited consolidated financial statements included elsewhere in this Form 10-K. For information regarding risks associated with our international operations, please refer to the section entitled "Risk Factors" in Item 1A of Part I in this Form 10-K.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available, free of charge on our website, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the "SEC"). These documents may be accessed through our website at www.criteo.com under "Investors." Information contained on, or that can be accessed through, our website does not constitute a part of this Form 10-K. We have included our website address in this Form 10-K solely as an inactive textual reference.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Criteo, that file electronically with the SEC. With respect to references made in this Form 10-K to any contract or other document of Criteo, such references are not necessarily complete and you should refer to the exhibits attached or incorporated by reference to this Form 10-K for copies of the actual contract or document.
Item 1A Risk Factors
Investing in our ADSs involves a high degree of risk. You should carefully consider the following risks and all other information contained in this Form 10-K, including our consolidated financial statements and the related notes thereto, before investing in our ADSs. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our ADSs could decline, and you may lose some or all of your investment.
Risks Related to Our Business and Industry
If we fail to innovate, enhance our brand, adapt and respond effectively to rapidly changing technology, our offerings may become less competitive or obsolete. Our investments in new solutions and technologies to address new marketing goals for our clients are inherently risky and may not be successful.
Our industry and business isare subject to rapid and frequent changes in technology, evolving client needs and the frequent introduction by our competitors of new and enhanced offerings. Our future success will depend on our ability to continuously enhance and improve our offerings to meet client needs, build our brand, scale our technology capabilities, add functionality to and improve the performance of the Criteo Commerce Media Platform, and address technological and industry advancements. If we are unable to enhance our solutions to meet market demand in a timely manner, we may not be able to maintain our existing clients or attract new clients.
Our investments in our Commerce Media Platform and Consideration) for commerce companies and consumer brands across web, apps and stores, which has required the investment of substantial resources.
Our business, including our global operations and potential clients may not shift as quickly assales, faces risk related to public health developments, and has been, and we expect or at allwill continue to new advertising methods, suchbe, negatively impacted by the ongoing COVID-19 pandemic and the global attempt to contain it.
We face various risks related to public health developments and outbreaks of contagious disease, including the ongoing COVID-19 pandemic. Any outbreak of contagious diseases, and other adverse public health developments, could have a material adverse effect on our business operations. The spread of COVID-19 and the various attempts to contain it have created volatility, uncertainty and economic disruption to global society, economics, financial markets and business practices. Certain of our customers, especially those in the Travel vertical, as in-app, reducing our growth potential. Ifwell as those in the market for these channels deteriorates or develops more slowly than we expect, it could reduce our growth prospectsClassifieds vertical and our financial condition may be adversely affected.
We have taken precautionary measures intended to help us makeminimize the remaining 50% of our business independent from third-party cookies. However, if we are blocked from serving advertisements to a significant portion of internet users, our business could suffer and our results of operations could be harmed.
To the data we rely on comes fromextent the COVID-19 pandemic or any other public health development or outbreak adversely impacts our publisher partnersbusiness, operations and financial results, it may also result in heightening the other third parties, including advertising exchange platforms (including supply-side platforms, or “SSPs”, such as Google's Ad Manager). Similarly, we rely on our publisher partners, advertising exchange platformsrisks described in “Item 1A. Risk Factors” and other third parties for opportunities to serve advertisements through which we generate our revenue. Our ability to successfully leverage such data and successfully generate revenue from such opportunities could be impacted by restrictions imposed by or on our publisher partners or other third parties, including restrictions on our ability to use or read cookies or other tracking features or our ability to use real-time bidding networks or other bidding networks. elsewhere in this Form 10-K.
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We face intense and increasing competition for employee talent, and if we do not retain and continue to attract highly skilled talent or retain our senior management team and other key employees, we may not be able to sustain our growth or achieve our business objectives.
Our future success depends on our ability to continue to attract, hire, retain and motivate highly skilled employees, particularly AI experts, software engineers, product managers and other employees with the technical skills that enable us to deliver effective advertising solutions, client sales and publisher partnership representatives with experience in digital advertising, in particular in Display Advertising, and more broadly employees that are highly qualified in their areas of expertise to support and grow our operations.solutions. Competition for diverse, experienced and highly skilled employees in our industry is intense, in particular in the fields of artificial intelligenceAI and data science, and we expect certain of our key competitors, who generally are larger than us and have access to more substantial resources, to pursue top talent even more aggressively.aggressively on a global basis.
Our future success also depends on the continued service of our senior management team. OurAs a global team heading a global company, our management team has beenmust operate and may again be spreadcollaborate across multiple physical locations and geographies, which can strain the organization and make coordinated management more challenging.
Business transformation periods, changes in leadership and changes due to business reorganization may result in uncertainty, impact business performance and strategies, and retention of key personnel. We may be unable to attract or retain the management and highly skilled personnel who are critical to our success, which could hinder our ability to keep pace with innovation and technological change in our industry or result in harm to our key client and publisher relationships, loss of key information, expertise or proprietary knowledge and unanticipated recruitment and training costs. The loss
In addition, we believe that our corporate culture fosters teamwork, impactful results and an open environment. As our organization grows and evolves, and continues to adapt to a hybrid remote working environment, we may need to implement more complex organizational management structures or adapt our corporate culture and work environments to meet changing circumstances, such as during times of a natural disaster or adverse public health development or outbreak of contagious disease (including the services ofCOVID-19 pandemic). These changes could impact our senior managementability to compete effectively, or other key employees could make it more difficult to successfully operatehave an adverse impact on our business and pursue our business goals.corporate culture.
The market in which we participate is intensely competitive, and we may not be able to compete successfully with our current or future competitors.
The market for internetdigital advertising solutions is highly competitive and rapidly changing. New technologies and methods of buying advertising present a dynamic competitive challenge as market participants develop and offer multiple new products and services aimed at facilitating and/or capturing advertising spend. With the introduction of new technologies and the influx of new entrants to the market, including large established companies and companies that we do not yet know about or do not yet exist, we expect competition to persist and intensify in the future, which could harm our ability to increase sales and maintain our profitability.
In addition to competing for advertising spend, we compete with many companies for advertising inventory, some of whom also operate their own advertising networks or exchanges from which we buy advertising inventory. Some of thesethe companies that we compete with, either for advertising spend or for advertising inventory, may also be our clients or affiliated with our clients or important sources of advertising inventory. Competitive pressure may incentivize such companies to cease to be our clients or cease to provide us with access to their advertising inventory. If this were to occur, our ability to place advertisements would be significantly impaired and our results of operations would be adversely affected.
Competition could also hinder the success of new advertising solutions that we offer in the future.
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If we fail to access a consistent supply of advertising inventory and expand our access to such inventory, our business and results of operations could be harmed.
A large part of our revenue, in particular in our Criteo Marketing Solutions offering, is derived from placing advertisements on publisher digital properties that we do not own. As a result, we do not own or control the advertising inventory upon which our business depends. We currently access advertising inventory through various channels, including through direct relationships with publishers and large retailers, advertising exchange platforms (such as Google's Ad Manager, Twitter's MoPub and Microsoft’s Ad Exchange) and other platforms that aggregate the supply of advertising inventory, such as Appnexus Inc., The Rubicon Project, Inc., PubMatic, Inc., Taboola, Inc., Baidu, Inc. and Yandex N.V.inventory.
Since many widely used aggregators of advertising inventory are owned by companies that may compete with us for clients, competitive pressure may incentivize these companies to limit our access to advertising inventory available through their platforms. For example, in SeptemberOctober 2019 we filed a complaint with the French Competition Authority against Meta Platforms (formerly Facebook), regarding practices which we believe impair the conditions of access to advertising inventories and to data concerning ad campaigns on Facebook due to Facebook’s gradual exclusionunder conditions that are not transparent or objective as well as "denigration" actions and difference of companies including Criteo from the Facebook platform.treatment. The fact that advertising inventory available within "walled-garden" publisher environments which may restrict our ability to use such inventory effectively and in an optimized way for advertisers, tends to grow faster than other advertising inventory available on the market may limit the growth of our access to advertising inventory or our mere access to it overall. In addition, industry or technological changes may affect our access to inventory or the price we pay for inventory.
Similarly, our ability to continue to purchase inventory from many of the publishers and large retailers with whom we have direct relationships depends in part on our ability to consistently pay sufficiently competitive CPMs for their advertising inventory, or in the case of some Criteo Retail Media solutions, to generate sufficient advertising revenue for retailers, as well as our ability to offer advertisements from high quality companies. As more companies compete for advertising impressions on advertising exchange platforms and other platforms that aggregate supply of advertising inventory, advertising inventory may become more expensive, which may adversely affect our ability to acquire it and to deliver internet display advertisements on a profitable basis. We may in the future have to increasingly rely on direct relationships with strong publisher partners in order to maintain the necessary access to quality advertising inventory, and we may not be able to do so on terms that are favorable to us. In addition, to support the growth of our solutions for the Awarenesscustomer acquisition and Consideration marketing goals—aimed at generating brand awareness for clients and driving new visitors or prospective customers for clients—marketing goals, we will need to expand our access to online video and Connected TV inventory, both in the web, and in mobile applications, and on connected devices, the price of which may not be available on terms that are favorable to us.
Additionally, we are party to certain agreements with partners that provide us with preferred access to inventory. If the terms of those agreements change and we lose our preferred access, then our financial results could be adversely affected.
If we are not successful in these endeavors, our business and results of operations could be harmed.
The failure by Criteo AI Engine to accurately predict engagement by users could result in significant costs to us, lost revenue and diminished advertising inventory.business opportunities.
The effective delivery of our digital advertising solutionsolutions depends on the ability of Criteo AI Engine to predict the likelihood that a consumer will engage with any given internet display advertisement with a sufficient degree of accuracy that our clients can achieve desirable returns on their advertising spend. We historically charged our clients primarily based on a cost-per-click pricing model, and our clients only paid us when a user engaged with the advertisement, usually by clicking on it.
Although we have more recently started evolving our pricing models alongside our broader suite of solutions, to now include a combination of cost-per-install and cost-per-impression for selected new solutions, in addition to cost-per-click, as well as subscription-type pricing model for large retailers using our technology platform as part of our Criteo Retail Media offering, the majority of our revenue is still generated through cost-per-click pricing models.models or equivalent.
Many of our agreements with clients are open-ended and often do not include a spending minimum. Similarly, our contracts with publishers generally do not include long-term obligations requiring them to make their inventory available to us over long periods of time. Therefore, we need to continuously deliver satisfactory results for our clients and publishers in order to maintain and increase revenue, which in turn depends in part on the optimal functioning of Criteo AI Engine.
In addition, as we have increased the number of clients and publishers that use our offerings on a global basis, we have experienced significant growth in the amount and complexity of data processed by Criteo AI Engine and the number of advertising impressions we deliver.
As the amount of data and number of variables processed by Criteo AI Engine increase, and the calculations that the algorithms must compute become increasingly complex, the risk of errors in the type of data collected, stored, generated or accessed also increases. In addition, the calculations that the algorithms must compute become increasingly complex and the likelihood of any defects or errors increases.
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Fraudulent or malicious activity, including non-human traffic, could also impair the proper functioning of Criteo AI Engine. For example, the use of bots or other automated or manual mechanisms to generate fraudulent clicks or misattribute clicks on advertisements we deliver could overstate the performance of our advertising. PreventingDue to the higher CPM paid for online video and combating fraud requires constant vigilance,connected TV advertisements, the risk of fraudulent traffic may increase as we increase our purchasing of online video and connected TV inventory.
If we may not always be successful in our effortswere to do so. It may be difficult to detectexperience significant errors, defects, or fraudulent or malicious activity particularly becausein Criteo AI Engine, our solution could be impaired or stop working altogether, which could prevent us from purchasing any advertising inventory and generating any revenue until the perpetrators of such activity, which may include foreign governments, may have significant resources at their disposal, may frequently change their tactics and may become more sophisticated, requiring us to improve our processes for detecting and controlling such activity. Sucherrors, defects or fraudulent or malicious activity could result inwere detected and corrected. Other negative publicity and reputational harm and requireconsequences from significant additional management time and attention.
•a loss of clients and publishers or a decrease in inventory purchased by clients;
•fewer consumer visits to our clientsclient websites or mobile applications;
•lower click-through rates or conversion rates;
•lower profitability per impression, up to and including negative margins;
•faulty inventory purchase decisions for which we may experience or perceive a reducedneed to bear the cost;
•lower return on their investmentadvertising spend for our clients;
•lower price for the advertising inventory we are able to offer to publishers;
•delivery of advertisements that are less relevant or heightened risk associated with the use of our solutions, resulting in irrelevant to users;
•refusals to pay, demands for refunds, loss of confidence, withdrawal of future business and potential legal claims. Dueliability for damages or regulatory inquiries or lawsuits; and
•negative publicity or harm to our reputation.
As a result, the higher CPM paid for video advertisements, the risk of fraudulent traffic may increase as we increase our purchasing of video inventory.
Regulatory, legislative or self-regulatory developments regarding internet privacyor online matters could adversely affect our ability to conduct our business.
Governmental authorities around the world have enacted, considered or are considering legislation or regulations that could significantly restrict our ability to collect, process, use, transfer and pool data collected from and about consumers and devices. Trade associations and industry self-regulatory groups have also promulgated best practices and other industry standards relating to targeted advertising. Various U.S. and foreign governments, self-regulatory bodies and public advocacy groups have called for new regulations specifically directed at the digital advertising industry, and we expect to see an increase in legislation, regulation and self-regulation in this area. The legal, regulatory and judicial environment we face around privacy and other matters is constantly evolving and can be subject to significant change. For example, the General Data Protection Regulation, or GDPR, which was agreed by EU institutions in 2016 and came into effect after a two year transition period on May 25, 2018, updated and modernized the principles of the 1995 Data Protection Directive and significantly increases the level of sanctions for non-compliance.
In the European Union, the two main pillars of the data protection legal framework are the E-Privacy Directive (Directive on Privacy and Electronic Communications)Communications (E-Privacy Directive) and the General Data Protection Regulation.
GDPR. The E-Privacy Directive was amendeddirects EU member states to ensure that accessing information on an Internet user’s computer, such as through a cookie and other similar technologies, is allowed only if the Internet user has been informed about such access and given his or her consent. A recent ruling by the Court of Justice of the European Union clarified that such consent must be reflected by an affirmative act of the user, and European regulators are increasingly agitating for more robust forms of consent. These developments result in November 2009 by Directive 2009/136/EC (the E-Privacy Directive Amendment)decreased reliance on implied consent mechanisms that have been used to introduce newmeet requirements for EU companies like ours, along with advertisers and publishers, to present users with an information notice and obtain their consent prior to placing cookies or other tracking technologies for targeted advertising purposes. As there were different transpositions of the E-Privacy Directive Amendment in domestic lawssome markets. A replacement by an e-privacy regulation for the E-Privacy Directive is currently under discussion by EU member states to complement and bring electronic communication services in line with the GDPR and force a harmonized approach across EU member states. It is possible that the EU Member States, there are currently different interpretationsproposed e-privacy regulation could further impede the use of what constitutes valid consent (e.g. explicit versus implied consent) acrosscookies and the EU, posingfines and penalties for breach could be significant.
Under GDPR, data protection authorities have the power to impose administrative fines of up to a riskmaximum of regulatory divergence€20 million or 4% of the data controller’s or data processor’s total worldwide turnover of the preceding financial year. Similarly, the e-privacy regulation, once enacted, could result in new rules and creating legal uncertaintymechanisms for businesses."cookie" consent.
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In 2018, the State of California adopted the California Consumer Privacy Act of 2018, or the CCPA. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the U.S. because its scope, and a number of the key provisions, resemble the GDPR.
The CCPA establishes a new privacy framework for covered businesses by, among other requirements, creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of personal data from minors, creating new notice obligations and new limits on the sale of personal information, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. As currently enacted, we and partners in our industry have been required to comply with these requirements since January 1, 2020, when the CCPA became effective. As with GDPR, the advertising technology marketplace may have to adapt to operating under the CCPA where it applies. Our advertising or publishing partners may impose new CCPA restrictions with which we must adapt and comply. In November 2020, voters in California voted to pass the California Privacy Rights Act (“CPRA”), which both amends and expands the scope of the CCPA. The CPRA will become effective on January 1, 2023, with a look back period to January 1, 2022. The CPRA creates new criteria by which businesses can be regulated, expands the definition of “personal information” to more closely match European regulations, a new audit requirement, and the creation of an agency to oversee enforcement of the CPRA. The CPRA also explicitly provides an opt-out right for cross-contextual behavioral advertising. We cannot predict the timing or outcome of this adaptation or the effect on our business. Adapting our business to the CCPA and the forthcoming new requirements under the CPRA could involve substantial resources and expense, and may cause us to divert resources from other aspects of our business, all of which may adversely affect our business.
In addition, other states in the U.S. are quickly adopting state enacted privacy laws. Recently Virginia and Colorado passed privacy laws that differ slightly from the CPRA. If other states follow suit, it could lead to a varied and complex regulatory landscape, which could result in material costs.
Clarifications of and changes to these existing and proposed laws, regulations, judicial interpretations and industry standards can be costly to comply with, and we may be unable to pass along those costs to our clients in the form of increased fees, which may negatively affect our operating results.
Such changes can also delay or impede the development of new solutions, result in negative publicity and reputational harm, require significant incremental management time and attention, increase our risk of non-compliance and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices, including our ability to charge per click or the scope of clicks for which we charge. Additionally, any perception of our practices or solutions as an invasion of privacy, whether or not such practices or solutions are consistent with current or future regulations and industry practices, may subject us to public criticism, private class actions, reputational harm or claims by regulators, which could disrupt our business and expose us to increased liability.
Finally, our legal and financial exposure often depends in part on our clients’ or other third parties' adherence to and compliance with privacy laws and regulations and their use of our services in ways consistent with visitors’ expectations. We rely on representations made to us by clients that they will comply with all applicable laws, including all relevant privacy and data protection regulations. We make reasonable efforts to enforce such representations and contractual requirements, but we do not fully audit our clients’ compliance with our recommended disclosures or their adherence to privacy laws and regulations.
If our clients fail to adhere to our contracts in this regard, or a court or governmental agency determines that we have not adequately, accurately or completely described our own solutions, services and data collection, use and sharing practices in our own disclosures to consumers, then we and our clients and publisher partners may be subject to potentially adverse publicity, damages and related possible investigation or other regulatory activity in connection with our privacy practices or those of our clients.
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Our business depends on our ability to maintain the quality of content for our clients and publishers.
Our clients' satisfaction depends on our ability to place advertisements with publisher content that is well-suited to the client's product or service. If we are unable to keep our clients’ advertisements from being placed in unlawful or inappropriate content, our reputation and business may suffer. In particular, we could be treated as a spammer and blocked by internet service providers or regulators. In addition, if we place advertisements on websites containing content that is not permitted under the terms of the applicable agreements with a client, we may be unable to charge the client for impressions or clicks generated on those sites, the client may terminate their campaign, the client may require us to indemnify them for any resulting third party claims, or the client may allege breach of contract. Further, our publishers and exchange partners rely upon us not to place advertisements with inappropriate or unlawful content on their websites, the content of which is unlawful or inappropriate.websites. As we grow our business to serve a larger number of smaller clients using self-service tools with less intervention by us, it could become more challenging to train and support such clients to use such tools and to prevent inappropriate or unlawful advertisements from being shown. If we are unable to maintain the quality of our client and publisher content as the number of clients and publishers we work with continues to grow, our reputation and business may suffer and we may not be able to retain or secure additional clients or publisher relationships.
Our success depends on our ability to implement our business transformation and achieve our global business strategies.
Our business has recently undergone, and continues to undergo, a significant transformation, partially in response to major changes in the advertising technology industry driven by, but not limited to, regulations such as the GDPR and restrictions on data collection and use, including those implemented by large technology companies. The components of our transformation include diversification of our services as we shift away from third-party cookies, focus on growth and investment, and certain organization adjustments and cost optimization opportunities. Our future performance and growth depends on the success of this transformation and our new business strategies, including our management team’s ability to successfully implement them.
Our ongoing transformation has resulted and may continue to result in changes to business priorities and operations, capital allocation priorities, operational and organizational structure, and increased demands on management. Such changes could result in short-term and one-time costs, lost customers, reduced sales volume, higher than expected restructuring costs, loss of key personnel and other negative impacts on our business. We may also become subject to the risks of labor unrest, negative publicity and business disruption in connection with these initiatives.
Completion of our business transformation may take longer than anticipated, and, once implemented, we may not realize, in full or in part, the anticipated benefits or such benefits may be realized more slowly than anticipated. The failure to realize benefits or savings, which may be due to our inability to execute plans, delays in the implementation of the transformation, global or local economic conditions, competition, changes in the advertising technology industry and the other risks described herein, could have a material adverse effect on our business, financial condition and results of operations, as well as the trading price of our securities.
We may not be able to effectively integrate the businesses we acquire, which may adversely affect our ability to achieve our growth and business objectives.
We may seek to acquireexplore, on an ongoing basis, potential acquisitions of additional businesses, products, solutions, technologies or teams in the future.teams. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms and/or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product, solution or technology, including issues related to intellectual property, product quality or architecture, employees or clients, regulatory compliance, including tax compliance, practices or revenue recognition or other accounting practices.
Any acquisition or investment, including the contemplated IPONWEB Acquisition, may require us to use significant amounts of cash, incur debt, issue potentially dilutive equity securities or incur debt, contingent liabilities or amortization of expenses, or impairment of goodwill and/or purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results. The Company has incurred and will incur significant transaction and acquisition-related costs in connection with its acquisitions, including legal, accounting, financial advisory, regulatory and other expenses. The payment of such transaction costs could have an adverse effect on our financial condition, results of operations or cash flows. In addition, acquisitions, including our recent acquisitions such as the contemplated IPONWEB Acquisition and the Mabaya Acquisition, involve numerous risks, any of which could harm our business, including:
•difficulties in integrating the operations, technologies, services and personnel of acquired businesses, especially if those businesses operate outside of our core competency;competency and market;
•the need to integrate operations across different geographies, cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;
•cultural challenges associated with integrating employees from the acquired company into our organization;
•ineffectiveness, lack of scalability, or incompatibility of acquired technologies or services;
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•potential loss of key employees of acquired businesses;
•inability to maintain the key business relationships and the reputation of acquired businesses;
•failure to successfully further develop the acquired technology in order to recoup our investment;
•unfavorable reputation and perception of the acquired product or technology by the general public;
•diversion of management’s attention from other business concerns;
•liability or litigation for activities of the acquired business, including claims from terminated employees, clients, former shareholders or other third parties;
•implementation or remediation of controls, practices, procedures and policies at acquired businesses, including the costs necessary to establish and maintain effective internal controls; and
•increased fixed costs.
There can be no assurance that we will be able to successfully integrate the businesses that we acquire or that we will be able to leverage the acquired commercial relationships, products, technologies or technologiesteams in the manner we anticipate. If we are unable to successfully integrate the businesses we have acquired or any business, product, solution, technology or technologyteam we acquire in the future, our business and results of operations could suffer, and we may not be able to achieve our business and growth objectives.
Failure to complete the IPONWEB Acquisition could have an adverse effect on our business, financial condition and results of operations and could negatively impact our stock price.
The IPONWEB Acquisition is subject to certain customary conditions to closing that must be satisfied or waived (to the extent permissible), in each case prior to the completion of the acquisition. These conditions to the completion of the acquisition, some of which are beyond our control and that of IPONWEB, may not be satisfied or waived in a timely manner or at all, and, accordingly, the acquisition may be delayed or not completed. Any failure of the pending IPONWEB Acquisition to be completed could have an adverse effect on our business, financial condition and results of operations and could negatively impact our stock price. The current market price of our stock may reflect an assumption that the pending acquisition will occur and failure to complete the acquisition could result in a decline in our stock price.
Our international operations and expansion expose us to several risks.
As of December 31, 2019,2021, we had a direct operating presence through 29 offices located in 1915 countries and did business in 10396 countries. Our primary research and development operations are located in France and the United States. In addition, we currently have international offices outside of France and the United States, which focus primarily on selling and implementing our offerings in those regions. In the future, we may expand to other international locations. Our current global operations and future initiatives involve a variety of risks, including:including, in addition to risks described elsewhere in this section:
•operational and execution risk, including localization of the product interface and systems, including translation into foreign languages, and adaptation for local practices;practices, adequate coordination of timing to onboard local clients and publishers, difficulty of maintaining our corporate culture, challenges inherent to hiring and efficiently managing an increased number of employees over large geographic distances, and the increasing complexity of the organizational structure required to support expansion and operations into multiple geographies and regulatory systems;
•insufficient, or insufficiently coordinated, demand for and supply of advertising inventory in specific geographic markets processed through Criteo AI Engine, which could impair its ability to accurately predict user engagement in that market;
•compliance with (and liability for failure to comply with) applicable local laws and regulations, including, among other things, laws and regulations with respect to data protection (including requirements that user data be stored locally in a given country) and user privacy, tax and withholding, labor regulations, anti-corruption, environment, consumer protection, spam and content, which laws and regulations may be inconsistent across jurisdictions;
•intensity of local competition for digital advertising budgets and internet display inventory;
•changes in a specific country’s or region’s political or economic conditions;
exposure, restrictions on foreign ownership and investments;investments, and difficulties in repatriating or transferring funds from or converting currencies; and
•limited or unfavorable intellectual property protection;
Additionally, operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing operations in other countries will produce desired levels of revenue or profitability.
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Because our functional currency is the euro, while our reporting currency is the U.S. dollar, we face exposure to fluctuations in foreign currency exchange rates. Foreign currency exchange risk exposure also arises from intra-company transactions and financing with subsidiaries that have a functional currency different than the euro. While we are engaging in hedging transactions to minimize the impact of uncertainty in future success dependsexchange rates on intra-company transactions and financing, we may not hedge all of our ability to scale our offerings as our business grows.
If we fail to manage our growth and the shift in our client portfolio towardstoward the midmarket effectively, we may be unable to execute our business plan or maintain high levels of client and publisher satisfaction.
We have experienced, and may in the future experience, rapid growth and changes in our client portfolio, which have created, and may continue to create, challenges to the quality of our service to our clients, and which have placed, and may continue to place, significant demands on our management and our operational and financial resources.
For example, over the past few years, the size of our business with Tail clients (previously called midmarket businessclients) has grown significantly as a proportion of our overall business, and we expect it tomay continue to do sogrow in the future. AsWhile we intend to put more focus on our Strategic and Core clients and therefore less emphasis on the Tail client category, should our business shiftsevolve toward the midmarketTail category, there are several additional risks to our business, including risks relating to the financial stability of our clients and our ability to collect accounts receivable from such clients. In addition, since our midmarket business with Tail clients is comprised of thousands of smaller clients whichthat require significant resources to support, it is currently less profitable than our large client business with Strategic and overallCore clients. Overall there may not be a direct correlation between a change in the number of clients in a particular period and an increase or decrease in our revenue. In 2018, we started to implement a new go-to-market strategy, aimed at maximizing our commercial opportunity for our multi-solution offering, by providing the right level of services to each our client segments (based on their size and business potential with us) and scaling our midmarket operations more efficiently and profitably. However, due to the growing number of midmarket clients that require support, we will need to continue automating certain of our processes to service the midmarket category as it continues to grow globally. There can be no assurance that we will be able to successfully adjust to these shifting dynamics and remain profitable.
If we fail to successfully manage the anticipated changes in our client portfolio and the associated changes in a manner that preservesemployee headcount and our attention to our clients,organizational structure, our brand and reputation may suffer, which would in turn impair our ability to attract and retain clients and publishers.
Our future success will depend in part on our ability to expand into new industry verticals.
As we market our offering to a wider group of consumer brands and companies outside of our historical three key industry verticals of retail, travel and classifieds, including businesses in the automotive, telecommunications, consumer goods and finance industries, as well as mobile app-first verticals such as gaming, ride sharing and food delivery,among others, we will need to adapt our solutions and effectively market our value to businesses in these new industry verticals. Our successsuccessful expansion into new industry verticals will depend on various factors, including our ability to:
•accumulate sufficient data sets relevant for those industry verticals to ensure that Criteo AI Engine has sufficient quantity and quality of information to deliver efficient and effective internet display advertisements withinapplicable to the relevant industry.industry;
•work with clients in new industry verticals through the acquisitionadvertising agencies that manage their advertising budgets
•hire personnel with relevant industry vertical experience to lead sales and product teams
•provide high returns on advertising spend in such industries and maintain such high returns on advertising spend at scale; and
•transparently measure the performance of Manage.com Group, Inc. in 2018, we further expanded our offering into gaming and other app-first areas such as food delivery and ride sharing. Similarly, with the acquisition of HookLogic in 2016 and the introduction of Criteo Retail Media, we expanded our offering to benefit consumer brands. However, there can be no assurance that we will be able to maintain the client base built by Manage or HookLogic or that we will be able to expand the Criteo Retail Media business successfully.advertising spend based on clear, measurable metrics.
If we are unable to successfully adapt our offering to appeal to businesses in industries other than our core verticals, or are unable to effectively market such solutions to businesses in such industries, we may not be able to achieve our growth or business objectives. Further, as we expand our client base and offering into new industry verticals, we may be unable to maintain our current client retention rates.
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As we expand the market for our solutions, we may become more dependent on advertising agencies as intermediaries, which may adversely affect our ability to attract and retain business, or exert downward pressure on our margins.
As we market our solutions, we may increasingly need advertising agencies to work with us in assisting businesses in planning and purchasing for broader marketing goals. In particular, manyOver the second half of our2021, 50% of Criteo Retail Media clients, whom we have started working with since our acquisition of HookLogic, work with us through advertising agencies: 72%, 66%Media's gross media spend and 62%29% of Criteo sold sponsored products revenue for 2017, 2018 and 2019, respectively,Marketing Solutions' gross media spend relied on advertising agencies. Historically, however, direct relationships with our clients accounted for 73%, 73% and 74% of our revenue for 2017, 2018 and 2019, respectively, for Criteo Marketing Solutions.
However, an increasing exposure to advertising agencies may also represent significant risks. For example, if we have an unsuccessful engagement with an advertising agency on a particular advertising campaign, we risk losing the ability to work not only for the client for whom the campaign was run, but also for other clients represented by that agency. Further, if our business evolves such that we are increasingly working through advertising agency intermediaries, we would have less of a direct relationship with our clients. This may drive our clients to attribute the value we provide to the advertising agency rather than to us, further limiting our ability to develop long-term relationships directly with our clients. Additionally, our clients may move from one advertising agency to another, and, accordingly, even if we have a positive relationship with an advertising agency, we may lose the underlying client’s business when the client switches to a new agency.
The presence of advertising agencies as intermediaries between us and our clients thus creates a challenge to building our own brand awareness and maintaining an affinity with our clients, who are the ultimate sources of our revenue. In the event we were to become more dependent on advertising agencies as intermediaries, this may adversely affect our ability to attract and retain business. In addition, an increased dependency on advertising agencies may harm our results of operations, as a result of the increased agency fees we may be required to pay and/or as a result of longer payment terms from agencies.
Our future success will depend in part on our ability to expand into new advertising channels.
We define an advertising channel as a specific advertisement medium to engage with a user or a consumer for which we currently purchase inventory through a specific source. We started delivering elements of our offering through internet display advertisements in desktop browsers. Since then, we have expanded into mobile in-browser and in-app, native display, including on social media platforms, and online video inventory.
In the future, we may decide to broaden the spectrum of our advertising channels further, including Connected TV and Digital Out of Home, if we believe that doing so would significantly increase the value we can offer to clients. We believe a broader platform delivering our solutions through complementary advertising channels can enhance our value proposition for existing and prospective clients.
However, any future attempts to enter new advertising channels may not be successful. For example, we launched our
Our success in expanding into any additional advertising channels will depend on various factors, including our ability to:
•identify additional advertising channels where our solutions could perform;
•accumulate sufficient data sets relevant for those advertising channels to ensure that Criteo AI Engine has a sufficient quantity and quality of information to deliver relevant personalized advertisements through those additional advertising channels;
•adapt our solutions to additional advertising channels and effectively market it for such additional advertising channels to our existing and prospective clients;
•integrate newly developed or acquired advertising channels into our pricing and measurement models, with a clear and measurable performance attribution mechanism that works across all channels, and in a manner that is consistent with our privacy standards;
•achieve client performance levels through the new advertising channels that are similar to those delivered through existing advertising channels, and in any case that are not dilutive to the overall client performance;
•identify and establish acceptable business arrangements with inventory partners and platforms to access inventories in sufficient quality and quantity for these new advertising channels;
•maintain our gross margin at a consistent level upon entering one or more additional advertising marketing channels;
•compete with new market participants active in these additional advertising channels; and
•hire and retain key personnel with relevant technology and product expertise to lead the integration of additional advertising channels onto our platform, and sales and operations teams to sell and integrate additional advertising channels.
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Any decrease in the use of internet display advertisements, mobile in-browser and in-app, native display, including on social media platforms, and online video advertising, whether due to clients losing confidence in the value or effectiveness of such channels, regulatory or technology restrictions or if we are unable to successfully adapt our solutions to additional advertising channels and effectively market such offerings to our existing and prospective clients, or if we are unable to maintain our pricing and measurement models in these additional advertising channels, we may not be able to achieveprevent us from achieving our growth or business objectives.
We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. Our revenue would declinehistorical growth rates may not be indicative of our future growth, and we expect our operating and capital investments to continue to increase in the foreseeable future. Accordingly, we may have difficulty sustaining profitability.
We operate in a rapidly evolving industry. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth in both our business and the digital advertising market generally. We are subject to risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, including challenges in forecasting accuracy, determining appropriate nature and levels of investments, assessing appropriate returns on investments, achieving market acceptance of our existing and future offerings, managing client implementations and developing new solutions. If our assumptions regarding these uncertainties, which we regularly use and update to plan our business, are incorrect or change in reaction to changes in our markets, or if we faildo not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
You should not consider our revenue growth in past periods to effectively coordinatebe indicative of our future performance. In future periods, our revenue could decline or grow more slowly than we expect. We believe the demandgrowth of our revenue depends on a number of factors, including our ability to:
•attract new clients, and retain and expand our relationships with existing clients;
•maintain the breadth of our media owner network and attract new publishers and media owners, including large retailers, publishers of web content, mobile applications and video and social games, in order to grow the volume and breadth of advertising inventory available to us;
•broaden our solutions portfolio to include additional marketing and monetization goals (including awareness and consideration) for commerce companies and consumer brands across the open Internet, including web, apps and stores;
•adapt our offering to meet evolving needs of businesses, including to address market trends such as (i) the continued migration of consumers from desktop to mobile and from websites to mobile applications, (ii) the increasing percentage of sales that involve multiple digital devices, (iii) the increasing retailer adoption of retail media monetization solutions, (iv) the growing adoption by consumers of “ad-blocking” software on web browsers on desktop and/or on mobile devices and use or consumption by consumers of advertising-free services, (v) changes in the marketplace for and supply of advertising inventory, including the shift toward header bidding, (vi) changes in a specific geographic market.the overall ecosystem such as Apple's introduction of its Intelligent Tracking Prevention feature into its Safari browser and its App Tracking Transparency feature in its iOS14.5 mobile operating system, Microsoft’s Tracking Prevention feature in its Edge browser, and Mozilla’s introduction of Enhanced Tracking Protection into its Firefox browser and (vii) changes in consumer acceptance of tracking technologies for targeted or behavioral advertising purposes;
•continuously improve the algorithms underlying Criteo AI Engine and apply state-of-the-art Machine Learning approaches and hardware; and
•continue to adapt to a changing regulatory landscape governing data protection and privacy matters.
We also anticipate continuing to invest in our business to increase the scale of our solutions, existing and new, grow our headcount and expand our operations. In particular, we plan to continue to focus on maximizing our Contribution after traffic acquisition costs on an absolute basis, which we call Contribution ex-TAC, as we believe this focus fortifies a number of our competitive strengths. Our focus on maximizing Contribution ex-TAC on an absolute basis may have an adverse impact on our gross margin and we cannot be certain that this strategy will be successful or result in increased liquidity or long-term value for our shareholders.
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We derive a significant portion of our revenue from companies in the retail, travel and classified industries, and any downturn in these industries or any changes in regulations affecting these industries could harm our business.
A significant portion of our revenue is derived from companies in the Retail, Travel and Classifieds industries. For example, in 2021, 2020, 2019 and 2018, 78.1%, 75.6%, 68.9% and 69.1%, respectively, of our combined revenue for Criteo Marketing Solutions was derived from advertisements placed for Retail commerce businesses. Any downturn or increased competitive pressure in any of our core industries, or other industries we may target in the future, may cause our clients to reduce their spending with us, or delay or cancel their advertising campaigns with us.
We have substantial client concentration in certain local markets and solutions, with a limited number of clients accounting for a substantial portion of our revenues in those areas.
Although our overall customer base is well-diversified, with our largest 10 clients only representing 16.6% of our revenue in the aggregate in 2021, in certain of our local markets and specific geographicsolutions we derive a substantial portion of revenues from a limited number of clients. There are inherent risks whenever a large percentage of revenues within any specific market dependsor solution are concentrated within a limited number of clients. We cannot predict the future level of demand for our services and products that will be generated by these clients. In addition, revenues from these clients may fluctuate from time to time. Further, some of our contracts with these clients may permit them to terminate use of our products at any time (subject to notice and certain other provisions). If we fail to retain any of these clients and any of these clients terminate or reduce use of our products, our revenues within local markets or specific solutions may be negatively impacted.
We experience fluctuations in our results of operations due to a number of factors, which make our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual results of operations fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on having sufficient clients implementeda period-to-period basis may not be meaningful. Fluctuations in our results of operations could cause our performance to fall below the expectations of analysts and utilizinginvestors, and adversely affect the price of our ADSs. You should not rely on our past results as an indication of our future performance. Factors that may affect our quarterly results of operations include:
•the nature of our clients’ products or services, including the seasonal nature of our clients’ advertising spending;
•lengthy implementation cycles resulting in substantial expenses incurred without any guarantee of revenue generation;
•demand for our offering and our ability to coordinate the demand forsize, scope and supplytiming of digital advertising inventorycampaigns;
•the relative lack of long-term agreements with the publishers in that market. Since we cannot consistently predict the demand for advertising inventory by our clients or the advertising inventory available to us, including on a priority basis, the demand for and supplypublishers;
•client and publisher retention rates;
•market acceptance of advertising inventoryour offering and future solutions and services (i) in that market may not be sufficient or sufficiently coordinated for Criteo AI Engine to function optimally. As such, as we targetcurrent industry verticals and new industry verticals, (ii) in new geographic markets, we will need to adequately coordinate (iii) in new advertising channels, or (iv) for broader marketing goals;
•the timing of large expenditures related to onboard local clientsexpansion into new solutions, new geographic markets, new industry verticals, acquisitions and/or capital projects;
•the timing of adding support for new digital devices, platforms and publishers. A failure to effectively manage demand for, and the supply of, advertising inventory processed through Criteo AI Engine could impair its ability to accurately predict user engagement in that market, which could result in:operating systems;
•our publishers make available to us in the future;clients’ budgeting cycles;
•changes in the priority givencompetitive dynamics of our industry, including consolidation among competitors;
•consumers' response to our clients’ advertisements, to online advertising in general and to tracking technologies for targeted or behavioral advertising purposes;
•our ability to control costs, including our operating expenses;
•network outages, errors in our technology or security breaches and any associated expense and collateral effects;
•foreign currency exchange rate fluctuations, as some of our foreign sales and costs are denominated in their local currencies;
•failure to successfully manage any acquisitions; and
•general economic and political conditions in our domestic and international markets.
As a result, we may have a limited ability to forecast the amount of future revenue and expense, and our results of operations may from time to time fall below our estimates or the expectations of public market analysts and investors.
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Risks Related to Data Privacy, Intellectual Property and Cybersecurity
Our ability to generate revenue depends on our collection of significant amounts of data from various sources, which may be restricted by publishers;consumer choice, clients, publishers, browsers or other software, changes in technology, and new developments in laws, regulations and industry standards.
Our ability to optimize the delivery of internet advertisements for our clients depends on our ability to attract new publishers willingsuccessfully leverage data, including data that we collect from our clients, data we receive from our publisher partners and third parties, and data from our own operating history. Using cookies and non-cookie based mechanisms, such as hashed emails, hashed customer log-ins, mobile phone numbers or mobile advertising identifiers, we collect information about the interactions of users with our clients’ and publishers’ digital properties (including, for example, information about the placement of advertisements and users’ shopping or other interactions with our clients’ websites or advertisements). Our ability to give us preferred access;
Web browser developers, such as Apple, Mozilla Foundation, Microsoft or Google, have implemented or may implement changes in browser or device functionality that impair our ability to understand the preferences of consumers, including by limiting the use of third-party cookies or other tracking technologies or data indicating or predicting consumer preferences. Today, three major web browsers — Apple’s Safari, Mozilla’s Firefox and Microsoft’s Edge — block third party cookies by default. Internet users can also delete cookies from their computers at any time. In January 2020, Google announced that it plans to phase out support for third-party cookies in Chrome, which has since been delayed until late 2023. Google controls more than 60% of the browser market and has an even more dominant position in the digital advertising market. These web browser developers have significant timeresources at their disposal and expense,command substantial market share, and any restrictions they impose could foreclose our ability to understand the preferences of a substantial number of consumers. Although we are actively in the process of moving our business away from third-party cookies towards relying more on first-party data-based identifiers, if we are blocked from serving advertisements to a significant portion of internet users, our business could suffer and our results of operations could be harmed.
Similarly, Internet users are increasingly able to download free or paid “ad-blocking” software, including on mobile devices, which prevent third-party cookies from being stored on a user’s computer and block advertisements from being displayed to such user. In addition, Google has introduced ad blocking software in its Chrome browser that blocks certain ads based on quality standards established under a multi-stakeholder coalition. If such a feature inadvertently or mistakenly blocks ads that are not within the established blocking standards, or if such capabilities become widely adopted and the advertising technology industry does not collaboratively develop alternative technologies, our business could be harmed. The Interactive Advertising Bureau and Digital Advertising Alliance have also developed frameworks that allow users to opt out of the “sale” of their personal information under the CCPA, in ways that stop or severely limit the ability to show targeted ads.
In addition, search engines and other service providers that explicitly do not allow the tracking of data, such as DuckDuckGo, Inc., may be growing in popularity. If a significant number of web browser users switch to advertising-free services or platforms, our business could be materially impacted. Further, mobile devices allow users to opt out of the use of mobile device IDs for targeted advertising. For in-app advertising, data regarding interactions between users and devices are tracked mostly through stable, pseudonymous mobile device identifiers that are built into the device operating system with privacy controls that allow users to express a preference with respect to data collection for advertising, including to disable the identifier. These identifiers and privacy controls are defined by the developers of the mobile platforms and could be changed by the mobile platforms in a way that may negatively impact our business. For example, Apple announced in June 2020 that it will require user opt-in before permitting access to Apple’s unique identifier, or IDFA, and implemented iOS 15 in September 2021, which allows users to hide IP address information to prevent tracking web usage on the Safari browser and to shut off marketers’ ability to see if and when an email is opened through Apple’s Mail app. This shift from enabling user opt-out to an opt-in requirement is likely to have a substantial impact on the mobile advertising ecosystem and could harm our growth in this channel.
User privacy features of other channels of programmatic advertising, such as Connected TV or over-the-top video, are still developing. Technical or policy changes, including regulation or industry self-regulation, could harm our growth in those channels.
The data we gather is important to the continued development and success will depend on effectively expanding and integrating our sales and marketing operations and activities to grow our base of clients and publishers.
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In addition, our ability to collect and expense, and ituse data may be difficult to identify, engage and market to potential clients that are unfamiliar with Criteo and our offering, particularly as we seek to address new marketing goals for clients,restricted or enter new advertising channels or new industry verticals. Furthermore, many potential clients require input from multiple internal constituencies to make advertising decisions, or delegate advertising decisions to advertising agencies. Asprevented by a result, we must identify those involved in number of other factors, including:
•the purchasing decision and devote a sufficient amount of time to presenting our offering to those individuals (including providing demonstrations and comparisonsfailure of our value relative to other available solutions), which can be a costly and time-consuming process.network, hardware, or software systems, or the network, hardware, or software systems of our clients;
•malicious traffic (such as non-human traffic) that introduces "noise" in the information that we collect from clients and publishers; and
•interruptions, failures or defects in our data collection, mining, analysis and storage systems.
Any of the above described limitations could also harm our business and adversely impact our future results of operations.
The third parties upon which we rely for access to data and revenue opportunities may implement technical restrictions that impede our access to such data and revenue opportunities, which could materially impact our business and results of operations.
A substantial portion of the data we rely on comes from our publisher partners and other third parties, including advertising exchange platforms (including supply-side platforms, or “SSPs”, such as Google's Ad Manager). Similarly, we rely on our publisher partners, advertising exchange platforms and other third parties for opportunities to serve advertisements through which we generate our revenue. Our ability to successfully leverage such data and successfully generate revenue from such opportunities could be impacted by restrictions imposed by or on our publisher partners or other third parties, including restrictions on our ability to effectively expand our sales, marketing and publisher support operations. In particular, as we target new industry verticals, we will need to attract sales and publisher support personnel that are familiar with the relevant industries and geographic markets. We believe that there is significant competition for direct sales and support personnel with the sales skills and technical knowledge that we require.
For example, in large part,light of the GDPR, some SSPs imposed restrictions on our success in recruiting, training and retaining the sales and publisher support personnel we require. Over the past years, we have hired a number of new sales personnel and expanded our marketing department. However, we may not be successful in growing headcount to the extent necessary to support and expand our operations. Similarly, we cannot be sure that newly hired personnel will be integrated effectively, and such personnel may require significant training and may not become productive as quickly as we would like, or at all. If we are not successful in recruiting and training our client sales and publisher support personnel and streamlining our sales and business development processes to cost-effectively grow our client and publisher base, our ability to grow our businessbid on opportunities to serve ads. Third-party publishers are responsible under GDPR for gathering necessary user consents and our resultsindicating to SSPs that Criteo has been approved by the applicable users. As part of operations could be adversely affected.
If third parties on which we rely for data or opportunities to serve advertisements impose similar restrictions or are not able to comply with whom we do business use intellectual property ownedrestrictions imposed by others in their work for us, disputes may arise as to the rights to such intellectual property.
Our business involves the use, transmission and storage of personal data and confidential information, and the failure to properly safeguard such information could result in significant reputational harm and monetary damages.
Our business involves the use, storage and transmission of confidential consumer, client and publisher information and personal data, including certain purchaser data, as well as proprietary software and financial, employee and operational information. Security breaches could expose us to unauthorized disclosure of this information, litigation and possible liability, as well as damage to our relationships with our clients and publishers. If our security measures are breached as a result of third-party action, employee or contractor error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to our data or the data of consumers, our clients, publishers, employees or other third parties, our reputation could be damaged, our business may suffer and we could incur significant liability.
Our industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. As a result of our prominence, the size of our user base, and the types and volume of personal data on our systems, we believe that we are a particularly attractive target for such breaches and attacks. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, including personal information and intellectual property, or information from marketers, could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware,malware/ransomware, viruses, unauthorized access or system compromises and hacking by sophisticated actors have become more prevalent in our industry. Our products embed open source software. There may be vulnerabilities in open source software that may make our products susceptible to cyberattacks. Security incidents have occurred on our systems in the past, and will likely occur on our systems in the future. For example, in November 2019, we became aware of a compromise of certain of our systems. We have taken and continue to take additional steps to fully identify the incident and have and continue to implement remedial measures to increase the security of our systems and networks to respond to these types of threats. As of the date of this filing, we do not believe that this incident has resulted in a material adverse effect on our business or any material damage to us or any loss or misuse of customer data. However, the investigation is ongoing and there can be no assurance that this or any other breach or incident will not have a material impact on our operations and financial results in the future.
Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we are unable to anticipate some of these techniques or to implement adequate preventative measures for such techniques. In addition, the perpetrators of such activity often are very sophisticated, and can include foreign governments and other parties with significant resources at their disposal.
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Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for long periods of time. Although we have developed systems and processes that are designed to protect our data and user data, to prevent data loss, and to prevent or detect security breaches, such measures have not provided, and cannot be expected to provide, absolute security, and we may incur significant costs in protecting against and remediating cyber-attacks. We may also have to expend considerable resources on determining the nature and extent of such attacks.
If an actual or perceived security breach occurs, the market perception of our security measures could be harmed and we could lose both clients and revenue. Any significant violations of data privacy or other security breaches could result in the loss of business, litigation and regulatory investigations and penalties that could damage our reputation and adversely impact our results of operations and financial condition.
Moreover, if a high profile security breach occurs with respect to another provider of digital advertising solutions, our clients and potential clients may lose trust in the security of providers of digital advertising in general, and Display Advertising solutions in particular, which could adversely impact our ability to retain existing clients or attract new ones.
Additionally, third parties may attempt to fraudulently induce employees, consumers, our clients, our publishers or third-party providers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, our clients’ data or our publishers’ data, which could result in significant legal and financial exposure and a loss of confidence in the security of our offering and, ultimately, harm to our future business prospects. A party who is able to compromise the security of our facilities, including our data centers or office facilities, or any device, such as a smartphone or laptop, connected to our systems could misappropriate our proprietary information or the proprietary information of consumers, our clients and/or our publishers, or cause interruptions or malfunctions in our operations or those of our clients and/or publishers. We have expended significant resources to protect against such threats and to alleviate problems caused by breaches in security and may have to expend additional resources for such purposes in the future. Finally, computer viruses or malware may harm our systems or cause the loss or alteration of data, and the transmission of computer viruses or malware via Criteo technology could expose us to litigation and a loss of confidence in the security of our technology. Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable
terms, or at all. In addition, our policy may not cover any claim against us for loss of data or other indirect or consequential damages and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Failures in the systems and infrastructure supporting our solutions and operations, including as we scale our offerings, could significantly disrupt our operations and cause us to lose clients.
In addition to the optimal performance of Criteo AI Engine, our business relies on the continued and uninterrupted performance of our software and hardware infrastructures. We currently place close to fourfive billion advertisements per day and each of those advertisements can be placed in under 100 milliseconds.
Sustained or repeated system failures of our software or hardware infrastructures (such as massive and sustained data center outages) or of the software or hardware infrastructures of our third-party providers, which interrupt our ability to deliver advertisements quickly and accurately, our ability to serve and track advertisements, our ability to process consumers’ responses to those advertisements or otherwise disrupt our internal operations, could significantly reduce the attractiveness of our offering to clients and publishers, reduce our revenue or otherwise negatively impact our financial situation, impair our reputation and subject us to significant liability.
Additionally, if, for any reason, our arrangement with one or more data centers is terminated, we could experience additional expense in arranging for new facilities and support. Any steps we take to increase the security, reliability and redundancy of our systems supporting the Criteo technology or operations may be expensive and may not be successful in preventing system failures. Similarly, advancements in machine learning approaches and other technology may require us to upgrade or replace essential hardware (such as graphics processing units), which could involve substantial resources and could be difficult to implement.
In addition, while we seek to maintain excess capacity to facilitate the rapid provision of new client deployments and the expansion of existing client deployments, we may need to increase data center hosting capacity, bandwidth, storage, power or other elements of our system architecture and our infrastructure as our client base and/or our traffic continues to grow.
The expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance our business will increase. Our existing systems may not be able to scale up in a manner satisfactory to our existing or prospective clients, and may not be adequately designed with the necessary reliability and redundancy of certain critical portions of our infrastructure to avoid performance delays or outages that could be harmful to our business.
Our failure to continuously upgrade or increase the reliability and redundancy of our infrastructure to meet the demands of a growing base of global clients and publishers could adversely affect the functioning and performance of our technology and could in turn affect our results of operations.
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Finally, our systems and the systems of our third-party providers are vulnerable to damage from a variety of sources, some of which are outside of our control, including telecommunications failures, natural disasters, terrorism, power outages, a variety of other possible outages affecting data centers, a decision to close any data center or the facilities of any other third-party provider without adequate notice, and malicious human acts, including hacking, computer viruses, malwaremalware/ransomware and other security breaches. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate some of these techniques or to implement adequate preventive measures.
If we are unable to prevent system failures, the functioning and performance of our solutions could suffer, which in turn could interrupt our business and harm our results of operations.
If we are unable to protect our proprietary information or other intellectual property, our business could be adversely affected.
Our patents, trademarks, trade secrets, copyrights, and other intellectual property rights are important assets for us. Various events outside of our control pose a company operating in a rapidly evolving industry, which makes it difficultthreat to evaluate our future prospectsintellectual property rights, as well as to our products, services, and may increase the risk that we will not be successful. Our recent growth ratestechnologies. For example, effective intellectual property protection may not be indicative ofavailable in every country in which we operate or intend to operate our future growth,business. Third parties may knowingly or unknowingly infringe our proprietary rights or challenge proprietary rights held by us, and we expect our operating expenses to continue to increase in the foreseeable future. Accordingly, we may have difficulty sustaining profitability.
Breaches of the security of our overall business,data center systems and infrastructure or other IT resources could also result in the exposure of our profitabilityproprietary information. Additionally, our trade secrets may be negatively affected. Similarly, asindependently developed by competitors. We cannot be certain that the steps we transitionhave taken to a multi-solution company, with solutions available to clients across several advertising channels, new solutionsprotect our trade secrets and proprietary information will prevent unauthorized use or reverse engineering of our trade secrets or proprietary information.
To protect or enforce our intellectual property rights, we may require additional investmentsinitiate litigation against third parties. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. We may not prevail in sales, business developmentany lawsuits that we initiate and marketing, such as product sales specialiststhe damages or similar resources to enable sales. As a result of such additional investments, our new solutionsother remedies awarded, if any, may not be less profitable than our existing business and therefore drive down our overall profitability.
Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.
The online and mobile advertising industries are characterized by the existence of large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement or misappropriation without major financial expenditures or adverse consequences. From time to time, we may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others, particularly as we expand the scope and complexity of our business.
Regardless of whether claims that we are infringing patents or other intellectual property rights have recently expandedany merit, these claims are time-consuming and costly to evaluate and defend, and the outcome of any litigation is inherently uncertain. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. Claims that we are infringing patents or other intellectual property rights could subject us to significant liabilities for monetary damages, interfere with or delay our development, commercialization or provision of our offerings to serve a larger number of smaller clients, and have expanded into emerging markets such as Brazil, India, and Russia. Our changing client portfolio exposeson acceptable terms, harm our reputation or require us to additional credit risk, which could result in further exposure in the event of economic uncertaintymake technology or an economic downturn.
branding changes to our offerings.
In addition, even if the overall economy improves, we cannot assure youmay be exposed to claims that the marketcontent contained in advertising campaigns violates the intellectual property or other rights of third parties. Such claims could be made directly against us or against the advertising agencies we work with, and media networks and exchanges and publishers from whom we purchase advertising inventory.
Under our agreements with larger partners, including advertising agencies, media networks and exchanges and publishers, we may be required to indemnify such partners against claims with respect to an advertisement we served. We generally require our clients to indemnify us for digitalany damages from any such claims. There can be no assurance, however, that our clients will have the ability to satisfy their indemnification obligations to us, and pursuing any claims for indemnification may be costly or unsuccessful.
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As a result, we may be required to satisfy our indemnification obligations to advertising agencies, media networks and Display Advertising will experience growthexchanges and publishers or that we will experience growth. Furthermore, we generally sell through insertion ordersclaims against us with our clients. These insertion orders generally do not include long-term obligations and are cancellable upon short notice and without penalty. Any reduction in advertising spending could limit our ability to grow our business and negatively affect our results of operations.
Our inability to use software licensed from third parties, or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.
Our technology platform and internal systems incorporate software licensed from third parties, including some software, known as open source software, which we use without charge. Although we monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our technology offering to our clients. In the future, we could be required to seek licenses from third parties in order to continue offering our solutions, which licenses may not be available on terms that are acceptable to us, or at all.
Alternatively, we may need to re-engineer our offering or discontinue using portions of the functionality provided by our technology. In addition, the terms of open source software licenses may require us to provide software that we develop using such software to others on unfavorable terms, such as by precluding us from charging license fees or by requiring us to disclose our source code. Any such restriction on the use of our own software, or our inability to use open source or third-party software, could result in disruptions to our business or operations, or delays in our development of future offerings or enhancements of our existing platform, which could impair our business.
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Risks Related to Ownership of Our Shares and the ADSs and the Trading of the ADSs
The market price for the ADSs have been and may continue to be volatile or may decline regardless of our operating performance.
The trading price of the ADSs has significantly fluctuated, and is likely to continue to fluctuate, substantially. The trading price of the ADSs depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. Since the ADSs were sold at our initial public offering in October 2013 at a price of $31.00 per share, the price per ADS has ranged as low as $15.90$5.89 and as high as $60.95 through December 31, 2019.2021. The market price of the ADSs has fluctuated and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•actual or anticipated fluctuations in our revenue and other results of operations;
•the guidance we may provide to the public, any changes in this guidance or our failure to meet this guidance;
•investor perception of risks in our industry, including but not limited to the competitive concentration of supply inventory or risks of fraudulent or malicious activity;
•failure of securities analysts to initiate or maintain coverage of us and our securities, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•announcements by us, our competitors or large influential technology companies of significant technical innovations or changes, acquisitions, strategic partnerships, joint ventures or capital commitments;
•changes in operating performance and stock market valuations of advertising technology or other technology companies, or those in our industry in particular;
•investor sentiment with respect to our competitors, our business partners or our industry in general;
•price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
•additional ADSs being sold into the market by us or the Company's insiders;
•media coverage of our business and financial performance;
•developments in anticipated or new legislation or new or pending lawsuits or regulatory actions;
•other events or factors, including those resulting from natural disasters or weather events, cyberattacks, pandemics, war, incidents of terrorism or other catastrophic events or responses to these events; and
•any other risks identified in this Form 10-K.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. Because of the past and the potential future volatility of our stock price, we may become the target of securities litigation in the future. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
Our business could be negatively impacted by the activities of predatory hedge funds or short sellers.
There is the risk that we may be subject, from time to time, to challenges arising from the activities of predatory hedge funds, short sellers or similar individuals who domay not have the best interests of shareholders or the Company in mind. Reports or other publications prepared and disseminated by such hedge funds or short sellers may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business, and could cause the price of our ADSs or trading volume to decline. Furthermore, responding to such activities could be costly and time-consuming and may be intended to, and may in fact, divert the attention of our board of directors and senior management from the pursuit of our business strategies and adversely affect our business.
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We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.
We currently have a senior unsecured revolving credit facility under which we may borrow up to €350 million (or its equivalent in U.S. dollars or, subject to the satisfaction of certain conditions, other optional currencies) for general corporate purposes, including the funding of business combinations (the "General RCF"). While we anticipate that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations for at least the next 12 months, we may need to raise additional capital to fund operations in the future or to finance acquisitions. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our research and development and sales and marketing efforts, increase working capital, take advantage of acquisition or other opportunities, or adequately respond to competitive pressures which could seriously harm our business and results of operations.
Furthermore, if we issue additional equity securities, shareholders will experience dilution, and the new equity securities could have rights senior to those of our ordinary shares.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our shareholders bear the risk of our future securities offerings reducing the market price of the ADSs and diluting their interest.
We do not currently intend to pay dividends on our securities and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs. In addition, French law may limit the amount of dividends we are able to distribute.
We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth, both organic and inorganic. In addition, we have used a portion of our available liquidity to repurchase our Company's shares in the past, and may continue to do so from time to time in the future.
In addition, to the extent any dividends are paid in the future, under French law, payment of such dividends may subject us to additional taxes, and the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and presented in accordance with accounting principles generally accepted in France. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.
Please see the section entitled “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Taxation-French Tax Consequences” in Item 5 of Part II in this Form 10-K for further details on the limitations on our ability to declare and pay dividends and the taxes that may become payable by us if we elect to pay a dividend.
Finally, exchange rate fluctuations may affect the amount of euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in euros, if any. These factors could harm the value of the ADSs, and, in turn, the U.S. dollar proceeds that holders receive from the sale of the ADSs.
Because you are not likely to receive any dividends on your ADSs for the foreseeable future, the success of an investment in ADSs will depend upon any future appreciation in their value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Our credit agreement contains, and future debt agreements may contain, restrictions that may limit our flexibility in operating our business.
The credit agreement for the General RCF contains, and documents governing our future indebtedness may contain, numerous covenants that limit the discretion of management with respect to certain business matters. These covenants place restrictions on, among other things, our ability and the ability of our subsidiaries to incur or guarantee additional indebtedness, pay dividends and make other distributions and restricted payments, make certain acquisitions and other investments, sell certain assets or engage in mergers, acquisitions and other business combinations, and create liens. Our credit agreement also requires, and documents governing our future indebtedness may require, us or our subsidiaries to meet certain financial ratios and tests in order to incur certain additional debt, make certain loans, acquisitions or other investments, or pay dividends or make other distributions or restricted payments. To the extent we draw on the General RCF or incur new debt, the debt holders have rights senior to shareholders to make claims on our assets.
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Our ability and the ability of our subsidiaries to comply with these and other provisions of our debt agreements are dependent on our future performance, which will be subject to many factors, some of which are beyond our control.
The breach of any of these covenants or noncompliance with any of these financial ratios and tests could result in an event of default under the applicable debt agreement, which, if not cured or waived, could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions.
Our by-laws and French corporate law contain provisions that may delay or discourage a sale of the Company.
Provisions contained in our by-laws and the corporate laws of France, the country in which we are incorporated, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. In addition, provisions of our by-laws impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These provisions include, but are not limited to, the following:
•our ordinary shares are in registered form only and we must be notified of any transfer of our shares in order for such transfer to be validly registered;
• |
under French law, certain investments in any individualentity governed by a French law relating to certain strategic industries and activities (such as data processing, transmission or entity located outside of the European Union may needstorage activities) by individuals or entities not French, not resident in France or controlled by entities not French or not resident in France are subject to seek theprior authorization of the French Minister of Economy prior to acquiring the control of, all or part of a business of, or more than 33.33% of the share capital or voting rights of the Company (see the section entitled" Exchange Controls & Ownership by Non-French Residents" in Item 5 to Part II in this Form 10-K);
•provisions of French law allowing the owner of 95%90% of the share capital or voting rights of a public company to force out the minority shareholders following a tender offer made to all shareholders are only applicable to companies listed on a stock exchange of the European Union and will therefore not be applicable to us;
•a merger (i.e., in a French law context, a stock-for-stock exchange following which our company would be dissolved into the acquiring entity and our shareholders would become shareholders of the acquiring entity) of our company into a company incorporated outside of the European Union would require the unanimous approval of our shareholders;
•a merger of our company into a company incorporated in the European Union would require the approval of our board of directors as well as a two-thirds majority of the votes held by the shareholders present, represented by proxy or voting by mail at the relevant extraordinary shareholders' meeting;
•under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder; and
•our shareholders have preferential subscription rights proportionally to their shareholding in our company on the issuance by us of any additional securities for cash or a set-off of cash debts, which rights may only be waived by the extraordinary general meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each shareholder;shareholder.
You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.
Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement.agreement, as amended from time to time. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in which instructions may be given by the holders.
You may instruct the depositary of your ADSs to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself.
If the depositary does not receive timely voting instructions from you, it may give a proxy to a person designated by us to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.
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Your right as a holder of ADSs to participate in any future preferential subscription rights or to elect to receive dividends in shares may be limited, which may cause dilution to your holdings.
According to French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities proportionally to their shareholding in our company unless they waive those rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each shareholder.
However, our ADS holders in the United StatesU.S. will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available.
In addition, the deposit agreement provides that the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act.
Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.
Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.
You may be subject to limitations on the transfer of your ADSs and the withdrawal of the underlying ordinary shares.
Your ADSs, which may be evidenced by ADRs,American Depositary Receipts, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason subject to your right to cancel your ADSs and withdraw the underlying ordinary shares.
Temporary delays in the cancellation of your ADSs and your withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares.
In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.
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U.S. investors may have difficulty enforcing civil liabilities against our company and directors and senior management.
Certain of our directors and members of senior management, and those of certain of our subsidiaries, are non-residents of the U.S., and all or a substantial portion of our assets and the assets of such persons are located outside the U.S. As a result, it may not be possible to serve process on such persons or us in the U.S. or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the U.S. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the U.S.
Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a U.S. securities law claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim.
Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and procedural rules would still be governed by the law of the jurisdiction in which the foreign court resides. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, damages exceeding the actual damages in actions brought in the U.S. or elsewhere, such as punitive damages, may be unenforceable in France.
The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The U.S. and France do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters; therefore the recognition and enforcement of any such judgment would be subject to French procedural law and may not be granted.
The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the U.S.
We are a French company with limited liability. Our corporate affairs are governed by our by-laws and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions.
For example, in the performance of its duties, our board of directors is required by French law to consider the interests of our company, its shareholders, its employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.
General Risk Factors
In periods of economic uncertainty, businesses may delay or reduce their spending on advertising, and we are exposed to the credit risk of some of our clients and customers, which could materially harm our business.
General worldwide economic conditions have been significantly unstable in recent years, especially in the European Union where we generated 30% of our revenue for 2021. Unstable conditions make it difficult for our clients and us to accurately forecast and plan future business activities, and could cause our clients to reduce or delay their advertising spending with us. Historically, economic downturns, including conditions such as inflation, recessions, or other changes in economic conditions have resulted in overall reductions in advertising spending, and businesses may curtail spending both on advertising in general and on a solution such as ours. We cannot predict the timing, strength or duration of any economic slowdown or recovery. Any macroeconomic deterioration in the future could impair our revenue and results of operations.
Furthermore, we have expanded our offerings to serve a larger number of smaller clients, and have expanded into emerging markets. Our changing client portfolio exposes us to additional credit risk, which could result in further exposure in the event of economic uncertainty or an economic downturn, including conditions such as inflation, recession, pandemic or other changes in economic conditions.
Additionally, our exposure to credit risks relating to our financing activities may increase if our customers are adversely affected by periods of economic uncertainty, including inflation, recession, pandemic, or other changes in economic conditions, or a global economic downturn. These losses have significantly impacted, and could continue to significantly impact, our operating results and financial condition.
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If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of the ADSs may, therefore, be adversely impacted.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
In addition, we are required to submit a report by management to the Audit Committee and external auditors on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and our independent registered public accounting firm is required to attest to the effectiveness of our internal controls over financial reporting. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of the ADSs may be adversely impacted, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Our failure to maintain certain tax benefits applicable to French technology companies may adversely affect our results of operations.
As a French technology company, we have difficulty enforcing civil liabilities against our company and directors and senior management.
We are a Frenchmultinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions as a result of new taxes or laws, or revised interpretations thereof, which may negatively affect our business.
As a multinational organization operating in multiple jurisdictions we are subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and results of operations. For instance, several countries have proposed or enacted Digital Services Taxes ("DST"), many of which would apply to revenues derived from digital services. We will continue to assess the ongoing impact of DSTs that we pay in certain jurisdictions, as we anticipate that many jurisdictions may sign an agreement with the Organization for Economic Co-operation and Development in the coming years and that DSTs could be eliminated.
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U.S. holders of our ADSs may suffer adverse tax consequences if we are treated as a "passive foreign investment company" for U.S. federal income tax purposes.
A non-U.S. corporation will be considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive assets, and our goodwill and other unbooked intangibles are taken into account. Based on the value and composition of our assets, although not free from doubt, we do not believe we were a PFIC for the taxable year ended December 31, 2021, and we do not expect to be a PFIC in the current taxable year or the foreseeable future. The determination of whether we are a PFIC is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances unclear. Since a separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year), we cannot assure you that we will not be or become a PFIC in the current year or any future taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds ADSs, we would continue to be treated as a PFIC with limited liability. Ourrespect to that U.S. person for such taxable year and, unless the U.S. person makes certain elections, for future years even if we cease to be a PFIC. The U.S. holder may be subject to adverse tax consequences, including (1) the treatment of all or a portion of any gain on disposition of our ADSs as ordinary income (and therefore ineligible for the preferential rates that apply to capital gains with respect to non-corporate U.S. persons), (2) the application of an interest charge with respect to such gain and on the receipt of certain dividends on our ADSs and (3) required compliance with certain reporting requirements. Each U.S. holder is strongly urged to consult its tax advisor regarding the application of these rules and the availability of any potential elections. For further information regarding the U.S. federal income tax considerations relevant to our potential status as a PFIC, please see the section entitled “Taxation—U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company, or PFIC, Rules” in our Annual Report.
If a U.S. person is treated as owning at least 10% of our ADSs, such person may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively through attribution) at least 10% of the total value of our stock or at least 10% of the total combined voting power of all classes of our stock entitled to vote, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). We do not believe we are currently a controlled foreign corporation. However, no assurances can be given that we are not a controlled foreign corporation or that we will not become a controlled foreign corporation in the future. Because our group includes one or more U.S. corporations, certain of our non-U.S. corporate affairssubsidiaries could be treated as controlled foreign corporations (regardless of whether or not we are governedtreated as a controlled foreign corporation). A U.S. shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments of earnings in U.S. property by controlled foreign corporations, regardless of whether we make any distributions to our by-lawsshareholders. Subpart F income generally includes dividends, interest, certain non-active rents and byroyalties, gains from the laws governing companies incorporatedsale of securities and income from certain transactions with related parties, and “global intangible low-taxed income” generally consists of net income of the controlled foreign corporation, other than Subpart F income and certain other types of income, in France. The rightsexcess of certain thresholds. In addition, a U.S. shareholder that realizes gain from the sale or exchange of shares in a controlled foreign corporation may be required to classify a portion of such gain as dividend income rather than capital gain. If we are classified as both a controlled foreign corporation and a PFIC (as discussed above), we generally will not be treated as a PFIC with respect to those U.S. holders that are U.S. shareholders during the period in which we are a controlled foreign corporation. Failure to comply with such reporting requirements could result in adverse tax effects for U.S. shareholders and potentially significant monetary penalties. An individual that is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. The determinations of controlled foreign corporation status and U.S. shareholder status are complex and includes attribution rules, the responsibilitiesapplication of memberswhich are not entirely certain. We cannot provide any assurances that we will assist investors in determining whether any of our board of directors are in many ways different fromnon-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is a U.S. shareholder, or that we will furnish to any U.S. shareholders information that may be necessary to comply with the rights and obligations of shareholders in companies governed byaforementioned obligations. A U.S. investor should consult its advisors regarding the laws of U.S. jurisdictions.
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Item 1B. Unresolved Staff Comments
We do not have any unresolved comments from the SEC staff.
Item 2. Properties
Our headquarters are located in Paris, France, in an approximately 16,0008,089 square meter facility, under a lease agreement expiring on June 14, 2023.July, 2030. In addition, we had 29 offices in 15 countries as of December 31, 2019.2021. We currently lease space in data centers from third-party hosting providers to operate our servers located in the United States (California, Texas,U.S. (Texas, Virginia), France, the Netherlands, Hong Kong, Singapore and Japan. The properties are used by both our marketing solutions and retail media segments. We believe that our facilities are adequate for our current needs.
Item 3. Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our ADSs have been listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol “CRTO” since October 30, 2013. Prior to that date, there was no public trading market for ADSs or our ordinary shares.
Holders
As of January 31, 2020,2022, there were 3835 holders of record of our ordinary shares and 130138 participants in DTC that held our ADSs. The actual number of holders is greater, and includes beneficial owners whose ADSs are held in street name by brokers and other nominees. This number of holders of record and DTC participants also does not include holders whose shares may be held in trust by other entities.
ADS Performance Graph
The following graph matches our cumulative five-year total shareholder return on our ADSs with the cumulative total returns of the Russell 2000 Index and the Nasdaq Internet Index. The graph tracks the performance of a $100 investment in our ADSs and in each index (with the reinvestment of all dividends) from December 31, 20142016 to December 31, 2019.2021. The returns shown are based on historical results and are not intended to suggest future performance.
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The foregoing performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.
Dividends
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 and intend to retain all available funds and any future earnings to fund our growth.
Subject to the requirements of French law and our by-laws, dividends may only be distributed from our statutory retained earnings. Dividend distributions, if any, will be made in euros and converted into U.S. dollars with respect to the ADSs, as provided in the deposit agreement. In addition, under the General RCF, we may not declare, make or pay dividends if our net debt to Adjusted EBITDA leverage ratio exceeds 2.0x.
| (a) | (b) | (c) | ||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights(1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 7,902,288 | $27.00(2) | 2,513,566 | |||
| Equity compensation plans not approved by security holders | — | — | — | |||
| Total | 7,902,288 | $27.00(2) | 2,513,566 | |||
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
| Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | |||||
| October 1 to 31, 2019 | 469,047 | 18.56 | 469,047 | 53,700,529.96 | ||||
| November 1 to 30, 2019 | 1,046,354 | 17.33 | 1,046,354 | 35,567,215.14 | ||||
| December 1 to 31, 2019 | 811,623 | 17.40 | 811,623 | 21,444,974.94 | ||||
| Total | 2,327,024 | $17.60 | 2,327,024 | 21,444,974.94 | ||||
Recent Sales of Unregistered Securities and Use of Proceeds
There were no unregistered sales of equity securities during 2019.
2021.
Exchange Controls & Ownership by Non-French Residents
Under current French foreign exchange control regulations there are no limitations on the amount of cash payments that we may remit to residents of foreign countries. Laws and regulations concerning foreign exchange controls do, however, require that all payments or transfers of funds made by a French resident to a non-resident, such as dividend payments, be handled by an accredited intermediary. All registered banks and substantially all credit institutions in France are accredited intermediaries.
Neither the French Commercial Code nor our by-laws presently impose any restrictions on the right of non-French residents or non-French shareholders to own and vote shares. However, non-French residents must file a declaration for statistical purposes with the Bank of France (Banque de France) within 20 working days following the date of certain direct foreign investments in us, including any purchase of our ADSs. In particular, such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least 10% of our outstanding ordinary shares or voting rights or the crossing of either such 10% threshold. Violation of this filing requirement may be sanctioned by five years of imprisonment and a fine of up to twice the amount of the relevant investment. This amount may be increased fivefold if the violation is made by a legal entity.
Further, any investment (i) by (a) an individual or entity located in a country that is not a member State of the European Union or of a member State of the European Economic Area having entered into a convention on administrative assistance against tax evasion and fraud with France, or by anon-French citizen, (b) any French citizen not residing in France, and(c) any non-French entity or (d) any French entity controlled by one of the aforementioned persons or entities, (ii) that will result in the relevant investor (a) acquiring the control of any entity registered in France, (b) acquiring all or part of a business line of an entity registered in France, or more than 33.33%(c) for non-EU or non-EEA investors crossing, directly or indirectly, alone or in concert, a 25% threshold of the share capital or voting rights of, a companyin an entity registered in France, and developing activities(iii) made in certain strategic industries, such as telecommunications,telecommunication, cybersecurity, or data collection is subject toor storage.
If an investment requiring the prior authorization byof the French Minister of Economy. In the absence ofEconomy is completed without such authorization having been granted, the relevant investment shall be deemed null and void.void and the French Minister of Economy further might direct the relevant investor to nonetheless (i) submit a request for authorization, (ii) have the previous situation restored at its own expense or (iii) amend the investment. The relevant investor further may be found criminally liable and may be sanctioned with a fine not to exceed the greater of the following amounts: (i) twice the amount of the relevant investment, (ii) 10% of the annual turnover before tax of the target company or (iii) €5 million (for a company) or €1 million (for a natural person).
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Further, (a) any non-French citizen, (b) any French citizen not residing in France, (c) any non- French entity or (d) any French entity controlled by one of the aforementioned persons or entities may have to file a declaration for statistical purposes with the Bank of France (Banque de France) within twenty working days following the date of certain direct foreign investments in us, including any purchase of our ADSs. In particular, such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least 10% of our share capital or voting rights or cross such 10% threshold. Violation of this filing requirement may be sanctioned by five years of imprisonment and a fine of up to twice the amount of the relevant investment. This amount may be increased fivefold if the violation is made by a legal entity.
Taxation
French Tax Consequences
The following describes the material French income tax consequences to U.S. Holders (as defined below) of purchasing, owning and disposing of the ADSs and ordinary shares, or the Securities as in force on the date of this Form 10-K.
This discussion does not purport to be a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of our securities to any particular investor, and does not discuss tax considerations that arise from rules of general application or that are generally assumed to be known by investors. All of the following is subject to change. Such changes could apply retroactively and could affect the consequences described below.
For the purposes of this discussion, the term “U.S. Holder” means a beneficial owner of securities that is (1) an individual who is not a French tax resident under French domestic rules / applicable double tax treaty provisions and who is a U.S. citizen or resident for U.S. federal income tax purposes, or (2) a U.S. domestic corporation or certain other entities created or organized in or under the laws of the United StatesU.S. or any state thereof, including the District of Colombia,Columbia, or (3) otherwise subject to U.S. federal income taxation on a net income basis in respect of securities.
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds securities, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner in a partnership that holds securities, such holder is urged to consult its own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of securities.
This discussion applies only to investors that hold our securities as capital assets that have the U.S. dollar as their functional currency, that are entitled to Treatytreaty benefits under the “Limitation on Benefits” provision contained in the Treaty,tax treaty between the Government of the U.S. and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital dated August 31, 1994, as amended by additional protocols of December 8, 2004 and January 13, 2009 ("The Treaty"), and whose ownership of the securities is not effectively connected to a permanent establishment or a fixed base in France.
Certain U.S. Holders (including, but not limited to, U.S. expatriates, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, banks, insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, persons subject to the alternative minimum tax, persons who acquired the securities pursuant to the exercise of employee share options or otherwise as compensation, persons that own (directly, indirectly or by attribution) 5% or more of our voting stock or 5% or more of our outstanding share capital, dealers in securities or currencies, persons that elect to mark their securities to market for U.S. federal income tax purposes and persons holding securities as a position in a synthetic security, straddle or conversion transaction) may be subject to special rules not discussed below.
U.S. Holders are urged to consult their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of securities in light of their particular circumstances, especially with regard to the “Limitations on Benefits” provision.
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Furthermore, specific rules apply in France with respect to French assets that are held by or in foreign trusts. These rules, among other things, provide for the inclusion of trust assets in the settlor’s net assets for purpose of applying the French real estate wealth tax, for the application of French gift and Gift Taxes and Transfer Taxes
If securities are held in trust, the Avoidancesettlor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of Double Taxationacquiring, owning and the Preventiondisposing of Fiscal Evasion with Respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978 (as amended by the protocol of December 8, 2004), unless the donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or the securities were used in, or held for use in, the conduct of a business through a permanent establishment or a fixed base in France.securities.
Purchasing Consequences
Financial Transactions Tax
Pursuant to Article 235 ter ZD of the Code général des impôts (FrenchFrench Tax Code or FTC)("FTC"), purchases of shares or ADSs of a French company listed on a regulated market of the European Union or an exchange formally acknowledged by the French Financial Market Authority (AMF)("AMF") are subject to a 0.3% French tax on financial transactions provided that the issuer’s market capitalization exceeds €1 billion as of December 1 of the year preceding the taxation year.
A list of companies whose market capitalization exceeds €1 billion as of December 1 of the year preceding the taxation year within the meaning of Article 235 ter ZD of the French Tax CodeFTC is published annually by the French tax authorities. Pursuant to Regulations BOI‑ANNX‑000467‑2019121820201223 issued on December 18, 2019,23, 2020, Criteo is currently not included in such list. Please note that such list may be updated from time to time, or may not be published anymore in the future.
Consequently, Criteo’s securities should not fall within the scope of the tax on financial transactions described above. In the future, purchasesabove and purchasers of Criteo’sCriteo's securities may becomein 2021 should not be subject to suchthe tax if Nasdaq is acknowledged by the French AMF.on financial transactions.
Registration Duties
In the case where Article 235 ter ZD of the FTC is not applicable, (i) transfers of shares issuedwhich are not listed on a regulated market of the European Union or an exchange formally acknowledged by a listed French companythe AMF are subject to uncapped registration duties at the rate of 0.1% if the transfer is evidenced by a written statement (“acte”) executed either in France or outside France, whereas (ii) transfers. As ordinary shares of shares whichCriteo are not listed areon an exchange formally acknowledged by the AMF, their transfer should be subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written statement (“acte”). As ordinary shares of Criteo are not listed, their transfer is subject to uncapped registration duties at the rate of 0.1% notwithstanding the existence of a written agreement (“acte”).
Ownership Consequences
Taxation of Dividends
Dividends paid by a French corporation to non-residents of France are generally subject to French withholding tax at a rate of 30% for corporate bodies or other legal entities (which is expected in principle to be progressively decreased to 25% in the coming years) or 12.8% for individuals. Dividends paid by a French corporation in a non-cooperative State or territory, as set out in the list referred to in Article 238-0 A of the FTC, will generally be subject to French withholding tax at a rate of 75%., except to the extent this French corporation can prove that the main purpose and effect of the distribution is not transfer such dividend income in a non-cooperative State or territory with a view to avoiding taxes. However, eligible U.S. Holders entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty who are U.S. tax residents, as defined pursuant to the provisions of the Treaty will not be subject to the 12.8%, 30% in 2019 and 28% in 2020, or 75% withholding tax rate, but may be subject to the withholding tax at a reduced rate (as described below).
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Under the Treaty, the rate of French withholding tax on dividends paid to an eligible U.S. Holder who is a U.S. tax resident as defined pursuant to the provisions of the Treaty, who is the ultimate owner of the distributed dividends, and whose ownership of the ordinary shares or ADSs is not effectively connected with a permanent establishment or fixed base that such U.S. Holder has in France, is generally reduced to 15%, or to 5% if such U.S. Holder is a corporation and owns directly or indirectly at least 10% of the share capital of the issuer; such U.S. Holder may claim a refund from the French tax authorities of the amount withheld in excess of the Treaty rates of 15% or 5%, if any.issuer, subject to certain procedural requirements discussed below.
For U.S. Holders that are not individuals but are U.S. residents, as defined pursuant to the provisions of the Treaty, the requirements for eligibility for Treaty benefits, including the reduced 5%15% or 15%5% withholding tax rates contained in the “Limitation on Benefits” provision of the Treaty, are complicated, and certain technical changes were made to these requirements by the protocol of January 13, 2009. U.S. Holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits in light of their own particular circumstances.
Dividends paid to an eligible U.S. Holder may immediately be subject to the reduced rates of 5%15% or 15%5% provided that such holder establishes before the date of payment that it is a U.S. resident under the Treaty by completing and providing the depositary with athe applicable treaty formforms (Form 5000)5000 and Form 5001).
Dividends paid to a U.S. Holder that has not filed the Form 5000 before the dividend payment date will be subject to French withholding tax at the rate of 12.8%, 30% (in 2019),25% in 2022, or 75% if paid in a non-cooperative State or territory (as defined in Article 238-0 A of the FTC). Such U.S. Holder may claim a refund from the French tax authorities of the amount withheld in excess of the Treaty rates of 15% or 5%, and then reduced at a later date to 5% or 15%,if any, provided that such holder duly completes and provides the French tax authorities with the treaty forms Form(Form 5000 and Form 50015001) before December 31 of the second calendar year following the year during which the dividend is paid. Certain qualifying pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S. Holders except that they may have to supply additional documentation evidencing their entitlement to these benefits.
Form 5000 and Form 5001, together with instructions, will be provided by the depositary to all U.S. Holders registered with the depositary. The depositary will arrange for the filing with the French Tax authorities of all such forms properly completed and executed by U.S. Holders of ordinary shares or ADSs and returned to the depositary in sufficient time so that they may be filed with the French tax authorities before the distribution in order to obtain immediately a reduced withholding tax rate.
The withholding tax refund, if any, ordinarily occurs within 12 months from filing the applicable French Treasury Form, butwill not occur before January 15 of the year following the calendar year in which the related dividend was paid.
Wealth Tax
As from January 1, 2018, French wealth tax (impôt de solidarité sur la fortune) has been replaced by a new real estate wealth tax (impôt sur la fortune immobilière) which applies only to individuals owning French real estate assets or rights, directly or indirectly through one or more legal entities, and whose net taxable assets amount to at least 1,300,000 euros. Generally, real estate assets allocated to an operational activity are excluded from the scope of the real estate wealth tax, depending on the structuring. Shares of an operating company holding French real estate assets in which the relevant individual holds, directly and indirectly, less than 10% of the share capital or voting rights, are also exempt from real estate wealth tax.
The Treaty does not prevent the application of real estate wealth tax to a U.S. Holder who would be a U.S. tax resident. However, based on the above domestic provisions and considering that Criteo SA is an operating company, the owning of ADSs or ordinary shares should not be subject to anyreal estate wealth tax.
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Disposition
Taxation on sale or other disposition
Generally, under French tax law, a foreign shareholder who is not a French tax resident for French tax purposes is not be subject to French tax on any capital gain from the sale, exchange, repurchase or redemption by us of ordinary shares or ADSs, provided that all of the following apply to such U.S. Holder:
However, based on the Treaty, a U.S. Holder who is a U.S. tax resident for purposes of the Treaty, has no permanent establishment or fixed base in France within the meaning of the Treaty, and is entitled to Treaty benefitbenefits will notonly be subject to French tax on any such capital gain unlessresulting from the sale of shares, units or rights in a company at least 50% of the assets of which consist of real estate located in France, or derives at least 50% of its value, directly or indirectly, from real estate located in France. Criteo SA is not expected to meet this standard. Pursuant to these provisions, capital gain resulting from the sale or other disposition of ADSs and ordinary shares or the ADSs form part of the business property of a permanent establishment or fixed base that the U.S. Holder hasshould not be subject to taxation in France.
U.S. Holders who own ordinary shares or ADSs through U.S. partnerships that are not residents for Treaty purposes are advised to consult their own tax advisors regarding their French tax treatment and their eligibility for Treaty benefits in light of their own particular circumstances.
A U.S. Holder who owns ordinary shares or ADSs through U.S. partnerships that are not residents for Treaty purposes are advised to consult their own tax advisors regarding their French tax treatment and their eligibility for Treaty benefits in light of their own particular circumstances.
A U.S. Holder that is not a U.S. resident for Treaty purposes or is not entitled to Treaty benefitbenefits (and in both cases is not resident, established or incorporated in a non-cooperative State or territory as defined in Article 238-0 A of the FTC) and has held more than 25% of ourCriteo's dividend rights known as “droits aux bénéfices sociaux” at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives will be subject to a levy in France at the rate of 31% in 2019 (and 28% in 2020) (which is anticipated to be progressively decreased to(i) 25% in the coming years), if such U.S. Holder is a corporate body or a legal person,entity, or (ii) 12.8% if such U.S. Holder is an individual.
Special rules apply to U.S. Holders who are residents of more than one country.
Gift and Inheritance Tax
Generally, under French tax law, the following assets are subject to gift and inheritance tax:
•all movable or immovable property located in France or outside France when the donor or the deceased had his or her tax residence in France within the meaning of Article 4 B of the FTC;
•movable or immovable property located in France (including French real estate assets held indirectly), when the donor or the deceased is not domiciled for tax purposes in France;
•movable and immovable property located in France or outside France received from a donor or deceased domiciled outside France by an heir, donee or legatee who is domiciled for tax purposes in France within the meaning of Article 4 B of the FTC and has been so domiciled for at least six years during the last ten years preceding the year in which he or she receives the property.
However, under the Convention between the Government of the U.S. and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978 (as amended by the protocol of December 8, 2004), if the U.S. Holder is domiciled in the U.S. and is a U.S. tax resident for purposes of the Treaty, has no permanent establishment or fixed base in France within the meaning of the Treaty, and is entitled to Treaty benefits, only French real estate assets and shares, units or other interests in a company or legal entity whose assets consist, directly or through one or more other companies or legal entities, of at least 50% of real property located in France or of rights relating to such property can be subject to gift and inheritance tax.
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U.S. Federal Income Tax Considerations for U.S. Holders
The discussion abovefollowing section is a summary of the material FrenchU.S. federal income tax considerations generally applicable to U.S. Holders, as defined below, of owning and disposing of ADSs or ordinary shares.
This section applies only to a U.S. Holder that holds ADSs or ordinary shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This section does not address the U.S. federal estate, gift or other non-income tax considerations or any state, local or non-U.S. tax considerations relating to the ownership or disposition of ADSs or ordinary shares. In addition, it does not set forth all of the U.S. federal income tax considerations that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax and tax consequences applicable to U.S. Holders subject to special rules, such as:
•certain banks and other financial institutions;
•dealers in securities or currencies;
•traders that elect to use a mark-to-market method of accounting;
•persons holding ADSs or ordinary shares as part of a hedging transaction, straddle, wash sale, conversion transaction or other integrated transaction or persons entering into a constructive sale with respect to the ADSs or ordinary shares;
•persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
•entities or arrangements classified as partnerships for U.S. federal income tax purposes;
•insurance companies;
•pension plans;
•cooperatives;
•regulated investment companies;
•real estate investment trusts;
•tax-exempt entities, including private foundations and “individual retirement accounts” or “Roth IRAs”;
•certain former U.S. citizens or long-term residents;
•persons who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;
•persons required for U.S. federal income tax purposes to conform the timing of income accruals with respect to the ADSs or ordinary shares to their financial statements under Section 451(b) of the Code;
•persons that directly, indirectly or constructively own 10% or more of our shares (by vote or value); or
•persons holding ADSs or ordinary shares in connection with a trade or business conducted outside of the U.S.
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds ADSs or ordinary shares, the U.S. federal income tax treatment of a partner will depend on the status of the partner and the activities of the partnership. Partnerships holding ADSs or ordinary shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of an investmentowning and disposing of the ADSs or ordinary shares.
Each U.S. Holder should consult its tax advisor as to the U.S. federal, state, local and non-U.S. tax considerations relevant to it with respect to the ownership and disposition of our ADSs or ordinary shares in our shares or ADSs andlight of its particular circumstances.
This section is based upon lawson the Code, administrative pronouncements, judicial decisions, final Treasury regulations, and relevant interpretations thereof in effectthe income tax treaty between France and the U.S. (the “Treaty”), all as of the date hereof, allany of which areis subject to change or differing interpretations, possibly with retroactive effect. It does not cover
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A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of ADSs or ordinary shares and who is:
•a citizen or individual resident of the U.S.;
•a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;
•an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
•a trust if a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. persons has or have the authority to control all of the trust’s substantial decisions, or the trust has validly elected to be treated as a domestic trust for U.S. federal income tax matterspurposes.
In general, it is expected that maya U.S. Holder who owns ADSs will be treated as the owner of importance tothe underlying shares represented by those ADSs for U.S. federal income tax purposes. The remainder of this discussion assumes that a prospective investor. Each prospective investor is urged toU.S. Holder of our ADSs will be treated in this manner. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.
U.S. Holders should consult its owntheir tax advisor aboutadvisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of ADSs or ordinary shares in their particular circumstances.
Taxation of Distributions
We do not currently expect to make distributions on our ADSs or ordinary shares. If we are not and have not been a PFIC (as discussed below in the section entitled “—Passive Foreign Investment Company, or PFIC, Rules”), in the event that we do make distributions of cash or other property, the following rules would apply. The gross amount of any distributions paid on ADSs or ordinary shares, other than certain pro rata distributions of ADSs or ordinary shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent such amount is treated as a dividend, it will generally be includible in the gross income of an investmenta U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or ADSsby the depositary, in lightthe case of ADSs. If distributions exceed our current and accumulated earnings and profits, such excess distributions will generally constitute a return of capital to the extent of the investor’s own circumstances.
Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gains tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securities market in the U.S., or we are eligible for the benefit of the Treaty, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met.
If we are eligible for benefits under the Treaty, dividends we pay on our ADSs or ordinary shares, regardless of whether such ADSs or shares are considered readily tradable on an established securities market in the U.S., would be eligible for the reduced rates of taxation described in the preceding paragraph, provided the other conditions described above are satisfied. Further, as discussed below under “—Passive Foreign Investment Company, or PFIC, Rules”, although there can be no assurance that we will be considered a PFIC for any taxable year, we believe we were not a PFIC for our 2021 taxable year and we do not anticipate that we will be a PFIC in the current and future taxable years. U.S. Holders should consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances.
For U.S. foreign tax credit purposes, dividends paid on our ADSs or ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. The amount of any dividend income paid in euro will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars at that time.
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If the foreign currency received as a dividend is converted into U.S. dollars on the date it is received, a U.S. Holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income. If the foreign currency received as a dividend is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss.
Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the discussion below under “—Passive Foreign Investment Company, or PFIC, Rules”, gain or loss realized on the sale or other disposition of ADSs or ordinary shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the ADSs or ordinary shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Long-term capital gain of individuals and certain other non-corporate U.S. Holders will generally be eligible for a reduced rate of taxation. The deductibility of a capital loss may be subject to limitations. Any capital gain or loss will generally be treated as U.S.-source gain or loss for U.S. foreign tax credit purposes, which will generally limit the availability of foreign tax credits.
Passive Foreign Investment Company, or PFIC, Rules
Under the Code, we will be a PFIC for any taxable year in which either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, “passive income.” For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation.
Passive income includes, among other things, interest, dividends, certain non-active rents and royalties, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive assets, and our goodwill and other unbooked intangibles are taken into account.
The determination of whether we are a PFIC is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances unclear. Based on the value and composition of our assets, although not free from doubt, we do not believe we were a PFIC for the taxable year ended December 31, 2017, 20182021, and 2019we do not expect to be a PFIC in the current taxable year or the foreseeable future. Since a separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year), we cannot assure you that we will not be or become a PFIC in the current year or any future taxable year.
If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, the PFIC rules discussed below generally will apply to such U.S. Holder for such taxable year, and selected consolidated statementsunless the U.S. Holder makes certain elections, will apply in future years even if we cease to be a PFIC.
If we were a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares (assuming such U.S. Holder has not made a timely mark-to-market or QEF election, as described below), gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of financial position data as of December 31, 2018 and 2019 from our audited consolidated financial statements included in Part IV, Item 15 “Exhibits and Financial Statements” of this Form 10-K. The selected consolidated statements of income datathe ADSs or ordinary shares would be allocated ratably over the U.S. Holder’s holding period for the years ended December 31, 2015 and 2016 andADSs or ordinary shares. The amounts allocated to the selected consolidated financial position data as of December 31, 2015, 2016 and 2017 have been derived from our audited consolidated financial statements and notes thereto which are not included in this Form 10-K. This data should be read together with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as our audited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. Our historical results are not necessarily indicativetaxable year of the results to be expected in the future.
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||
| Revenue | $ | 1,323,169 | $ | 1,799,146 | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | |||||||||
Cost of revenue (1): | |||||||||||||||||||
| Traffic acquisition costs | (789,152 | ) | (1,068,911 | ) | (1,355,556 | ) | (1,334,334 | ) | (1,314,947 | ) | |||||||||
| Other cost of revenue | (62,201 | ) | (85,260 | ) | (121,641 | ) | (131,744 | ) | (117,533 | ) | |||||||||
| Gross profit | 471,816 | 644,975 | 819,495 | 834,236 | 829,036 | ||||||||||||||
| Operating expenses | |||||||||||||||||||
Research and development expenses (1) | (86,807 | ) | (123,649 | ) | (173,925 | ) | (179,263 | ) | (172,591 | ) | |||||||||
Sales and operations expenses (1) | (229,530 | ) | (282,853 | ) | (380,649 | ) | (372,707 | ) | (375,477 | ) | |||||||||
General and administrative expenses (1) | (79,145 | ) | (117,469 | ) | (127,077 | ) | (135,159 | ) | (139,754 | ) | |||||||||
| Total operating expenses | (395,482 | ) | (523,971 | ) | (681,651 | ) | (687,129 | ) | (687,822 | ) | |||||||||
| Income from operations | 76,334 | 121,004 | 137,844 | 147,107 | 141,214 | ||||||||||||||
| Financial income (expense) | (4,541 | ) | (546 | ) | (9,534 | ) | (5,084 | ) | (5,749 | ) | |||||||||
| Income before taxes | 71,793 | 120,458 | 128,310 | 142,023 | 135,465 | ||||||||||||||
| Provision for income taxes | (9,517 | ) | (33,129 | ) | (31,651 | ) | (46,144 | ) | (39,496 | ) | |||||||||
| Net income | $ | 62,276 | $ | 87,329 | $ | 96,659 | $ | 95,879 | $ | 95,969 | |||||||||
Net income available to shareholders of Criteo S.A. (2) | $ | 59,553 | $ | 82,272 | $ | 91,214 | $ | 88,644 | $ | 90,745 | |||||||||
| Net income available to shareholders per share: | |||||||||||||||||||
| Basic | $ | 0.96 | $ | 1.30 | $ | 1.40 | $ | 1.33 | $ | 1.41 | |||||||||
| Diluted | $ | 0.91 | $ | 1.25 | $ | 1.34 | $ | 1.31 | $ | 1.38 | |||||||||
| Weighted average shares outstanding used in computing per share amounts: | |||||||||||||||||||
| Basic | 61,835,499 | 63,337,792 | 65,143,036 | 66,456,890 | 64,305,965 | ||||||||||||||
| Diluted | 65,096,486 | 65,633,470 | 67,851,971 | 67,662,904 | 65,598,588 | ||||||||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Equity awards compensation expense | |||||||||||||||||||
| Research and development expenses | $ | 6,520 | $ | 12,108 | $ | 21,093 | $ | 21,232 | $ | 15,036 | |||||||||
| Sales and operations expenses | 11,678 | 16,838 | 31,386 | 29,244 | 19,301 | ||||||||||||||
| General and administrative expenses | 5,791 | 14,313 | 19,872 | 16,600 | 14,795 | ||||||||||||||
Total equity awards compensation expense (a) | 23,989 | 43,259 | 72,351 | 67,076 | 49,132 | ||||||||||||||
| Pension service costs | |||||||||||||||||||
| Research and development expenses | 163 | 211 | 621 | 844 | 760 | ||||||||||||||
| Sales and operations expenses | 153 | 144 | 247 | 325 | 283 | ||||||||||||||
| General and administrative expenses | 125 | 169 | 363 | 522 | 513 | ||||||||||||||
| Total pension service costs | 441 | 524 | 1,231 | 1,691 | 1,556 | ||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||
| Cost of revenue | 29,866 | 38,469 | 53,988 | 67,347 | 44,866 | ||||||||||||||
Research and development expenses (b) | 7,995 | 7,211 | 11,226 | 10,602 | 16,508 | ||||||||||||||
Sales and operations expenses (c) | 5,178 | 7,757 | 19,844 | 18,245 | 24,914 | ||||||||||||||
| General and administrative expenses | 1,526 | 3,342 | 5,738 | 7,306 | 7,200 | ||||||||||||||
| Total depreciation and amortization expense | 44,565 | 56,779 | 90,796 | 103,500 | 93,488 | ||||||||||||||
| Acquisition-related costs | |||||||||||||||||||
| General and administrative expenses | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Total acquisition-related costs | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Acquisition-related deferred price consideration | |||||||||||||||||||
| Research and development expense | 324 | 85 | — | — | — | ||||||||||||||
| Sales and operations expenses | — | — | — | — | — | ||||||||||||||
| General and administrative expenses | (2,218 | ) | — | — | — | — | |||||||||||||
| Total acquisition-related deferred price considerations | (1,894 | ) | 85 | — | — | — | |||||||||||||
| Restructuring | |||||||||||||||||||
| Cost of revenue | — | — | 2,497 | — | |||||||||||||||
| Research and development expenses | — | — | 2,911 | (332 | ) | 2,000 | |||||||||||||
| Sales and operations expenses | — | — | 1,825 | 290 | 8,810 | ||||||||||||||
| General and administrative expenses | — | — | 123 | (11 | ) | 2,772 | |||||||||||||
Total Restructuring (d) | $ | — | $ | — | $ | 7,356 | $ | (53 | ) | $ | 13,582 | ||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Research and development expenses | $ | (86,807 | ) | $ | (123,649 | ) | $ | (173,925 | ) | $ | (179,263 | ) | $ | (172,591 | ) | ||||
| Equity awards compensation expense | 6,520 | 12,108 | 21,093 | 21,232 | 15,036 | ||||||||||||||
| Depreciation and amortization expense | 7,995 | 7,211 | 11,226 | 10,602 | 16,508 | ||||||||||||||
| Pension service costs | 163 | 211 | 621 | 844 | 760 | ||||||||||||||
| Acquisition-related deferred price consideration | 324 | 85 | — | — | — | ||||||||||||||
| Restructuring | — | — | 2,911 | (332 | ) | 2,000 | |||||||||||||
| Non-GAAP - Research and development expenses | $ | (71,805 | ) | $ | (104,034 | ) | $ | (138,074 | ) | $ | (146,917 | ) | $ | (138,287 | ) | ||||
| Sales and operations expenses | (229,530 | ) | (282,853 | ) | (380,649 | ) | (372,707 | ) | (375,477 | ) | |||||||||
| Equity awards compensation expense | 11,678 | 16,838 | 31,386 | 29,244 | 19,301 | ||||||||||||||
| Depreciation and amortization expense | 5,178 | 7,757 | 19,844 | 18,245 | 24,914 | ||||||||||||||
| Pension service costs | 153 | 144 | 247 | 325 | 283 | ||||||||||||||
| Restructuring | — | — | 1,825 | 290 | 8,810 | ||||||||||||||
| Non-GAAP - Sales and operations expenses | (212,521 | ) | (258,114 | ) | (327,347 | ) | (324,603 | ) | (322,169 | ) | |||||||||
| General and administrative expenses | (79,145 | ) | (117,469 | ) | (127,077 | ) | (135,159 | ) | (139,754 | ) | |||||||||
| Equity awards compensation expense | 5,791 | 14,313 | 19,872 | 16,600 | 14,795 | ||||||||||||||
| Depreciation and amortization expense | 1,526 | 3,342 | 5,738 | 7,306 | 7,200 | ||||||||||||||
| Pension service costs | 125 | 169 | 363 | 522 | 513 | ||||||||||||||
| Acquisition-related costs | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Acquisition-related deferred price consideration | (2,218 | ) | — | — | — | — | |||||||||||||
| Restructuring | — | — | 123 | (11 | ) | 2,772 | |||||||||||||
| Non-GAAP - General and administrative expenses | (73,921 | ) | (96,724 | ) | (100,975 | ) | (109,004 | ) | (114,474 | ) | |||||||||
| Total Operating expenses | (395,482 | ) | (523,971 | ) | (681,651 | ) | (687,129 | ) | (687,822 | ) | |||||||||
| Equity awards compensation expense | 23,989 | 43,259 | 72,351 | 67,076 | 49,132 | ||||||||||||||
| Depreciation and Amortization expense | 14,699 | 18,310 | 36,808 | 36,153 | 48,622 | ||||||||||||||
| Pension service costs | 441 | 524 | 1,231 | 1,691 | 1,556 | ||||||||||||||
| Acquisition-related costs | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Acquisition-related deferred price consideration | (1,894 | ) | 85 | — | — | — | |||||||||||||
| Restructuring | — | — | 7,356 | (53 | ) | 13,582 | |||||||||||||
| Total Non-GAAP Operating expenses | $ | (358,247 | ) | $ | (458,872 | ) | $ | (566,396 | ) | $ | (580,524 | ) | $ | (574,930 | ) | ||||
If we are a PFIC for any taxable year during which a U.S. Holder holds our managementADSs or ordinary shares and any of our non-U.S. affiliated entities are also PFICs, the holder will be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. affiliate classified as a PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
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A U.S. Holder can avoid certain of the adverse rules described above by making a mark-to-market election with respect to its ADSs or ordinary shares, provided that the ADSs or ordinary shares are “marketable.” ADSs or ordinary shares will be marketable if they are traded in comparing financial results across periods.other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a “qualified exchange” or other market within the meaning of applicable Treasury regulations. We expect that our ADSs, but not our ordinary shares, will continue to be listed on the Nasdaq Global Select Market, which is a qualified exchange for these purposes, but no assurances may be given in this regard. Consequently, assuming that our ADSs are regularly traded, if a U.S. Holder holds our ADSs, it is expected that the mark-to-market election would be available to such holder were we to be or become a PFIC. In addition, Non-GAAP Operating Expenses isbecause, as a key componenttechnical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such holder’s indirect interest in calculating Adjusted EBITDA, which is oneany investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
If a U.S. Holder makes the mark-to-market election, it will recognize as ordinary income any excess of the key measures we use to provide our quarterlyfair market value of the ADSs or ordinary shares at the end of each taxable year over their adjusted tax basis, and annual business outlookwill recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs or ordinary shares over their fair market value at the end of the taxable year (but only to the investment community.
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Cash and cash equivalents | $ | 353,537 | $ | 270,317 | $ | 414,111 | $ | 364,426 | $ | 418,763 | |||||||||
| Total assets | $ | 841,719 | $ | 1,211,186 | $ | 1,531,300 | $ | 1,597,135 | $ | 1,790,384 | |||||||||
| Trade receivables, net of allowances for doubtful accounts | $ | 261,581 | $ | 397,244 | $ | 484,101 | $ | 473,901 | $ | 481,732 | |||||||||
| Total financial liabilities | $ | 10,428 | $ | 85,580 | $ | 3,657 | $ | 3,508 | $ | 4,405 | |||||||||
| Total liabilities | $ | 362,696 | $ | 601,309 | $ | 633,602 | $ | 629,244 | $ | 752,396 | |||||||||
| Total equity | $ | 479,023 | $ | 609,877 | $ | 897,698 | $ | 967,891 | $ | 1,037,988 | |||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands, except number of clients) | |||||||||||||||||||
| Number of clients | 10,198 | 14,468 | 18,118 | 19,419 | 20,247 | ||||||||||||||
Revenue ex-TAC (3) | $ | 534,017 | $ | 730,235 | $ | 941,136 | $ | 965,980 | $ | 946,569 | |||||||||
Adjusted net income (4) | $ | 89,835 | $ | 136,777 | $ | 183,311 | $ | 168,738 | $ | 175,399 | |||||||||
Adjusted EBITDA (5) | $ | 143,435 | $ | 224,572 | $ | 309,584 | $ | 321,059 | $ | 298,972 | |||||||||
In addition, in order to revenue,avoid the most directly comparable U.S. GAAP measure, for each of the periods indicated:
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Revenue | $ | 1,323,169 | $ | 1,799,146 | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | |||||||||
| Adjustment: | |||||||||||||||||||
| Traffic acquisition costs | (789,152 | ) | (1,068,911 | ) | (1,355,556 | ) | (1,334,334 | ) | (1,314,947 | ) | |||||||||
| Revenue ex-TAC | $ | 534,017 | $ | 730,235 | $ | 941,136 | $ | 965,980 | $ | 946,569 | |||||||||
In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
If a U.S. Holder owns ADSs or ordinary shares during any year in which we are a PFIC, the U.S. Holder must file annual reports, containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to us, with the U.S. Holder’s federal income tax return for that year, unless otherwise specified in the instructions with respect to such form.
U.S. Holders should consult their tax advisers concerning our potential PFIC status and the tax impactpotential application of the foregoing adjustments in calculating Adjusted Net Income can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted Net Income provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors. Our use of Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported underPFIC rules.
THE PRECEDING SUMMARY OF 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 ourFEDERAL INCOME TAX CONSIDERATIONS IS INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE. U.S. GAAP financial results, including net income. The following table presents a reconciliation of Adjusted Net Income to net income, the most directly comparableHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. GAAP measure, for each of the periods indicated:FEDERAL, STATE, LOCAL, AND NON-U.S. TAX CONSIDERATIONS GENERALLY APPLICABLE TO THEM OF THE OWNERSHIP AND DISPOSITION OF OUR ADSs OR ORDINARY SHARES IN THEIR PARTICULAR CIRCUMSTANCES.
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Net income | $ | 62,276 | $ | 87,329 | $ | 96,659 | $ | 95,879 | $ | 95,969 | |||||||||
| Adjustments: | |||||||||||||||||||
Equity awards compensation expense (a) | 23,989 | 43,259 | 72,351 | 67,076 | 49,132 | ||||||||||||||
| Amortization of acquisition-related intangible assets | 6,342 | 4,131 | 17,731 | 15,821 | 27,906 | ||||||||||||||
| Acquisition-related costs | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Acquisition-related deferred price consideration | (1,894 | ) | 85 | — | — | — | |||||||||||||
| Restructuring costs | — | — | 7,356 | (53 | ) | 13,582 | |||||||||||||
| Tax impact of the above adjustments | (878 | ) | (948 | ) | (10,792 | ) | (11,723 | ) | (11,190 | ) | |||||||||
| Adjusted net income | $ | 89,835 | $ | 136,777 | $ | 183,311 | $ | 168,738 | $ | 175,399 | |||||||||
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Item 6. [Reserved]
| Year Ended December 31, | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Net income | $ | 62,276 | $ | 87,329 | $ | 96,659 | $ | 95,879 | $ | 95,969 | |||||||||
| Adjustments: | |||||||||||||||||||
| Financial expense (income) net | 4,541 | 546 | 9,534 | 5,084 | 5,749 | ||||||||||||||
| Provision for income taxes | 9,517 | 33,129 | 31,651 | 46,144 | 39,496 | ||||||||||||||
Equity awards compensation expense (a) | 23,989 | 43,259 | 72,351 | 67,076 | 49,132 | ||||||||||||||
| Pension service costs | 441 | 524 | 1,231 | 1,691 | 1,556 | ||||||||||||||
| Depreciation and amortization expense | 44,565 | 56,779 | 90,796 | 103,500 | 93,488 | ||||||||||||||
| Acquisition-related costs | — | 2,921 | 6 | 1,738 | — | ||||||||||||||
| Acquisition-related deferred price consideration | (1,894 | ) | 85 | — | — | — | |||||||||||||
| Restructuring costs | — | — | 7,356 | (53 | ) | 13,582 | |||||||||||||
| Total net adjustments | 81,159 | 137,243 | 212,925 | 225,180 | 203,003 | ||||||||||||||
| Adjusted EBITDA | $ | 143,435 | $ | 224,572 | $ | 309,584 | $ | 321,059 | $ | 298,972 | |||||||||
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K.
Overview
We are a global technology company poweringdriving superior commerce outcomes for marketers withand media owners through the world’s leading Commerce Media Platform. We operate in commerce media, the future of digital advertising, leveraging commerce data and artificial intelligence ("AI") to connect ecommerce, digital marketing and media monetization to reach consumers throughout their shopping journey. Our vision is to 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. We strivehave accelerated and deeply transformed the Company from a single-product to deliver measurablea multi-solution platform provider, fast diversifying our business resultsinto new solutions.
We enable brands', retailers' and media owners’ growth by providing best-in-class marketing and monetization services and infrastructure on the open Internet, driving approximately $40 billion of commerce outcomes for our customers – in the form of product sales for retailers, brands and marketers and advertising revenues for media owners. We differentiate ourselves by delivering high-performing commerce audiences at scale and we deliver this value by activating commerce data in a privacy-by-design way through proprietary AI technology to reach and engage consumers in real time with highly relevant digital advertisements ("ads") across multiple marketing goals for retailers and brands, through our self-service Criteo Platform. Using shopping data, artificial intelligence ("AI") technology and extensiveall stages of the consumer reach, we help marketers drive Awareness, Consideration and Conversion for their products and services1, and help retailers generate advertising revenues from consumer brands.journey. Our data is pooled among our clients and offers deep insights into consumer intent and purchasing habits. To drive trusted and impactful advertising for marketers, we activate our data assets in a privacy-by-design way through proprietary AI technology to engage consumers in real time by designing, pricing and delivering highly relevant digital advertisements ("ads") across devices and environments. We price our offering on a range of pricing models and measure our value based on clear, well-defined performance metrics, making our impact on the business of our clients both transparent and easy to measure.
Our focus is on commerce media. Our clients include somemany of the largest and most sophisticated consumer brands, commerce companies and media owners in the world, along with world-class consumer brands.world. We partner with them to capture user activity on their websites and mobile applications ("apps"), which we define as digital properties, and optimizeleverage that data to deliver superior ad performance to help marketers, brands and agencies reach their campaign objectives. This includes powering the performanceretail media ecosystem as we enable brands to reach shoppers with relevant ads near the digital point of their ads basedsale on that activityretailer and other data. marketplace websites while enabling retailers to add a new revenue stream.
Demonstrating the depth and scale of our data, we collected data on $900 billionover $1 trillion in online sales transactions21 on our clients' digital properties in the year ended December 31, 2019.2021. Based on this data and other assets, we delivered 1.8 trillion targeted ads that generated over 11 billion clicks2 in the year ended December 31, 2019.2021. As of December 31, 2019,2021, we served more than 20,000close to 22,000 clients and, in each of the last three years, our average client retention rate, as measured on a quarterly basis, was approximately 90%.
We serve a wide range of clients and our revenue is not concentrated within any single client or group of clients. In 2017, 20182021, 2020 and 2019, our largest client represented 1.9%7.0, 3.5%, 2.0% and 2.8% of our revenue, respectively, and in 2017, 20182021, 2020 and 2019, our largest 10 clients represented 11.2%16.6%, 11.7%13.7% and 11.4% of our revenue in the aggregate, respectively. There is no group of customers under common control or customers that are affiliates of each other constituting an aggregate amount equal to 10% or more of our consolidated revenues, the loss of which would have a material adverse effect on the Company.
We operate in 10396 countries through a network of 29 offices located in Europe, Middle East, Africa (EMEA), the Americas and Asia-Pacific. As a result of our significant international operations, our revenue from outside of France, our home country, accounted for 93.6%93.2% of our revenue for year ended December 31, 2019.2021.
The Company's foreign currency risk exposure to the British pound, the Japanese yen, the Brazilian real and the U.SU.S. dollar against the euro (the euro still remains the Group'sCompany's functional currency) is described in Item 7 note B. Liquidity and Capital Resources to our Management's Discussion and Analysis included elsewhere in this Form 10-K.
1 Driving Awareness for a brand means exposing its brand name to consumers who have not been in touch with the brand before, thereby creating brand awareness from such consumers. Driving Consideration for an advertiser's products or services means attracting prospective new consumers to consider engaging with and/or buying this advertiser's products or services. Driving Conversion for an advertisers' products or services means triggering a purchase by consumers who have already engaged with this advertisers products or services in the past.
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Our financial results include:
•Revenue of $2,296.7$2,254.2 million, $2,300.3$2,072.6 million and 2,261.5$2,261.5 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively;
•Contribution ex-TAC, which is a non-U.S. GAAP financial measure, of $941.1$920.8 million, $966.0$825.0 million and $946.6 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively;
•Net Income of $96.7$137.6 million, $95.9$74.7 million and $96.0 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively; and
•Adjusted EBITDA, which is a non-U.S. GAAP financial measure, of $309.6$322.5 million, $321.1$251.0 million and $299.0 million for the years ended December 31, 2017, 20182021, 2020 and 2019, respectively.
Please see footnotes 3, 4note that reconciliations of Gross Profit to Contribution ex-TAC and 5 to the Other Financial and Operating Data table in “Item 6. Selected Financial Data” in this Form 10-K for a reconciliation of Revenue to Revenue ex-TAC, Net Income to Adjusted EBITDA and Net Income to Adjusted Net Income respectively,- in each case the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles generally accepted in the United States or "U.S. GAAP".GAAP," are presented below.
We are focused on maximizing RevenueContribution ex-TAC. We believe this focus builds sustainable long-term value for our business and fortifies a number of our competitive strengths, including a highly liquid marketplace for digital advertising inventory. As part of this focus, we seek to maximize our percentage of overall marketing spend in the digital advertising market over the long-term. In addition, this focus enriches liquidity for both advertisers and publishers resulting in more effective advertising for clients, better monetization for publishers and more relevant advertisements for consumers. We believe our results of operations reflect this focus.
Acquisitions
On October 29, 2018,May 18, 2021, we acquired Manage,completed the acquisition of all of the outstanding shares of Doobe In Site Ltd. ("Mabaya"), a Silicon Valley-based company with an attractive app install advertising solution.
In December 2021, we executed a purchase agreement to monetize native placements on their ecommerce sites.
60 A.Operating Results. |
Basis of Presentation
The key elements of our results of operations include:
Revenue
We sell personalized display advertisements featuring product-level recommendations either directly to clients or to advertising agencies. Historically, the Criteo model has focused solely on converting our clients' website visitors into customers, enabling us to charge our clients only when users engage with an ad we deliver, usually by clicking on it. More recently, we have expanded our solutions to address a broader range of marketing goals for our clients.
We offer two families of solutions to our commerce and brand clients:
•Criteo Marketing Solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments. •Criteo Retail Media solutions allow 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. We also have multiple |
Cost of Revenue
Our cost of revenue primarily includes traffic acquisition costs and other cost of revenue.
Traffic Acquisition Costs. Traffic acquisition costs consist primarily of purchases of impressions from publishers on a CPM basis. We purchase impressions directly from publishers or third-party intermediaries, such as advertisement exchanges. We recognize cost of revenue on a publisher by publisher basis as incurred. Costs owed to publishers but not yet paid are recorded in our Consolidated Statements of Financial Position as trade payables.
For some solutions within Criteo Retail Media, we pay for the inventory of our retailer partners on a revenue sharing basis, effectively paying the retailers a portion of the click-based revenue generated by user clicks on the sponsored products advertisements or impressions on the commerce display advertisements displaying the products of our consumer brand clients.
For a discussion of the trends we expect to see in traffic acquisition costs, see the section entitled " - Highlights and Trends - RevenueContribution ex-TAC" in Item 7.D - Trend Information below.
Other Cost of Revenue. Other cost of revenue includes expenses related to third-party hosting fees, depreciation of data center equipment, and the cost of data purchased from third parties.parties and digital taxes. The Company does not build or operate its own data centers and none of its Research and Development employments are dedicated to revenue generating activities. As a result, we do not include the costs of such personnel in other cost of revenue.
Operating Expenses
Operating expenses consist of research and development, sales and operations, and general and administrative expenses. Salaries, bonuses, equity awards compensation, pension benefits and other personnel-related costs are the most significant components of each of these expense categories. We grewThe number of employees increased from 2,5032,755 employees at January 1, 20172020 to 2,7552,781 employees at December 31, 2019.2021.
We include equity awards compensation expense in connection with grants of share options, warrants, and restricted share units ("RSUs") in the applicable operating expense category based on the respective equity award recipient’s function (Research and development, Sales and operations, General and administrative).
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Research and Development Expense. Research and development expense consists primarily of personnel-related costs for our employees working in the engine, platform, site reliability engineering, scalability, infrastructure, engineering program management, product, analytics and other teams, including salaries, bonuses, equity awards compensation and other personnel related costs. Our research and development function was supplemented in January 2013 to include a dedicated product organization following the appointment of a Chief Product Officer. Also included are non-personnel costs such as subcontracting, consulting and professional fees to third-party development resources, allocated overhead, including internal IT and depreciation and amortization costs. These expenses are partially offset by the French research tax credit that is conditional upon the level of our expenditures in research and development.
The number of employees in research and development functions grewincreased from 603681 at January 1, 20172020 to 681682 at December 31, 2019. On October 7, 2019, in connection with the new organization structure, the Company announced a plan to restructure its R&D activities with the closing of its R&D operations in Palo Alto, and we expect our headcount to be slightly reduced upon completion of this restructuring. We expect research and development expenses to slightly decrease as a percentage of our revenue. 2021.
We believe our continued investment in research and development to be critical to maintaining and improving our technology within the Criteo Commerce Media Platform, our quality of service and our competitive position.
Sales and Operations Expense. Sales and operations expense consists primarily of personnel-related costs for our employees working in our sales, account strategy, sales operations, publisher business development, analytics, marketing, technical solutions, creative services and other teams, including salaries, bonuses, equity awards compensation, and other personnel-related costs. Additional expenses in this category include travel and entertainment, marketing and promotional events, marketing activities, provisions for doubtful accounts, subcontracting, consulting and professional fees paid to third parties, allocated overhead, including internal IT, and depreciation and amortization costs. The number of employees in sales and operations functions declinedincreased from 1,4891,578 at January 1, 20172020 to 1,5781,596 at December 31, 2019.2021. In order to expand our business, we expect to make targeted investments in our resources in some areas of our sales and operations. Yet, we expect sales and operations expenses to remain fairly flat as a percentage of revenue over time as weincreasewe increase the productivity of our sales and operations teams.
General and Administrative Expense. General and administrative expense consists primarily of personnel costs, including salaries, bonuses, equity awards compensation, pension benefits and other personnel-related costs for our administrative, legal, information technology, human resources, facilities and finance teams. Additional expenses included in this category include travel-related expenses, subcontracting and professional fees, audit fees, tax services and legal fees, as well as insurance and other corporate expenses, along with allocated overhead, including internal IT and depreciation and amortization costs. The number of employees in general and administrative functions grewincreased from 411496 at January 1, 20172020 to 496503 at December 31, 2019.2021. We expect our general and administrative expense to decrease as a percentage of revenue over time as we increase the productivity of our general and administrative teams.
Financial and Other Income (Expense)
Financial income (expense)and Other Income (Expense) primarily consists of:
•exchange differences arising on the settlement or translation into local currency of monetary balance sheet items labeled in euros (the Company's functional currency). We are exposed to changes in exchange rates primarily in the United States,U.S., the United Kingdom, Japan, Korea and Brazil. The U.S. dollar, the British pound, the Korean won, the Japanese yen and the Brazilian real are our most significant foreign currency exchange risks. At December 31, 2019,2021, our exposure to foreign currency risk was centralized at parent company level and hedged. These exchange differences in euro are then translated into U.S. dollars (the Company's reporting currency) according to the average euro/U.S. dollar exchange rate.
•interest received on our cash and cash equivalents and interest incurred on outstanding borrowings under our debt loan agreements and revolving credit facilities ("RCFs").
•Proceeds from sale of data center equipment to third-parties, made as part of Criteo's data center update program.
•Dividends received from an investment made in 2018.
We monitor foreign currency exposure and look to mitigate exposures through normal business operations and hedging strategies.
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Provision for Income Taxes
We are subject to potential income taxes in France, the United StatesU.S. and numerous other jurisdictions. We recognize tax liabilities based on estimates of whether additional taxes will be due. These tax liabilities are recognized when we believe that certain positions may not be fully sustained upon review by tax authorities, notwithstanding our belief that our tax return positions are supportable.
Our effective tax rates differ from the statutory rate applicable to us primarily due to valuation allowance on deferred tax assets, differences between domestic and foreign jurisdiction tax rates, Research Tax Credit offsets, which are non-taxable items, potential tax audit provision settlements, share-based compensation expenses that are non-deductible in some jurisdictions under certain circumstances, and transfer pricing adjustments. We license access to our technology to our subsidiaries and charge a royalty fee to these subsidiaries for such access. In France, we benefit from a reduced tax rate of 10% on a large portion of this technology royalty income.
these matters will not be materially different. No uncertain tax positions were identified as of December 31, 2019.2021.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of revenue, assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe estimates associated with (1) revenue recognition trade receivables, net ofcriteria (2) allowances for doubtful accounts,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 impactassociated 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 U.S.,valuation of goodwill, intangible assets and right of use assets - operating lease, and (7) assumptions used in the valuation model to determine the fair value of share-based compensation plan. The spread of COVID-19 and the various attempts to contain it have continued to create volatility, uncertainty and economic disruption to global society, economics, financial markets and business practices and increase the uncertainty associated with certain estimates, in particular those related to allowance for credit losses, assumptions used in the valuation of goodwill and intangible assets, internal-use software and equity awards compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider theseestimates relating to be our critical accounting policies and estimates.income taxes. See Note 1. Principles and Accounting Methods to our audited consolidated financial statements beginning on page F-1 for a description of our other significant accounting policies.
Revenue Recognition
We recognize revenues when we transfer control of promised services directly to our clients or to advertising agencies, which we collectively refer to as our clients, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those services.
For campaigns pricedrevenue generated from arrangements that involve third-party publishers, there is judgment in evaluating whether we are the principal, and report revenue on a cost-per-clickgross basis, or the agent, and cost-per-install basis, we bill our clients when a user clicks on an advertisement we deliver or installs an application by clicking on an advertisement we delivered, respectively. For these pricing models, we recognizereport revenue when a user clicks on an advertisement or installs an application.
Trade Receivables, Net of Allowances for Doubtful Accounts
We carry ourapply Accounting Standards Update No. 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 that an entity does not expect to collect over the asset's contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions.
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For accounts receivable measured at net realizable value. On a periodic basis, our management evaluates our accounts receivableamortized cost, we use aging analysis, and determines whetherprobability of default methods to provide an allowance or if any accounts should be written downevaluating and charged to expense as a bad debt. The evaluation is based on a past history of collections, currentestimating the expected credit conditions, the length of time the trade receivable is past due and a past history of write downs. A trade receivable is considered past due if we have not received payments based on agreed-upon terms. A higher default rate than estimated or a deterioration in our major clients’ creditworthiness could have an adverse impact on our future results. Allowances for doubtful accounts on trade receivables are recorded in “Sales and Operations” in our consolidated statements of income. We generally do not require any security or collateral to support our trade receivables. The amount of allowance for doubtful accounts charged to our consolidated statements of income for the years ended December 31, 2017, 2018 and 2019 was $13.3 million, $17.7 million and $11.1 million, respectively and represented 2.7%, 3.7% and 2.3% of our trade receivables, net of allowances, as of December 31, 2017, 2018, and 2019, respectively.losses.
Deferred Tax Assets
Deferred taxes are recorded on all temporary differences between the financial reporting and tax bases of assets and liabilities, and on tax losses, using the liability method. Differences are defined as temporary when they are expected to reverse within a foreseeable future. We may only recognize deferred tax assets if, based on the projected taxable incomes within the next three years, we determine that it is probable that future taxable profit will be available against which the unused tax losses and tax credits can be utilized. As a result, the measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. If future taxable profits are considerably different from those forecasted that support recording deferred tax assets, we will have to revise downwards or upwards the amount of the deferred tax assets, which could have a significant impact on our financial results.
This determination requires many estimates and judgments by our management for which the ultimate tax determination may be uncertain.
Uncertain Tax Positions
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. These uncertain tax positions include our estimates for transfer pricing that have been developed based upon analyses of appropriate arms-length prices. Similarly, our estimates related to uncertain tax positions concerning research tax credits are based on an assessment of whether our available documentation corroborating the nature of our activities supporting the tax credits will be sufficient. Although we believe that we have adequately reserved for ourassessed all potential uncertain tax positions, (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves
Goodwill
Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In the course of 2021, the Company has reassessed its operating and reportable segments in accordance with the income tax accounting guidance when factsASC 280 and circumstances change, suchnow reports its results of operations through two segments: Marketing Solutions and Retail Media. Goodwill has been allocated to these two segments using a relative fair value allocation approach.
The Company has selected December 31 as the closingdate to perform its annual impairment test. The test is performed at the reporting unit level, which we have determined to be Marketing Solutions and Retail Media. In the impairment assessment of a tax audit orits goodwill, the refinement ofCompany performs an estimate. To the extent that the final tax outcome of these matters is differentimpairment test, which involves assumptions regarding estimated future cash flows to be derived from the amounts recorded, such differences will affectreporting unit. The estimated future cash flows are used to derive the provision for income taxesfair value of the reporting unit, which is then compared to its net book value, including goodwill . If these estimates or their related assumptions change in the periodfuture, the Company may be required to record impairment for these assets. If the net book value exceeds its fair value, then the Company would be required to recognize an impairment loss. The impairment loss to be recognized would be calculated by comparing the fair value of the Company to its net book value, including goodwill. There is also significant judgement in which such determination is made, and could have a material impact on our financial condition andthe allocation of the net book value of the Company to each of its segments, as many of the assets are not directly attributable to the Company's operating results.segments.
Acquired intangible assets are accounted for at acquisition cost, less accumulated amortization and any impairment loss.amortization. Acquired intangible assets are composed of software, technology and customer relationships amortized on a straight-line basis over their estimated useful lives ofcomprised between one and three toyears for the software, and three and nine years, on a straight-line method.for the technology and customer relationships. Intangible assets are reviewed for impairment whenever events or changes in circumstances such as, but not limited to, significant declines in revenue, earnings or cash flows or material adverse changes in the financial and economic environmentbusiness climate indicate that the carrying amount of an asset may be impaired.
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Equity Awards Compensation
We account for share-based compensation in accordance with ASC 718 - Compensation - Stock Compensation. Under the fair value recognition provisions of this guidance, share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, over the requisite service period, which is generally the vesting period of the respective award.
Determining the fair value of share-based awards at the grant date requires judgment. The determination of the grant date fair value of RSUs is based on the share price on the grant date. We use the Black-Scholes option-pricing model to determine the fair value of share options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated ordinary share fair value as well as assumptions regarding a number of other complex and subjective variables.
These variables include the fair value of our ordinary shares, the exercise price of the option, the expected term of the options, our expected share price volatility, risk-free interest rates, and expected dividends, which are estimated as follows:
•Fair value of our ordinary shares. Following our initial public offering, we established a policy of using the closing sales price per ADS as quoted on Nasdaq on the date of grant for purposes of determining the fair value of ordinary shares. •Exercise price of the option. Following our initial public offering, we established a policy of using the closing sales price per ADS as quoted on Nasdaq on the date of grant for purposes of determining the exercise price with a floor value of 95% of the average of the closing sales price per ADS for the 20 trading days preceding the grant. •Expected term. The expected term represents the period that our share-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the ordinary share option awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award. •Expected volatility. Prior to our initial public offering, as we did not have a trading history for our ordinary shares, the expected share price volatility for our ordinary shares was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the ordinary share option grants. From the initial public offering, the expected share price volatility takes into account the Criteo closing share price from the initial public offering date to the grant date and closing share price of industry peers for the remaining expected term of the ordinary share option grant. •Risk-free rate. The risk-free interest rate is based on the yields of France Treasury securities with maturities similar to the expected term of the options for each option group. • |
Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero. |
If any of the assumptions used in the Black-Scholes model changes significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.
The following table presents the range of assumptions used to estimate the fair value of options granted during the periods presented:
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Volatility | —% | 39.2% - 39.9% | 39.2% - 41.2% | ||||||||||||||
| Risk-free interest rate | — | % | 0.00% - 0.25% | 0.00% - 0.10% | |||||||||||||
| Expected life (in years) | - | 6 years | 6 years | ||||||||||||||
| Dividend yield | —% | —% | — | % | |||||||||||||
| Year Ended December 31, | ||||||||
| 2017 | 2018 | 2019 | ||||||
| Volatility | 41.3% | 40.7% - 41.5% | 39.2% - 41.2% | |||||
| Risk-free interest rate | 0.00% | 0.60% - 0.90% | 0.00% - 0.10% | |||||
| Expected life (in years) | 6 years | 6 years | 6 years | |||||
| Dividend yield | — | % | — | % | — | % | ||
There were no grants of share options during the year ended December 31, 2021.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements applicable to us, see Note 1 to our audited consolidated financial statements beginning on page F-1.
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Results of Operations for the Years Ended December 31, 2017, 20182021, 2020 and 2019
Revenue breakdown by segment
Beginning in the fourth quarter of 2021, we report our segments results as Marketing Solutions and Retail Media:
•Criteo Marketing Solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
•Criteo Retail Media solutions allow 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.
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue as reported | $ | 2,254,235 | $ | 2,072,617 | $ | 2,261,516 | 9 | % | (8) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | (19,713) | 3,239 | 51,373 | ||||||||||||||||||||
Revenue at constant currency (1) | $ | 2,234,522 | $ | 2,075,856 | $ | 2,312,889 | 8 | % | (8) | % | |||||||||||||
| Marketing Solutions as reported | $ | 2,007,239 | $ | 1,806,431 | $ | 2,092,590 | 11 | % | (14) | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (16,511) | $ | 4,364 | $ | 49,668 | |||||||||||||||||
Marketing Solutions at constant currency (1) | $ | 1,990,728 | $ | 1,810,795 | $ | 2,142,258 | 10 | % | (13) | % | |||||||||||||
Retail Media as reported (2) | $ | 246,996 | $ | 266,186 | $ | 168,926 | (7) | % | 58 | % | |||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (3,202) | $ | (1,125) | $ | 1,705 | |||||||||||||||||
Retail Media at constant currency (1) | $ | 243,794 | $ | 265,061 | $ | 170,631 | (8) | % | 57 | % | |||||||||||||
(1) Information herein with respect to results presented on a constant currency basis is computed by applying prior period average exchange rates to current period results. We have included results on a constant currency basis because it is a key measure used by our management and board of directors to evaluate operating performance. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends. The table above reconciles the actual results presented in this section with the results presented on a constant currency basis.
(2) Criteo operates as two reportable segments from December 31, 2021. The table above presents the operating results of our Marketing Solutions and Retail Media segments. A strategic building block of Criteo’s Commerce Media Platform, the Retail Media Platform, introduced in June 2020, and reported under the retail media segment, 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 will increase. Contribution ex-TAC will not be impacted by this transition.
2021 Compared to 2020
Revenue in 2021 increased $181.6 million, or 9% (or 8% on a constant currency basis) to $2,254.2 million compared to 2020.
84% of the year-over-year increase in revenue was driven by the contribution from our existing clients, and 16% of the year-over-year increase was driven by the contribution from new clients. We added 285 net new clients year-over-year across regions.
The year-over-year increase in revenue on a constant currency basis was largely attributable to the increase in the average price charged to advertisers, and partially offset by the decreased number of impressions delivered by us.
Marketing Solutions revenue increased 11% (or 10% on a constant currency basis) to $2,007.2 million for 2021, reflecting increased spend from Retail clients, both on our retargeting, audience targeting and omnichannel solutions, partially offset by incremental identity and privacy changes, as expected.
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Retail Media revenue decreased (7)% (or (8)% on a constant currency basis) to $246.9 million for 2021, as the strong performance with large retailers across the U.S. and EMEA was more than offset by the technical and transitory impact related to the ongoing client migration to the RMP. Criteo's RMP accounts for a fast-growing share of Retail Media revenue, or about 50% for the year ended December 31, 2021, and its revenue is accounted for on a net basis. In 2020, less than 5% of Retail Media revenue was accounted for on a net basis, and as a result of this transition to a full RMP business, the growth of Retail Media revenue is temporarily impacted. Reflecting the underlying economic performance, Retail Media's Contribution ex-TAC increased 59% (or 58% on a constant currency basis) in the year ended December 31, 2021, driven by continued strength in Retail Media onsite, in particular in the U.S. market, and growing network effects of the RMP.
2020 compared to 2019
Revenue in 2020 decreased $(188.9) million, or (8)% (or (8)% on a constant currency basis) to $2,072.6 million compared to 2019.
The COVID-19 pandemic impacted our business during most of the year, with an estimated net negative impact on revenue of approximately $262 million for the twelve months ended December 31, 2020, or approximately 12 points of year-over-year growth, as some clients decided to temporarily pause or reduce their campaigns with us. The COVID-19 headwind impacted our large customers in our Marketing Solutions business, in particular in the Travel, Classifieds verticals and some large brick-and-mortar Retail clients. However, we believe that client spending from Retail clients in the midmarket and in our Retail Media solutions was supported by stronger ecommerce shopping trends emerging from the COVID-19 pandemic.
The year-over-year decrease in revenue on a constant currency basis is entirely attributable to the decrease in the average price charged to advertisers, partly driven by the evolution of our revenue mix over the period, and partially offset by the increased number of impressions delivered by us and the increased number of clicks delivered on the advertising banners displayed by us.
The year-over-year decrease in revenue was also driven by the lower contribution from our existing clients and some churning clients, both of which we largely attribute to the COVID-19 outbreak, offsetting the positive contribution from new clients. We added 1,213 net new clients year-over-year across regions.
Marketing Solutions revenue decreased (14)% (or (13)% on a constant currency basis) to $1,806.4 million for 2020, reflecting decreased spend from large clients, primarily as a result of the COVID-19 pandemic impact, which we consider as retail bankruptcies and softness with our Travel and Classifieds clients Retail clients, as well as incremental identity and privacy changes, as expected.
Retail Media revenue increased 58% (or 57% on a constant currency basis) to $266.2 million for 2020, reflecting the strong adoption by large retailers across the U.S. and EMEA.
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Revenue breakdown by region
Information in this Form 10-K with respect to results presented on a constant currency basis was calculated by applying prior period average exchange rates to current period results. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends. Below is a table which reconciles the actual results presented in this section with the results presented on a constant currency basis.
| Year Ended December 31, | % change | Year Ended December 31, | % change | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | 0.2 | % | (2 | )% | Revenue as reported | $ | 2,254,235 | $ | 2,072,617 | $ | 2,261,516 | 9 | % | (8) | % | |||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | $ | (4,809 | ) | (19,118 | ) | 51,373 | Conversion impact U.S. dollar/other currencies | $ | (19,713) | $ | 3,239 | 51,373 | ||||||||||||||||||||||||||||||||||
Revenue at constant currency (*) | 2,291,883 | 2,281,196 | 2,312,889 | (1 | )% | 1 | % | Revenue at constant currency (*) | $ | 2,234,522 | $ | 2,075,856 | $ | 2,312,889 | 8 | % | (8) | % | ||||||||||||||||||||||||||||
| Americas | Americas | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 990,424 | $ | 954,073 | $ | 952,154 | (4 | )% | (0.2 | )% | Revenue as reported | $ | 916,825 | $ | 894,854 | $ | 952,154 | 2 | % | (6) | % | |||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (6,812 | ) | 7,693 | 4,584 | Conversion impact U.S. dollar/other currencies | 1,380 | 12,770 | 4,584 | ||||||||||||||||||||||||||||||||||||||
Revenue at constant currency (*) | $ | 983,612 | $ | 961,766 | $ | 956,738 | (3 | )% | 0.3 | % | Revenue at constant currency (*) | $ | 918,205 | $ | 907,624 | $ | 956,738 | 3 | % | (5) | % | |||||||||||||||||||||||||
| EMEA | EMEA | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 808,961 | $ | 839,825 | $ | 806,197 | 4 | % | (4 | )% | Revenue as reported | $ | 844,312 | $ | 749,672 | $ | 806,197 | 13 | % | (7) | % | |||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (7,179 | ) | (21,553 | ) | 44,478 | Conversion impact U.S. dollar/other currencies | (24,324) | (4,528) | 44,478 | |||||||||||||||||||||||||||||||||||||
Revenue at constant currency (*) | $ | 801,782 | $ | 818,272 | $ | 850,675 | 1 | % | 1 | % | Revenue at constant currency (*) | $ | 819,988 | $ | 745,144 | $ | 850,675 | 9 | % | (8) | % | |||||||||||||||||||||||||
| Asia-Pacific | Asia-Pacific | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue as reported | $ | 497,307 | $ | 506,416 | $ | 503,165 | 2 | % | (1 | )% | Revenue as reported | $ | 493,098 | $ | 428,091 | $ | 503,165 | 15 | % | (15) | % | |||||||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 9,186 | (5,258 | ) | 2,311 | Conversion impact U.S. dollar/other currencies | 3,231 | (5,003) | 2,311 | ||||||||||||||||||||||||||||||||||||||
Revenue at constant currency (*) | $ | 506,493 | $ | 501,158 | $ | 505,476 | 1 | % | (0.2 | )% | Revenue at constant currency (*) | $ | 496,329 | $ | 423,088 | $ | 505,476 | 16 | % | (16) | % | |||||||||||||||||||||||||
(*) Revenue at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the average exchange rates for the prior year to the following year figures.
Our revenue in the Americas region decreased (0.2)%increased $22.0 million, or 2% (or increased 0.3%3% on a constant currency basis) to $952.2$916.8 million for 20192021 compared to 2018. Growth2020. This increase was driven by the accelerationcontinued positive retail trends, in particular with large customers across Marketing Solutions, and continued strong performance of our midmarket business driven by larger midmarket clients, as well as continued traction in our Criteo Retail Media, business inas the U.S., partlyRMP continues to scale with consumer brands and large retailers, partially offset by lower retargeting spend by large clients.
the impact of recognizing revenue on a net basis for clients transitioning to the RMP.
Our revenue in the EMEA region decreased (4)%increased $94.6 million, or 13% (or increased 1%9% on a constant currency basis) to $806.2$844.3 million for 20192021 compared to 2018.2020. This increase at constant currency was largely driven by accelerated growthpositive retail trends in our midmarket businessmain markets, in particular in Germany and by theemerging markets, positive traction ofwith large customers across our retargeting and new solutions, includingand continued strong performance of Retail Media partly offset by softer business with large customers.across the region.
Our revenue in the Asia-Pacific region decreased (1)%increased $65.0 million, or 15% (or (0.2)%16% on a constant currency basis) to $503.2$493.1 million for 20192021 compared to 2018. This slight decrease at constant currency2020. The increase was driven by a slow-down inthe recovery of our large customer businesscustomers in the region, in particular in Japan, as well as positive contributions from Retail clients in South-East Asia and Australia, despite strong growth across client categories in Korea and our growing midmarket business across the region.Asia.
Additionally, our $2,261.5$2,254 million of revenue for 20192021 was negativelypositively impacted by $(51.4)$(19.7) million of currency fluctuations, particularly as a result of the depreciation of the Turkish Lira, Russian Ruble, Japanese yen,Yen and the Brazilian real, partially offset by the appreciation of the Euro and the British pound the Korean won, the Brazilian real and the Euro,sterling, compared to the U.S. dollar.
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2020 Compared to 2017
Our revenue in the Americas region decreased (4)$(57.3) million, or (6)% (or (3)(5)% on a constant currency basis) to $954.1$894.9 million for 20182020 compared to 2017. While we saw continued strength2019. This decline was driven by an estimated revenue impact from COVID-19 of approximately $90 million, in particular with our largest existinglarge customers in the broader Classifieds vertical and some large brick-and-mortar Retail clients in the United States, execution was more difficult in the midmarket across the region and we experienced prolonged difficult market conditions in Latin America.
Our revenue in the EMEA region increased 4%decreased $(56.5) million, or (7)% (or 1%(8)% on a constant currency basis) to $839.8$749.7 million for 20182020 compared to 2017.2019. This was largely driven by solid growthdecrease at constant currency includes an estimated $96 million revenue impact from the COVID-19 pandemic, in Germany, Russia and Middle-East, as well as the traction from our broader solutions offering. External negative factors, including the implementation of the GDPR, as well as some short-term disturbance relatedpart due to the implementation of our new go-to-market model acrossfact that the EMEA region had a temporary negative impact on revenue growth.the highest exposure to the Travel vertical prior to the pandemic, which was most impacted by COVID-19.
Our revenue in the Asia-Pacific region increased 2%decreased $(75.1) million, or (15)% (or 1%(16)% on a constant currency basis) to $506.4$428.1 million for 20182020 compared to 2017. Overall,2019. The decrease at constant currency included an estimated $76 million revenue growthimpact from the COVID-19 pandemic, mostly in the Travel and Classifieds verticals, and was also driven by a stronger businessweak economic climate in Korea (particularlyJapan, our largest market in apps) and India and Japan (particularly with large clients).the region.
Additionally, our $2,300.3$2,073 million of revenue for 20182020 was positivelynegatively impacted by $19.1$ $3.2 million of currency fluctuations, particularly as a result of the strengtheningdepreciation of the Japanese yen,Turkish Lira, Russian Ruble, the British pound and the euroBrazilian real, partially offset by the depreciationappreciation of the Brazilian realJapanese Yen and the Turkish lira,Euro, compared to the U.S. dollar.
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Cost of Revenue
| Year Ended December 31, | % change | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||
| Traffic acquisition costs | $ | (1,333,440) | $ | (1,247,571) | $ | (1,314,947) | 7% | (5)% | |||||||||||||||||||||
| Other cost of revenue | (138,851) | (137,028) | (117,533) | 1% | 17% | ||||||||||||||||||||||||
| Total cost of revenue | $ | (1,472,291) | $ | (1,384,599) | $ | (1,432,480) | 6% | (3)% | |||||||||||||||||||||
| % of revenue | (65) | % | (67) | % | (63) | % | |||||||||||||||||||||||
| Gross profit % | 35 | % | 33 | % | 37 | % | |||||||||||||||||||||||
| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands, except percentages) | |||||||||||||||
| Traffic acquisition costs | $ | (1,355,556 | ) | $ | (1,334,334 | ) | $ | (1,314,947 | ) | (2)% | (1)% | ||||
| Other cost of revenue | (121,641 | ) | (131,744 | ) | (117,533 | ) | 8% | (11)% | |||||||
| Total cost of revenue | $ | (1,477,197 | ) | $ | (1,466,078 | ) | $ | (1,432,480 | ) | (1)% | (2)% | ||||
| % of revenue | (64 | )% | (64 | )% | (63 | )% | |||||||||
| Gross profit % | 36 | % | 36 | % | 37 | % | |||||||||
| Year Ended December 31, | % change | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||
| Marketing Solutions | $ | (1,211,087) | $ | (1,059,680) | $ | (1,197,483) | 14% | (12)% | |||||||||||||||||||||
Retail Media (1) | $ | (122,353) | $ | (187,891) | $ | (117,464) | (35)% | 60% | |||||||||||||||||||||
| Traffic Acquisition Costs | $ | (1,333,440) | $ | (1,247,571) | $ | (1,314,947) | 7% | (5)% | |||||||||||||||||||||
2021 Compared to 20182020
Cost of revenue for 2019 decreased $(33.6)2021 increased $87.7 million, or (2)6%, compared to 2020. This increase was primarily the result of a $85.9 million, or 7% increase in traffic acquisition costs (or 6% on a constant currency basis), and by a $1.8 million, or 1% (or 2% on a constant currency basis), increase in other cost of revenue.
The 14% increase in Marketing Solutions' traffic acquisition costs related primarily to the 6% increase (and 5% increase on a constant currency basis) in the average CPM for inventory purchased, reflecting the year-over-year recovery in the digital advertising market following the trough of the pandemic-related recession in the second quarter of 2020 and our preferred relationships with media owners, as well as the 8% increase in the number of impressions we purchased, reflecting our expanding relationships with existing and new publisher partners, in particular through direct connections, to support client demand for advertising campaigns.
Traffic acquisition costs in Retail Media decreased by 35% reflecting the technical and transitory impact related to the ongoing client migration due to the transitioning of our RMP. Because we recognize revenue on a net basis in all arrangements running on the RMP, we expect our Traffic acquisition costs for Retail Media to decrease over time as all of our clients are transitioned to the RMP.
The increase in other cost of revenue includes a $(5.2) million increase in allocated depreciation and amortization expense, $(3.0) million increase in other cost of sales mainly due to the digital tax, partially offset by $5.7 million in hosting costs and $0.8 million in data acquisition costs.
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2020 Compared to 2019
Cost of revenue for 2020 decreased $(47.9) million, or (3)%, compared to 2018.2019. This decrease was primarily the result of a $(19.4)$(67.4) million, or (1)(5)% decrease in traffic acquisition costs (or an increase of 1% on a constant currency basis), and a $(14.2) million, or (11)% (or (9)(5)% on a constant currency basis), decreasepartially offset by a $19.5 million, or 17%(or 18% on a constant currency basis), increase in other cost of revenue.
The increasedecrease in traffic acquisition costs on a constant currency basis related primarily to an increase of 9.2% in the total number of impressions we purchased, partly offset by a (9.8)(13)% decrease (or (7.8)(and (13)% decrease on a constant currency basis) in the average CPM for inventory purchased. The increase in the volume of purchased impressions reflects our expanding relationships with existing and new publisher partners to support the growth in our clientThis was partly driven by lower global demand for advertising campaigns. The year-over-year decreaseinventory, despite the increase in average CPMonline traffic globally caused by the lockdown imposed in COVID-19 affected areas, making the unit price of inventory relatively cheaper than in the pre-pandemic period. This was also driven by a combination of factors, including the effectiveness of our Criteo Direct Bidder, which allows us to buy quality inventory directly from large publishers and remove intermediary fees in the process, as well as of the growing share of in-app inventory in our business, which inventory cost tends to be slightly lower than that in the web browser environment.
The increase in other cost of revenue includes a $13.1$(11.1) million increase in the allocated depreciation and amortization expense, $(4.2) million in hosting costs, $(2.6) million in data acquisition and a $0.1$(1.6) million increase in other cost of sales partially offset by a $3.1 million decrease in hosting costs.sales.
We consider RevenueContribution ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing our RevenueContribution 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:
| Year Ended December 31, | |||||||||||||||||||||||
| Segment | 2021 | 2020 | 2019 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | Marketing Solutions | $ | 2,007,239 | $ | 1,806,431 | $ | 2,092,590 | ||||||||||||||||
| Retail Media | 246,996 | 266,186 | 168,926 | ||||||||||||||||||||
| Total | $ | 2,254,235 | $ | 2,072,617 | $ | 2,261,516 | |||||||||||||||||
Contribution ex-TAC(1) | Marketing Solutions | $ | 796,152 | $ | 746,751 | $ | 895,107 | ||||||||||||||||
| Retail Media | 124,643 | 78,295 | 51,462 | ||||||||||||||||||||
| Total | $ | 920,795 | $ | 825,046 | $ | 946,569 | |||||||||||||||||
(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 Revenue ex-TAC by region, includingreconciled to gross profit through the Americas (North and South America), Europe, Middle East and Africa, or EMEA, and Asia-Pacific:
| Year Ended December 31, | |||||||||||||
| Region | 2017 | 2018 | 2019 | ||||||||||
| (in thousands) | |||||||||||||
| Revenue | Americas | $ | 990,424 | $ | 954,073 | $ | 952,154 | ||||||
| EMEA | 808,961 | 839,825 | 806,197 | ||||||||||
| Asia-Pacific | 497,307 | 506,416 | 503,165 | ||||||||||
| Total | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | |||||||
| Traffic acquisition costs | Americas | $ | (619,393 | ) | $ | (579,597 | ) | $ | (579,175 | ) | |||
| EMEA | (450,297 | ) | (471,654 | ) | (453,530 | ) | |||||||
| Asia-Pacific | (285,866 | ) | (283,083 | ) | (282,242 | ) | |||||||
| Total | $ | (1,355,556 | ) | $ | (1,334,334 | ) | $ | (1,314,947 | ) | ||||
Revenue ex-TAC (1) | Americas | $ | 371,031 | $ | 374,476 | $ | 372,979 | ||||||
| EMEA | 358,664 | 368,171 | 352,667 | ||||||||||
| Asia-Pacific | 211,441 | 223,333 | 220,923 | ||||||||||
| Total | $ | 941,136 | $ | 965,980 | $ | 946,569 | |||||||
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Constant Currency Reconciliation
Information in this Form 10-K with respect to results presented on a constant currency basis was calculated by applying prior period average exchange rates to current period results. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends. Below is a table which reconciles the actual results presented in this section with the results presented on a constant currency basis:
| Year Ended December 31, | % change | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Revenue as reported | $ | 2,254,235 | $ | 2,072,617 | $ | 2,261,516 | 9% | (8)% | |||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (19,713) | 3,239 | 51,373 | ||||||||||||||||||||||||||
| Revenue at constant currency | $ | 2,234,522 | $ | 2,075,856 | $ | 2,312,889 | 8% | (8)% | |||||||||||||||||||||
| Gross profit as reported | $ | 781,944 | $ | 688,018 | $ | 829,036 | 14% | (17)% | |||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (7,822) | 467 | 20,686 | ||||||||||||||||||||||||||
| Gross profit at constant currency | $ | 774,122 | $ | 688,485 | $ | 849,722 | 13% | (17)% | |||||||||||||||||||||
| Traffic acquisition costs as reported | $ | (1,333,440) | $ | (1,247,571) | $ | (1,314,947) | 7% | (5)% | |||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | 12,263 | (1,605) | (28,831) | ||||||||||||||||||||||||||
| Traffic acquisition cost at constant currency | $ | (1,321,177) | $ | (1,249,176) | $ | (1,343,778) | 6% | (5)% | |||||||||||||||||||||
| Contribution ex-TAC as reported | $ | 920,795 | $ | 825,046 | $ | 946,569 | 12% | (13)% | |||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (7,450) | 1,634 | 22,542 | ||||||||||||||||||||||||||
| Contribution ex-TAC at constant currency | $ | 913,345 | $ | 826,680 | $ | 969,111 | 11% | (13)% | |||||||||||||||||||||
| Other cost of revenue as reported | $ | (138,851) | $ | (137,028) | $ | (117,533) | 1% | 17% | |||||||||||||||||||||
| Conversion impact U.S. dollar/other currencies | (372) | (1,167) | (1,856) | ||||||||||||||||||||||||||
| Other cost of revenue at constant currency | $ | (139,223) | $ | (138,195) | $ | (119,389) | 2% | 18% | |||||||||||||||||||||
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| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands) | |||||||||||||||
| Revenue as reported | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | 0.2% | (2)% | |||||||
| Conversion impact U.S. dollar/other currencies | (4,809 | ) | (19,118 | ) | 51,373 | ||||||||||
| Revenue at constant currency | $ | 2,291,883 | $ | 2,281,196 | $ | 2,312,889 | (1)% | 1% | |||||||
| Traffic acquisition costs as reported | $ | (1,355,556 | ) | $ | (1,334,334 | ) | $ | (1,314,947 | ) | (2)% | (1)% | ||||
| Conversion impact U.S. dollar/other currencies | 2,186 | 10,433 | (28,831 | ) | |||||||||||
| Traffic acquisition cost at constant currency | $ | (1,353,370 | ) | $ | (1,323,901 | ) | $ | (1,343,778 | ) | (2)% | 1% | ||||
| Revenue ex-TAC as reported | $ | 941,136 | $ | 965,980 | $ | 946,569 | 3% | (2)% | |||||||
| Conversion impact U.S. dollar/other currencies | (2,624 | ) | (8,686 | ) | 22,542 | ||||||||||
| Revenue ex-TAC at constant currency | $ | 938,512 | $ | 957,294 | $ | 969,111 | 2% | 0.3% | |||||||
| Other cost of revenue as reported | $ | (121,641 | ) | $ | (131,744 | ) | $ | (117,533 | ) | 8% | (11)% | ||||
| Conversion impact U.S. dollar/other currencies | (990 | ) | (114 | ) | (1,856 | ) | |||||||||
| Other cost of revenue at constant currency | $ | (122,631 | ) | $ | (131,858 | ) | $ | (119,389 | ) | 8% | (9)% | ||||
Research and Development Expenses
| Year Ended December 31, | % change | |||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | ||||||||||||||||||||||
| (in thousands, except percent of revenue) | ||||||||||||||||||||||||||
| Research and development expenses | $ | (151,817) | $ | (132,513) | $ | (172,591) | 15% | (23)% | ||||||||||||||||||
| % of revenue | (7) | % | (6) | % | (8) | % | ||||||||||||||||||||
| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||
| Research and development expenses | $ | (173,925 | ) | $ | (179,263 | ) | $ | (172,591 | ) | 3% | (4)% | ||||
| % of revenue | (8 | )% | (8 | )% | (8 | )% | |||||||||
Research and development expenses for 2019 decreased $(6.7)2021 increased $19.3 million, or (4)%15%, compared to 2018. This decrease mainly related to an increase in the French Research Tax Credit and a decrease of headcount-related costs due to a lower share-based compensation expense, partially offset by an increased amortization expense for Manage technology due to a revised useful life (see Note 8). On October 7, 2019, in connection with the new organization structure, the Company announced a plan to restructure its R&D activities with the closing of its R&D operations in Palo Alto. The company incurred net restructuring costs of $0.7 million (see Note 2).
| Year Ended December 31, | % change | |||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | ||||||||||||
| (in thousands, except percent of revenue) | ||||||||||||||||
| Sales and operations expenses | $ | (380,649 | ) | $ | (372,707 | ) | $ | (375,477 | ) | (2)% | 1% | |||||
| % of revenue | (17 | )% | (16 | )% | (17 | )% | ||||||||||
Sales and Operations Expenses
| Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | ||||||||||||||||||||||||||||
| (in thousands, except percent of revenue) | ||||||||||||||||||||||||||||||||
| Sales and operations expenses | $ | (325,616) | $ | (330,285) | $ | (375,477) | (1)% | (12)% | ||||||||||||||||||||||||
| % of revenue | (14) | % | (16) | % | (17) | % | ||||||||||||||||||||||||||
2021 Compared to 2020
Sales and operations expenses for 2021 decreased $(4.7) million, or (1)%, compared to 2020. This decrease was mainly driven by lower net bad debt expense, lower depreciation and amortization costs and operating taxeslower rent and facilities costs due to the right-sizing of our real estate footprint, partially offset by the reversal of a provision that was settled in Brazil2020 and Singaporethe negative impact of our increasing stock price on headcount-related expenses.
2020 Compared to 2019
Sales and operations expenses for 2020 decreased $(45.2) million, or (12)%, compared to 2019. This decrease mainly related to a reduction in headcount-related costs, a lower share-based compensation expense, the absence of Manage customer relationships amortization (as asset was fully impaired in 2019), discretionary spend measures on marketing and events, partially offset by an increase of bad debt expense.in the provision for credit losses.
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General and Administrative Expenses
| Year Ended December 31, | % change | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||||||||||||||||
| General and administrative expenses | $ | (152,634) | $ | (116,395) | $ | (139,754) | 31% | (17)% | |||||||||||||||||||||
| % of revenue | (7) | % | (6) | % | (6) | % | |||||||||||||||||||||||
| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||
| General and administrative expenses | $ | (127,077 | ) | $ | (135,159 | ) | $ | (139,754 | ) | 6% | 3% | ||||
| % of revenue | (6 | )% | (6 | )% | (6 | )% | |||||||||
General and administrative expenses for 2021 increased $36.2 million, or 31%, compared to 2020. This increase was mainly related to an increase in third-party services as part of our on-going transformation program and an increase in headcount related costs including the negative impact of our increasing stock price on compensation expense.
2020 Compared to 2019
General and administrative expenses for 2019 increased $4.62020 decreased $(23.4) million, or 3%(17)%, compared to 2018.2019. This increasedecrease was mostly driven by an increasea decrease in consultingheadcount-related costs, a lower share-based compensation expense and a decrease in rent and facilities costs, following the right-sizing of our real estate footprint, partially offset by transformation fees.
Financial and Other Income (Expense)
| Year Ended December 31, | % change | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||||||||||||||||
| Financial and Other Income (Expense) | $ | 1,939 | $ | (1,939) | $ | (5,749) | (200)% | (66)% | |||||||||||||||||||||
| % of revenue | 0.1 | % | (0.1) | % | (0.3) | % | |||||||||||||||||||||||
2021 Compared to 2020
Financial and Other Income for 2021 decreased by $(3.9) million, or (200)% compared to 2020. The $(1.9) million financial and other income for the period ended December 31, 2021 was mainly driven by the financial expense relating to our $350 million available Revolving Credit Facility (RCF), including up-front fees amortization and non-utilization costs, partially offset by income from cash and cash equivalent. Financial and Other income for process optimization projects and the period ended December 31, 2021 was supported by $3.0 million in proceeds from the disposal of the HookLogic travel businessservers and equipments and $2.4 million in Marchdividends received from a minority interest. At December 31, 20182021, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps, forward purchases or sales of foreign currencies.
| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||
| Financial expense | $ | (9,534 | ) | $ | (5,084 | ) | $ | (5,749 | ) | (47)% | 13% | ||||
| % of revenue | (0.4 | )% | (0.2 | )% | (0.3 | )% | |||||||||
2019 Compared to 2018
Financial expense for 2019 increased2020 decreased by $0.7$(3.8) million, or 13%(66)% compared to 2018.2019. The $5.7$1.9 million financial expense for the period ended December 31, 20192020 was mainly driven by the non-utilization costs and upfront fees amortization incurredfinancial expense relating to the €140 million drawing from May 2020 to November 2020 as part of our available RCFRevolving Credit Facility (RCF) financing, the up-front fees amortization, and the recognition of a negative impact of foreign exchange reevaluations net of related hedging.
non-utilization costs, partially offset by income from invested cash & cash equivalents. At December 31,2019,2020, 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.
non-utilization costs, partially offset by income from invested cash & cash equivalents. At December 31,
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Provision for Income Taxes
| Year Ended December 31, | % change | Year Ended December 31, | % change | |||||||||||||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||||||||||||
| (in thousands, except percent information) | (in thousands, except percent information) | |||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | (31,651 | ) | $ | (46,144 | ) | $ | (39,496 | ) | 46% | (14)% | Provision for income taxes | $ | (16,169) | $ | (32,197) | $ | (39,496) | (50)% | (18)% | ||||||||||||||||||||||||
| % of revenue | (1 | )% | (2 | )% | (2 | )% | % of revenue | (1) | % | (2) | % | (2) | % | |||||||||||||||||||||||||||||||
| Effective tax rate | 24.7 | % | 32.5 | % | 29.2 | % | Effective tax rate | 10.5 | % | 30.1 | % | 29.2 | % | |||||||||||||||||||||||||||||||
The provision for income taxes for 20192021 decreased by $(6.6)$(16.0) million, or 14%50%, compared to 2018.2020. The annual effective tax rate for 20192021 was 29.2%10.5%, compared to an annual effective tax rate of 32.5%30.1% for 2018. Generally, the2020. The annual effective tax rates differdiffers from the statutory rates primarily due to the impact of the domestic tax deduction applicable to technology royalty income we received from our subsidiaries, differences in tax rates in foreign jurisdictions, tax loss carryforwards in certain of our foreign subsidiaries, non-recognition of deferred tax assets related to tax losses and temporary differences, recognition of previously unrecognized tax losses and equity awards compensation expense.
In 2019,2021, our income before taxes decreasedincreased by $(6.6)$46.9 million to $135.5$153.8 million, compared to 2018,2020, generating a $46.6$43.7 million theoretical income tax expense at a nominal standard French tax rate of 34.43%28.40%. This theoretical tax expense is impacted primarilymainly by the following items contributing to a $39.5$16.2 million effective tax expense and a 29.2%10.5% effective tax rate: $13.4 million of net effect of share-based compensation, $2.7$1.7 million of deferred tax assets on which we recognized a valuation allowance, $16.0$6.6 million resulting from the BEAT waiver election issued by the United States Treasury and IRS in December 2019, $7.7expense, $6.5 million of permanent differences (mainly based on employee costs, depreciation expenses and intercompany transactions), $3.6$2.2 million related to the French business tax, Cotisation sur la Valeur Ajoutée des Entreprises, or “CVAE”, offset by a $15.9$25.7 million tax deduction resulting from technology royalty income we received from our subsidiaries, $10.9$4.8 million Research and Development tax credit, and the recognition or reversal of valuation allowance on deferred tax assets for $20.6of $10.4 million (mainly for Criteo Corp).and $1.4 million of net effect of share-based compensation. Please see Note 22 to our audited consolidated financial statements for more detailed information on the provision for income taxes.
Amounts recognized in our consolidated financial statementsConsolidated Financial Statements are calculated at the level of each subsidiary within our consolidated financial statements.Consolidated Financial Statements. As at December 31, 2021, 2020 and 2019, the valuation allowance against net deferred tax assetsincome taxes amounted to $36.4 million, $37.3 million and $25.3 million. Itmillion, which related mainly related to Criteo Corp. ($12.8 million)5.7 million, $13.3 million and $12.8 million, respectively), Criteo Brazil ($2.7 million, $2.8 million and $3.2 million, respectively), Criteo Ltd ($7.5 million)7.6 million, $7.4 million and $7.5 million, respectively), Criteo China ($3.3 million, $3.3 million and $3.3 million, respectively), Criteo Singapore ($4.2 million, $3.3 million and $2.8 million), Criteo BrazilPty ($3.22.7 million, $2.8 million and $2.6 million), and Criteo France ($7.7 million)6.2 million, $1.0 million and $(7.7) million, respectively).
The provision for income taxes for 2018 increased2020 decreased by $14.5$(7.3) million, or 46%18%, compared to 2017.2019. The annual effective tax rate for 20182020 was 32.5%30.1%, compared to an annual effective tax rate of 24.7%29.2% for 2017. Generally, the2019. The annual effective tax rates differdiffers from the statutory rates primarily due to the impact of the domestic tax deduction applicable to technology royalty income we received from our subsidiaries, differences in tax rates in foreign jurisdictions, tax loss carryforwards in certain of our foreign subsidiaries, non-recognition of deferred tax assets related to tax losses and temporary differences, recognition of previously unrecognized tax losses and equity awards compensation expense.
In 2018,2020, our income before taxes increaseddecreased by $13.7$28.6 million to $142.0$106.9 million, compared to 2017,2019, generating a $48.9$34.2 million theoretical income tax expense at a nominal standard French tax rate of 34.43%32.02%. This theoretical tax expense is impacted primarily by the following items contributing to a $46.1$32.2 million effective tax expense and a 32.5%30.1% effective tax rate: $17.7$11.6 million of net effect of share-based compensation, $11.7$6.0 million of deferred tax assets on which we recognized a valuation allowance, (mainly related to Criteo Ltd, Criteo Corp., Criteo Pty and Criteo do Brasil LTDA), $12.0$13.4 million of permanent differences (mainly based on employee costs, depreciation expenses and intercompany transactions), $3.8resulting from the BEAT waiver election, $3.5 million related to the French business tax, Cotisation sur la Valeur Ajoutée des Entreprises, or “CVAE”, offset by a $38.6$13.4 million tax deduction resulting from technology royalty income we received from our subsidiaries, $10.2$5.3 million Research and Development tax credit, and the recognition or reversal of valuation allowance on deferred tax assets for $4.5of $2.5 million and $9.0 million of permanent differences (mainly for Criteo Advertising (Beijing) Co. Ltd)based on employee costs, depreciation expenses and $1.8 million relating to other tax adjustments.intercompany transactions). Please see Note 2221 to our audited consolidated financial statements for more detailed information on the provision for income taxes.
75
Amounts recognized in our consolidated financial statementsConsolidated Financial Statements are calculated at the level of each subsidiary within our consolidated financial statements.Consolidated Financial Statements. As at December 31, 2020, 2019 and 2018, the valuation allowance against net deferred tax assetsincome taxes amounted to $37.3 million, $25.3 million and $43.2 million. Itmillion, which related mainly related to Criteo CorpCorp. ($18.6 million)13.3 million, $12.8 million and $18.6 million, respectively), Criteo do Brasil ($2.8 million, $3.2 million and $3.6 million, respectively), Criteo Ltd ($7.2 million)7.4 million, $7.5 million and $7.2 million, respectively), Criteo China ($3.5 million), Criteo Brazil ($3.6 million)3.3 million, $3.3 million and $3.5 million, respectively), Criteo Singapore ($2.93.3 million, $3.6 million and $2.9 million ), Criteo Pty ($2.8 million, $2.6 million and $2.5 million) and Criteo France ($3.9 million)1.0 million, $(7.7) million and $3.9 million, respectively).
Net Income
| Year Ended December 31, | % change | ||||||||||||||
| 2017 | 2018 | 2019 | 2017 vs 2018 | 2018 vs 2019 | |||||||||||
| (in thousands, except percent of revenue) | |||||||||||||||
| Net income | $ | 96,659 | $ | 95,879 | $ | 95,969 | (1)% | 0.1% | |||||||
| % of revenue | 4 | % | 4 | % | 4 | % | |||||||||
| Year Ended December 31, | % change | |||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | ||||||||||||||||||||||
| (in thousands, except percent of revenue) | ||||||||||||||||||||||||||
| Net income | $ | 137,647 | $ | 74,689 | $ | 95,969 | 84% | (22)% | ||||||||||||||||||
| % of revenue | 6 | % | 4 | % | 4 | % | ||||||||||||||||||||
2021 Compared to 20182020
Net income for 20192021 increased $0.1$63.0 million, or 0.1%84% compared to 2018.2020. This increase was the result of the factorsbusiness dynamics discussed above, in particular a $(5.9)$43.1 million decreaseincrease in income from operations, and a $(0.7)$3.9 million increase in financial expense offset byand other income and a $6.7$16.0 million decrease in the provision for income taxes compared to 2018.2020.
Net income for 20182020 decreased $(0.8)$(21.3) million, or (1)(22)% compared to 2017.2019. This decrease was the result of the factors discussed above, in particular a $9.3$(32.4) million increasedecrease in income from operations, and a $(4.5)$3.8 million decrease in financial expense offset byand a $14.5$7.3 million increasedecrease in the provision for income taxes compared to 2017.2019.
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Non-GAAP Financial Measure Reconciliation
Reconciliation of Contribution ex-TAC to Gross Profit
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 provide useful measures 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:
| Twelve Months Ended | |||||||||||||||||||||||
| December 31, | |||||||||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Gross Profit | 781,944 | 688,018 | 829,036 | ||||||||||||||||||||
| Other Cost of Revenue | 138,851 | 137,028 | 117,533 | ||||||||||||||||||||
| Contribution ex-TAC | $ | 920,795 | $ | 825,046 | $ | 946,569 | |||||||||||||||||
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Reconciliation of Adjusted EBITDA to Net Income
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, acquisition-related costs and restructuring related and transformation costs. 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 the elimination of equity awards compensation expense, pension service costs, and restructuring related and transformation costs in calculating 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.
| Twelve Months Ended | ||||||||||||||||||||
| December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net income | $ | 137,647 | $ | 74,689 | $ | 95,969 | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
| Financial (Income) expense | 1,044 | 1,939 | 5,749 | |||||||||||||||||
| Provision for income taxes | 16,169 | 32,197 | 39,496 | |||||||||||||||||
| Equity awards compensation expense | 44,955 | 31,425 | 49,132 | |||||||||||||||||
| Research and development | 16,334 | 10,253 | 15,036 | |||||||||||||||||
| Sales and operations | 13,023 | 12,042 | 19,301 | |||||||||||||||||
| General and administrative | 15,598 | 9,130 | 14,795 | |||||||||||||||||
| Pension service costs | 1,324 | 2,232 | 1,556 | |||||||||||||||||
| Research and development | 686 | 1,114 | 760 | |||||||||||||||||
| Sales and operations | 207 | 394 | 283 | |||||||||||||||||
| General and administrative | 431 | 724 | 513 | |||||||||||||||||
| Depreciation and amortization expense | 88,402 | 88,238 | 93,488 | |||||||||||||||||
| Cost of revenue (data center equipment) | 61,119 | 55,935 | 44,866 | |||||||||||||||||
| Research and development | 9,484 | 10,741 | 16,508 | |||||||||||||||||
| Sales and operations | 14,780 | 16,770 | 24,914 | |||||||||||||||||
| General and administrative | 3,019 | 4,792 | 7,200 | |||||||||||||||||
| Acquisition-related costs | 11,256 | 286 | — | |||||||||||||||||
| General and administrative | 11,256 | 286 | — | |||||||||||||||||
Restructuring related and transformation (gain) costs (1) | 21,698 | 19,989 | 13,582 | |||||||||||||||||
| Research and development | 5,751 | 4,240 | 2,000 | |||||||||||||||||
| Sales and operations | 9,380 | 9,398 | 8,810 | |||||||||||||||||
| General and administrative | 6,567 | 6,351 | 2,772 | |||||||||||||||||
| Total net adjustments | 184,848 | 176,306 | 203,003 | |||||||||||||||||
| Adjusted EBITDA | $ | 322,495 | $ | 250,995 | $ | 298,972 | ||||||||||||||
78
(1) For the Twelve Months Ended December 2021, 2020 and 2019, respectively, the Company recognized restructuring related and transformation costs following its new organizational structure implemented to support its Commerce Media Platform strategy:
| Twelve Months Ended | ||||||||||||||||||||
| December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| (Gain) from forfeitures of share-based compensation awards | (427) | (2,655) | (8,133) | |||||||||||||||||
| Depreciation and amortization expense | — | — | 1,161 | |||||||||||||||||
| Facilities related (gain) costs | 16,020 | 12,975 | 11,080 | |||||||||||||||||
| Payroll related (gain) costs | 4,480 | 5,911 | 9,474 | |||||||||||||||||
| Consulting costs related to transformation | 1,625 | 3,758 | — | |||||||||||||||||
| Total restructuring related and transformation (gain) costs | $ | 21,698 | $ | 19,989 | $ | 13,582 | ||||||||||||||
For the twelve months ended December 31, 2021 and December 31, 2020, respectively, the cash outflows related to restructuring related and transformation costs were $3.9 million and $16.9 million respectively, and were mainly comprised of payroll costs, broker and termination penalties related to real-estate facilities and other consulting fees.
79
Unaudited Quarterly Results of Operations
The following tables set forth our unaudited consolidated statement of income data for the last eight quarters, as well as the percentage of revenue for each line item shown. We derived this information from our unaudited interim consolidated financial information, which, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information for the quarters presented. The quarterly results of operations have been prepared by, and are the responsibility of, our management and have not been audited or reviewed by our independent registered public accounting firm. You should read this information together with our audited consolidated financial statements and related notes beginning on page F-1.
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Statements of Income Data: | Consolidated Statements of Income Data: | Consolidated Statements of Income Data: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 564,164 | $ | 537,185 | $ | 528,869 | $ | 670,096 | $ | 558,123 | $ | 528,147 | $ | 522,606 | $ | 652,640 | Revenue | $ | 653,267 | $ | 508,580 | $ | 551,311 | $ | 541,077 | $ | 661,282 | $ | 470,345 | $ | 437,614 | $ | 503,376 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue (1) | Cost of revenue (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Traffic acquisition costs | (323,746 | ) | (306,963 | ) | (305,387 | ) | (398,238 | ) | (322,429 | ) | (304,229 | ) | (301,901 | ) | (386,388 | ) | Traffic acquisition costs | (377,076) | (297,619) | (331,078) | (327,667) | (408,108) | (284,401) | (257,698) | (297,364) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other cost of revenue | (30,059 | ) | (29,957 | ) | (32,921 | ) | (38,807 | ) | (26,045 | ) | (29,059 | ) | (31,101 | ) | (31,328 | ) | Other cost of revenue | (31,840) | (34,935) | (37,364) | (34,712) | (34,700) | (34,608) | (33,914) | (33,806) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 210,359 | 200,265 | 190,561 | 233,051 | 209,649 | 194,859 | 189,604 | 234,924 | Gross profit | 244,351 | 176,026 | 182,869 | 178,698 | 218,474 | 151,336 | 146,002 | 172,206 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses (1): | Operating expenses (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | (45,318 | ) | (47,544 | ) | (41,796 | ) | (44,605 | ) | (46,577 | ) | (44,015 | ) | (41,414 | ) | (40,585 | ) | Research and development expenses | (44,860) | (33,345) | (41,915) | (31,697) | (32,797) | (30,954) | (31,247) | (37,515) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and operations expenses | (95,649 | ) | (92,726 | ) | (90,526 | ) | (93,806 | ) | (95,909 | ) | (95,503 | ) | (85,985 | ) | (98,080 | ) | Sales and operations expenses | (89,892) | (75,619) | (80,751) | (79,354) | (85,871) | (83,659) | (75,781) | (84,974) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (34,591 | ) | (35,644 | ) | (32,463 | ) | (32,461 | ) | (33,770 | ) | (35,767 | ) | (32,835 | ) | (37,382 | ) | General and administrative expenses | (43,855) | (34,877) | (40,474) | (33,428) | (32,623) | (28,672) | (29,185) | (25,915) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | (175,558 | ) | (175,914 | ) | (164,785 | ) | (170,872 | ) | (176,256 | ) | (175,285 | ) | (160,234 | ) | (176,047 | ) | Total operating expenses | (178,607) | (143,841) | (163,140) | (144,479) | (151,291) | (143,285) | (136,213) | (148,404) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 34,801 | 24,351 | 25,776 | 62,179 | 33,393 | 19,574 | 29,370 | 58,877 | Income from operations | 65,744 | 32,185 | 19,729 | 34,219 | 67,183 | 8,051 | 9,789 | 23,802 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial income (expense) | (1,325 | ) | (1,006 | ) | (1,007 | ) | (1,746 | ) | (1,974 | ) | (1,354 | ) | (900 | ) | (1,521 | ) | Financial and Other income (expense) | 3,330 | (154) | (519) | (718) | (111) | (491) | (1,003) | (334) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before taxes | 33,476 | 23,345 | 24,769 | 60,433 | 31,419 | 18,220 | 28,470 | 57,356 | Income before taxes | 69,074 | 32,031 | 19,210 | 33,501 | 67,072 | 7,560 | 8,786 | 23,468 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | (12,386 | ) | (8,638 | ) | (6,821 | ) | (18,299 | ) | (10,018 | ) | (5,683 | ) | (7,913 | ) | (15,882 | ) | Provision for income taxes | 5,864 | (7,801) | (4,181) | (10,051) | (20,254) | (2,267) | (2,636) | (7,040) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 21,090 | $ | 14,707 | $ | 17,948 | $ | 42,134 | $ | 21,401 | $ | 12,537 | $ | 20,557 | $ | 41,474 | Net income | $ | 74,938 | $ | 24,230 | $ | 15,029 | $ | 23,450 | $ | 46,818 | $ | 5,293 | $ | 6,150 | $ | 16,428 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income available to shareholders of Criteo S.A. | 19,809 | 13,726 | 17,143 | 37,966 | 19,120 | 10,823 | 18,778 | 42,024 | Net income available to shareholders of Criteo S.A. | 73,765 | 23,481 | 14,804 | 22,406 | 45,277 | 5,227 | 5,716 | 15,459 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Financial Data: | Other Financial Data: | Other Financial Data: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue ex-TAC (2) | $ | 240,418 | $ | 230,222 | $ | 223,482 | $ | 271,858 | $ | 235,694 | $ | 223,918 | $ | 220,705 | $ | 266,252 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution ex-TAC (2) | Contribution ex-TAC (2) | $ | 276,191 | $ | 210,961 | $ | 220,233 | $ | 213,410 | $ | 253,174 | $ | 185,944 | $ | 179,916 | $ | 206,012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA (3) | Adjusted EBITDA (3) | $ | 77,932 | $ | 68,774 | $ | 69,591 | $ | 104,762 | $ | 68,855 | $ | 56,399 | $ | 64,219 | $ | 109,499 | Adjusted EBITDA (3) | $ | 110,867 | $ | 68,430 | $ | 67,269 | $ | 79,929 | $ | 103,423 | $ | 49,471 | $ | 38,911 | $ | 59,190 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Cost of revenue and operating expenses include equity awards compensation expense, pension service costs, depreciation and amortization expense and acquisition-related costs and deferred price consideration as follows:
80
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity awards compensation expense | Equity awards compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | $ | 4,555 | $ | 6,771 | $ | 4,901 | $ | 5,005 | $ | 4,025 | $ | 4,203 | $ | 3,230 | $ | 3,578 | Research and development expenses | 4,762 | 4,858 | 4,218 | 2,496 | 2,482 | 3,333 | 2,068 | 2,370 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and operations expenses | 7,832 | 8,668 | 6,952 | 5,793 | 6,201 | 5,693 | 4,398 | 3,009 | Sales and operations expenses | 3,143 | 3,875 | 3,636 | 2,369 | 3,662 | 3,190 | 1,572 | 3,618 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 6,916 | 4,806 | 5,408 | (531 | ) | 3,656 | 4,495 | 4,142 | 2,502 | General and administrative expenses | 4,209 | 4,557 | 3,815 | 3,017 | 2,816 | 280 | 3,519 | 2,515 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total equity awards compensation expense (a) | $ | 19,303 | $ | 20,245 | $ | 17,261 | $ | 10,267 | $ | 13,882 | $ | 14,391 | $ | 11,770 | $ | 9,089 | Total equity awards compensation expense (a) | 12,114 | 13,290 | 11,669 | 7,882 | 8,960 | 6,803 | 7,159 | 8,503 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension service costs | Pension service costs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | $ | 220 | $ | 212 | $ | 208 | $ | 204 | $ | 193 | $ | 191 | $ | 188 | $ | 188 | Research and development expenses | 166 | 170 | 175 | 175 | 290 | 286 | 269 | 269 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and operations expenses | 79 | 75 | 83 | 88 | 72 | 71 | 71 | 69 | Sales and operations expenses | 49 | 52 | 53 | 53 | 103 | 101 | 95 | 95 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 135 | 132 | 128 | 127 | 129 | 129 | 129 | 126 | General and administrative expenses | 104 | 108 | 109 | 110 | 190 | 185 | 175 | 174 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total pension service costs | $ | 434 | $ | 419 | $ | 419 | $ | 419 | $ | 394 | $ | 391 | $ | 388 | $ | 383 | Total pension service costs | 319 | 330 | 337 | 338 | 583 | 572 | 539 | 538 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | Depreciation and amortization expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 15,249 | $ | 15,050 | $ | 16,571 | $ | 20,477 | $ | 9,135 | $ | 10,847 | $ | 12,193 | $ | 12,691 | Cost of revenue | 14,611 | 15,520 | 15,744 | 15,244 | 15,354 | 14,712 | 13,098 | 12,771 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and development expenses (b) | 2,221 | 2,245 | 2,724 | 3,412 | 3,477 | 3,534 | 4,249 | 5,248 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales and operations expenses (b) | 4,454 | 4,518 | 4,442 | 4,831 | 4,864 | 5,109 | 4,178 | 10,763 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | Research and development expenses | 2,967 | 2,557 | 2,207 | 1,753 | 1,712 | 1,721 | 1,658 | 5,650 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales and operations expenses | Sales and operations expenses | 3,579 | 3,545 | 3,702 | 3,954 | 4,033 | 4,176 | 4,221 | 4,340 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 1,722 | 1,747 | 1,882 | 1,955 | 1,820 | 1,825 | 1,768 | 1,787 | General and administrative expenses | 599 | 679 | 838 | 903 | 1,041 | 1,143 | 1,231 | 1,377 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total depreciation and amortization expense | $ | 23,646 | $ | 23,560 | $ | 25,619 | $ | 30,675 | $ | 19,296 | $ | 21,315 | $ | 22,388 | $ | 30,489 | Total depreciation and amortization expense | 21,756 | 22,301 | 22,491 | 21,854 | 22,140 | 21,752 | 20,208 | 24,138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related costs | Acquisition-related costs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | $ | — | $ | — | $ | 516 | $ | 1,222 | $ | — | $ | — | $ | — | $ | — | General and administrative expenses | 6,118 | 2,091 | 3,047 | — | 174 | 112 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total depreciation and amortization expense | $ | — | $ | — | $ | 516 | $ | 1,222 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total acquisition-related costs | Total acquisition-related costs | 6,118 | 2,091 | 3,047 | — | 174 | 112 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring related and transformation costs | Restructuring related and transformation costs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | (348 | ) | 16 | — | — | — | 124 | 172 | 1,704 | Research and development expenses | 513 | (1,029) | 4,831 | 1,436 | 747 | 1,985 | 513 | 995 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and operations expenses | 107 | 183 | — | — | 1,890 | 175 | 131 | 6,614 | Sales and operations expenses | 568 | (106) | 1,551 | 7,367 | 2,605 | 5,357 | 415 | 1,021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (11 | ) | — | — | — | — | 429 | — | 2,343 | General and administrative expenses | 752 | (632) | 3,614 | 2,833 | 1,031 | 4,839 | 288 | 193 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total restructuring (c) | $ | (252 | ) | $ | 199 | $ | — | $ | — | $ | 1,890 | $ | 728 | $ | 303 | $ | 10,661 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total restructuring related and transformation costs (b) | Total restructuring related and transformation costs (b) | $ | 1,833 | $ | (1,767) | $ | 9,996 | $ | 11,636 | $ | 4,383 | $ | 12,181 | $ | 1,216 | $ | 2,209 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) Excludes $0.7$0.2 million, $(0.5)$(2.7) million and $(4.8) million disclosed as restructuring costs as of December 31, 2017, 20182021, 2020 and 2019, respectively.
(b)For the Three Months Ended December 31, 2019, the Company recognized accelerated amortization for Manage technology due to a revised useful life ($2.2 million in Research and development) and an impairment loss for Manage customers relationships ($4.6 million in Sales and operations).
81
| Three Months Ended | |||||||||||
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (Gain) from forfeitures of share-based compensation awards | 239 | (2,655) | |||||||||
| Facilities and impairment related costs | 1,328 | 4,158 | |||||||||
| Payroll related costs | (157) | 1,422 | |||||||||
| Consulting costs related to transformation | 423 | 1,458 | |||||||||
| Total restructuring related and transformation costs | $ | 1,833 | $ | 4,383 | |||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||
| Reconciliation of Revenue ex-TAC to Revenue: | |||||||||||||||||||||||||||||||||
| Revenue | $ | 564,164 | $ | 537,185 | $ | 528,869 | $ | 670,096 | $ | 558,123 | $ | 528,147 | $ | 522,606 | $ | 652,640 | |||||||||||||||||
| Adjustment: | |||||||||||||||||||||||||||||||||
| Traffic acquisition costs | (323,746 | ) | (306,963 | ) | (305,387 | ) | (398,238 | ) | (322,429 | ) | (304,229 | ) | (301,901 | ) | (386,388 | ) | |||||||||||||||||
| Revenue ex-TAC | $ | 240,418 | $ | 230,222 | $ | 223,482 | $ | 271,858 | $ | 235,694 | $ | 223,918 | $ | 220,705 | $ | 266,252 | |||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||
| Reconciliation of Adjusted EBITDA to Net Income: | |||||||||||||||||||||||||||||||||
| Net Income | $ | 21,090 | $ | 14,707 | $ | 17,948 | $ | 42,134 | $ | 21,401 | $ | 12,537 | $ | 20,557 | $ | 41,474 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||
| Financial (income) expense | 1,325 | 1,006 | 1,007 | 1,746 | 1,974 | 1,354 | 900 | 1,521 | |||||||||||||||||||||||||
| Provision for income taxes | 12,386 | 8,638 | 6,821 | 18,299 | 10,018 | 5,683 | 7,913 | 15,882 | |||||||||||||||||||||||||
Equity awards compensation expense (a) | 19,303 | 20,245 | 17,261 | 10,267 | 13,882 | 14,391 | 11,770 | 9,089 | |||||||||||||||||||||||||
| Pension service costs | 434 | 419 | 419 | 419 | 394 | 391 | 388 | 383 | |||||||||||||||||||||||||
Depreciation and amortization expense (b) | 23,646 | 23,560 | 25,619 | 30,675 | 19,296 | 21,315 | 22,388 | 30,489 | |||||||||||||||||||||||||
| Acquisition-related costs | — | — | 516 | 1,222 | — | — | — | — | |||||||||||||||||||||||||
| Acquisition-related deferred price consideration | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Restructuring costs(c) | (252 | ) | 199 | — | — | 1,890 | 728 | 303 | 10,661 | ||||||||||||||||||||||||
| Total net adjustments | 56,841 | 54,067 | 51,643 | 62,628 | 47,454 | 43,862 | 43,662 | 68,025 | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 77,931 | $ | 68,774 | $ | 69,591 | $ | 104,762 | $ | 68,855 | $ | 56,399 | $ | 64,219 | $ | 109,499 | |||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 244,351 | 176,026 | 182,869 | 178,698 | 218,474 | 151,336 | 146,002 | 172,206 | ||||||||||||||||||||||||||||||||||||||||||
| Other Cost of Revenue | 31,840 | 34,935 | 37,364 | 34,712 | 34,700 | 34,608 | 33,914 | 33,806 | ||||||||||||||||||||||||||||||||||||||||||
| Contribution ex-TAC | $ | 276,191 | $ | 210,961 | $ | 220,233 | $ | 213,410 | $ | 253,174 | $ | 185,944 | $ | 179,916 | $ | 206,012 | ||||||||||||||||||||||||||||||||||
(3) We define Adjusted EBITDA as our consolidated earnings before financial income (expense), including dividends, income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring related and transformation costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. Below is a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Adjusted EBITDA to Net Income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | 74,938 | $ | 24,230 | $ | 15,029 | $ | 23,450 | $ | 46,818 | $ | 5,293 | $ | 6,150 | $ | 16,428 | |||||||||||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial (income) expense | (347) | 154 | 519 | 718 | 111 | 491 | 1,003 | 334 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | (5,864) | 7,801 | 4,181 | 10,051 | 20,254 | 2,267 | 2,636 | 7,040 | |||||||||||||||||||||||||||||||||||||||||||||
Equity awards compensation expense (a) | 12,114 | 13,290 | 11,669 | 7,882 | 8,960 | 6,803 | 7,159 | 8,503 | |||||||||||||||||||||||||||||||||||||||||||||
| Pension service costs | 319 | 330 | 337 | 338 | 583 | 572 | 539 | 538 | |||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 21,756 | 22,301 | 22,491 | 21,854 | 22,140 | 21,752 | 20,208 | 24,138 | |||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related costs | 6,118 | 2,091 | 3,047 | — | 174 | 112 | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Restructuring costs | 1,833 | (1,767) | 9,996 | 11,636 | 4,383 | 12,181 | 1,216 | 2,209 | |||||||||||||||||||||||||||||||||||||||||||||
| Total net adjustments | 35,929 | 44,200 | 52,240 | 52,479 | 56,605 | 44,178 | 32,761 | 42,762 | |||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 110,867 | $ | 68,430 | $ | 67,269 | $ | 75,929 | $ | 103,423 | $ | 49,471 | $ | 38,911 | $ | 59,190 | |||||||||||||||||||||||||||||||||||||
(a) Excludes $0.7$0.2 million, $(0.5)$(2.7) million and $(4.8) million disclosed as restructuring costs as of December 31, 2017, 20182021, 2020 and 2019, respectively.
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| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (as a percentage of revenue) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Operations Data: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Traffic acquisition costs | (57.7) | (58.5) | (60.1) | (60.6) | (61.7) | (60.5) | (58.9) | (59.1) | |||||||||||||||||||||||||||||||||||||||||||||
| Other cost of revenue | (4.9) | (6.9) | (6.8) | (6.4) | (5.2) | (7.4) | (7.7) | (6.7) | |||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 37.4 | 34.6 | 33.2 | 33.0 | 33.0 | 32.2 | 33.4 | 34.2 | |||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | (6.9) | (6.6) | (7.6) | (5.9) | (5.0) | (6.6) | (7.1) | (7.5) | |||||||||||||||||||||||||||||||||||||||||||||
| Sales and operations expenses | (13.8) | (14.9) | (14.6) | (14.7) | (13.0) | (17.8) | (17.3) | (16.9) | |||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (6.7) | (6.9) | (7.3) | (6.2) | (4.9) | (6.1) | (6.7) | (5.1) | |||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | (27.3) | (28.3) | (29.6) | (26.7) | (22.9) | (30.5) | (31.1) | (29.5) | |||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 10.1 | 6.3 | 3.6 | 6.3 | 10.2 | 1.7 | 2.2 | 4.7 | |||||||||||||||||||||||||||||||||||||||||||||
| Financial and Other income (expense) | 0.5 | — | (0.1) | (0.1) | — | (0.1) | (0.2) | (0.1) | |||||||||||||||||||||||||||||||||||||||||||||
| Income before taxes | 10.6 | 6.3 | 3.5 | 6.2 | 10.1 | 1.6 | 2.0 | 4.7 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 0.9 | (1.5) | (0.8) | (1.9) | (3.1) | (0.5) | (0.6) | (1.4) | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | 11.5 | % | 4.8 | % | 2.7 | % | 4.3 | % | 7.1 | % | 1.1 | % | 1.4 | % | 3.3 | % | |||||||||||||||||||||||||||||||||||||
| Net income available to shareholders of Criteo S.A. | 11.3 | % | 4.6 | % | 2.7 | % | 4.1 | % | 6.8 | % | 1.1 | % | 1.3 | % | 3.1 | % | |||||||||||||||||||||||||||||||||||||
| Other Financial Data: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contribution ex-TAC | 42.3 | % | 41.5 | % | 39.9 | % | 39.4 | % | 38.3 | % | 39.5 | % | 41.1 | % | 40.9 | % | |||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | 17.0 | % | 13.5 | % | 12.2 | % | 14.8 | % | 15.6 | % | 10.5 | % | 8.9 | % | 11.8 | % | |||||||||||||||||||||||||||||||||||||
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B. For the Three Months Ended December 31, 2019 the Company recognized restructuring charges for its new organizational structure implemented to support its multi-product platform strategy as detailed below:Liquidity and Capital Resources.
| Three Months Ended | |||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | ||||||||||||||||||
| (as a percentage of revenue) | |||||||||||||||||||||||||
| Statements of Operations Data: | |||||||||||||||||||||||||
| Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Cost of revenue | |||||||||||||||||||||||||
| Traffic acquisition costs | (57.4 | ) | (57.1 | ) | (57.7 | ) | (59.4 | ) | (57.8 | ) | (57.6 | ) | (57.8 | ) | (59.2 | ) | |||||||||
| Other cost of revenue | (5.3 | ) | (5.6 | ) | (6.2 | ) | (5.8 | ) | (4.7 | ) | (5.5 | ) | (6.0 | ) | (4.8 | ) | |||||||||
| Gross profit | 37.3 | 37.3 | 36.0 | 34.8 | 37.6 | 36.9 | 36.3 | 36.0 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Research and development expenses | (8.0 | ) | (8.9 | ) | (7.9 | ) | (6.7 | ) | (8.3 | ) | (8.3 | ) | (7.9 | ) | (6.2 | ) | |||||||||
| Sales and operations expenses | (17.0 | ) | (17.3 | ) | (17.1 | ) | (14.0 | ) | (17.2 | ) | (18.1 | ) | (16.5 | ) | (15.0 | ) | |||||||||
| General and administrative expenses | (6.1 | ) | (6.6 | ) | (6.1 | ) | (4.8 | ) | (6.1 | ) | (6.8 | ) | (6.3 | ) | (5.7 | ) | |||||||||
| Total operating expenses | (31.1 | ) | (32.7 | ) | (31.2 | ) | (25.5 | ) | (31.6 | ) | (33.2 | ) | (30.7 | ) | (27.0 | ) | |||||||||
| Income from operations | 6.2 | 4.5 | 4.9 | 9.3 | 6.0 | 3.7 | 5.6 | 9.0 | |||||||||||||||||
| Financial income (expense) | (0.2 | ) | (0.2 | ) | (0.2 | ) | (0.3 | ) | (0.4 | ) | (0.3 | ) | (0.2 | ) | (0.2 | ) | |||||||||
| Income before taxes | 5.9 | 4.3 | 4.7 | 9.0 | 5.6 | 3.4 | 5.4 | 8.8 | |||||||||||||||||
| Provision for income taxes | (2.2 | ) | (1.6 | ) | (1.3 | ) | (2.7 | ) | (1.8 | ) | (1.1 | ) | (1.5 | ) | (2.4 | ) | |||||||||
| Net income | 3.7 | % | 2.7 | % | 3.4 | % | 6.3 | % | 3.8 | % | 2.4 | % | 3.9 | % | 6.4 | % | |||||||||
| Net income available to shareholders of Criteo S.A. | 3.5 | % | 2.6 | % | 3.2 | % | 5.7 | % | 3.4 | % | 2.0 | % | 3.6 | % | 6.4 | % | |||||||||
| Other Financial Data: | |||||||||||||||||||||||||
| Revenue ex-TAC | 42.6 | % | 42.9 | % | 42.3 | % | 40.6 | % | 42.2 | % | 42.4 | % | 42.2 | % | 40.8 | % | |||||||||
| Adjusted EBITDA | 13.8 | % | 12.8 | % | 13.2 | % | 15.6 | % | 12.3 | % | 10.7 | % | 12.3 | % | 16.8 | % | |||||||||
Market Risk
We are mainly exposed to changes of foreign currency exchange rate fluctuations.
The functional currency of the Company is the euro, while our reporting currency is the U.S. dollar. Consequently, as a first step, sinceBecause we incur portionssome of our expenses and derive revenues in currencies other than the euro, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. Foreign exchange risk exposure also arises from intra-company transactions and financing with subsidiaries that have a functional currency different than the euro. The statements of financial position of consolidated entities having a functional currency different from the U.S. dollar are translated into U.S. dollars at the closing exchange rate (spot exchange rate at the statement of financial position date) and the statement of income, statement of comprehensive income and statement of cash flow of such consolidated entities are translated at the average period to date exchange rate. The resulting translation adjustments are included in equity under the caption “Accumulated Other Comprehensive Income” in the Consolidated Statement of Changes in Equity.
The $9.5$(1.9) million financial and other income for the period ended December 31, 2021 was mainly driven by the financial expense relating to our $350 million available Revolving Credit Facility (RCF), including up-front fees amortization and non-utilization costs, partially offset by income from cash and cash equivalent. Financial and Other income for the period ended December 31, 2021 was supported by other incomes being $3.0 million proceeds from disposal of servers equipments and $2.4 million dividends received from a minority interest.
The $1.9 million financial expense for the period ended December 31, 2017 resulted2020 was mainly driven by the financial expense relating to the €140 million drawdown from the interest incurred as a result of the $75.0 million drawn on the RCF entered into in September 2015 (as amended in March 2017) and the hedging cost relatedMay 2020 to an intra-group position between Criteo S.A. and its U.S. subsidiary, both in the context of the funding of the HookLogic acquisition in November 2016, as well as the non-utilization fees incurred2020 as part of our available RCF financing.
The $5.7 million financial expense for the period ended December 31, 2019 was mainly driven by the non-utilization costs and upfront fees amortization incurred as part of our available RCF financing and the recognition of a negative impact of foreign exchange reevaluations net of related hedging.
Since 2013, the Company has had a foreign currency risk management policy in place. At December 31, 2019,2021, our exposure to foreign currency risk was centralized at Criteo S.A. and hedged using foreign currency swaps or forward purchases or sales of foreign currencies.
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Foreign Currency Risk
A 10% increase or decrease of the British pound, the euro, the Japanese yen or the Brazilian real against the U.S. dollar would have impacted the Consolidated Statements of Income including non-controlling interests as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| GBP/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||||||
| Net income impact | $ | (351) | $ | 351 | $ | 116 | $ | (116) | $ | (386) | $ | 386 | |||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GBP/USD | +10% | -10% | +10% | -10% | +10% | -10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL/USD | BRL/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income impact | $ | (707 | ) | $ | 707 | $ | (785 | ) | $ | 785 | $ | (386 | ) | $ | 386 | Net income impact | $ | (38) | $ | 38 | $ | (41) | $ | 41 | $ | (71) | $ | 71 | ||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| JPY/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||||||
| Net income impact | $ | 619 | $ | (619) | $ | 614 | $ | (614) | $ | 1,019 | $ | (1,019) | |||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL/USD | +10% | -10% | +10% | -10% | +10% | -10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| EUR/USD | EUR/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income impact | $ | 1,236 | $ | (1,236 | ) | $ | (645 | ) | $ | 645 | $ | (71 | ) | $ | 71 | Net income impact | $ | 11,162 | $ | (11,162) | $ | 9,360 | $ | (9,360) | $ | 10,755 | $ | (10,755) | ||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||
| 2017 | 2018 | 2019 | |||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| JPY/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||
| Net income impact | $ | 970 | $ | (970 | ) | $ | 1,404 | $ | (1,404 | ) | $ | 1,019 | $ | (1,019 | ) | ||||||||
| Year Ended December 31, | |||||||||||||||||||||||
| 2017 | 2018 | 2019 | |||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| EUR/USD | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||
| Net income impact | $ | 13,047 | $ | (13,047 | ) | $ | 11,552 | $ | (11,552 | ) | $ | 10,755 | $ | (10,755 | ) | ||||||||
Counterparty Risk
As of December 31, 2019,2021, we show a positive net cash position. Since 2012, we utilize a cash pooling arrangement, reinforcing cash management centralization. Investment and financing decisions are carried out by our internal central treasury function. We only deal with counterparties with high credit ratings. In addition, under our Investment and Risk Management Policy, our central treasury function ensures a balanced distribution between counterparties of the investments, no matter the rating of such counterparty.
85
Liquidity Risk
We are mainly exposed to changes of foreign currency exchange rate fluctuations.
Working Capital
The following table summarizes our cash flows from operations, trade receivables, net of allowances and working capital for the periods indicated:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||
| 2018 | 2019 | 2021 | 2020 | |||||||||||
| Cash flows provided by operating activities | $260,726 | $222,832 | Cash flows provided by operating activities | $220,913 | $185,356 | |||||||||
| Trade receivables, net of allowances | $473,901 | $481,732 | Trade receivables, net of allowances | $581,988 | $474,055 | |||||||||
Working capital (current assets less current liabilities) | $328,507 | $390,122 | Working capital (current assets less current liabilities) | $591,620 | $464,219 | |||||||||
In addition, the cash flows were also negatively impacted by a $5.5$(36.9) million change 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 and money market funds that are currently providing only a minimal return.
Sources of Liquidity
Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations. 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. Since our inception, we raised a total of $51.1 million aggregate net proceeds from the sale of preferred shares through four private placements. In November 2013, we received aggregate net proceeds before expenses of $269.0 million from our initial public offering. In March 2014, we received aggregate net proceeds before expenses of $22.6 million from our secondary equity offering. We also benefited to a much lesser extent from the proceeds of the exercise of share options and warrants and expect to continue to do so in the future, as such securities are exercised by holders. In 2018, we completed an $80 million share repurchase program. InWe completed two ADS repurchase programs in 2020: our July 2019 the Board of Directors authorized a new share repurchase program of up to $80 million, which was completed in February 2020, and our April 2020 program of the Company's outstanding American Depositary Shares.up to $30 million, which was completed in July 2020. In December 2021, we completed a $100 million share repurchase program. Other than these repurchase programs, we intend to retailretain all available funds and any future earnings to fund our growth.
We are party to a loan agreement and several RCFs with third-party financial institutions. Our loan and RCF agreements as of December 31, 20192021 are presented in the table below:
| Nominal/ Authorized amounts (RCF Only) | Amount drawn as of December 31, 2021 (RCF only) | Amount Outstanding as of December 31, 2021 | |||||||||||||||||||||||||||
| Nature | (in thousands) | Interest rate | Settlement date | ||||||||||||||||||||||||||
Bank Syndicate RCF - September 2015 (1) | € | 350,000 | € | — | € | — | Floating rate: EURIBOR / LIBOR + margin depending on leverage ratio | March 2022 | |||||||||||||||||||||
(1) Subsequent to the settlement date of March 2022, the authorized amount of €350 million is expected to be reduced to €294 million through to a new settlement date of March 2023
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Nominal/ Authorized amounts (RCF Only) | Amount drawn as of December 31, 2019 (RCF only) | Amount Outstanding as of December 31, 2019 | |||||||||||||
| Nature | (in thousands) | Interest rate | Settlement date | ||||||||||||
| BPI Loan - February 2014 | NA | NA | $ | 1,011 | Fixed: 2.09% | May 2021 | |||||||||
| Other BPI Loans | NA | NA | $ | 901 | 0% | 2023 and after | |||||||||
| Other Loans | NA | NA | $ | 166 | 0% | 2024 | |||||||||
| Bank Syndicate RCF - September 2015 | € | 350,000 | € | — | € | — | Floating rate: EURIBOR / LIBOR + margin depending on leverage ratio | March 2022 | |||||||
For additional information regarding our loan and RCF agreements, please refer to Note 1213 - Financial Liabilities and Note 24 - Commitments.
This revolving credit facilities is unsecured and contain customary events of default but do not contain any affirmative, financial or negative covenants, with the exception of the September 2015 RCF which containsand covenants, including compliance with a total net debt to Adjustedadjusted EBITDA ratio and restrictions on the incurrence of additional indebtedness. At December 31, 2019,2021, we were in compliance with the required leverage ratio.
We are also party to short-term credit lines and overdraft facilities with HSBC Holdings plc, LCL and BNP Paribas. We are authorized to draw up to a maximum of €21.5 million ($24.224.4 million) in the aggregate under the short-term credit lines and overdraft facilities. As of December 31, 2019,2021, we had not drawn on either 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.
Our cash and cash equivalents are invested primarily in demand deposit accounts that are currently providing only a minimal return. Our cash and cash equivalents at December 31, 2021 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $515.5 million as of December 31, 2021. The $27.5 million increase in cash and cash equivalents compared with December 31, 2020 primarily resulted from an increase of $220.9 million in cash from operating activities partially offset by a decrease of $(76.4) million in cash used for investing activities and a decrease of $(80.1) million in cash used for financing activities. In addition, the increase in cash includes a $36.9 million negative impact due to changes in foreign exchange rates on our cash position over the period. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts that are currently providing only a minimal return.
Furthermore, Criteo had financial liquidity of approximately $1.068 million, including its cash position, marketable securities and its Revolving Credit Facility as of December 31, 2021. 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
In 2017, 20182021, 2020 and 2019, our actual capital expenditures were $108.5$53.0 million, $125.5$65.5 million and $97.9 million respectively, primarily related to the acquisition of data center and server equipment, and internal IT systems. We expect our capital expenditures to remain at, or slightly below, 3%4% of revenue for 2020,2022, as we plan to continue to build, reshape and maintain additional data center equipment capacity in all regions and increase our redundancy capacity to strengtheninvestments supporting our infrastructure.new work from home policy as part of our office right sizing program.
As part of our strategy to build upon our market and technology leadership, in 2016 we acquired all of the outstanding shares of HookLogic for a final purchase price of $249.0 million financed by (i) a $75.0 million amount drawn on the General RCF and (ii) a $175.1 million amount financed by the available cash resources, and in 2018 we acquired all of the outstanding shares of Storetail and Manage for $43.7 million and $60.0 million respectively, and in 2021 we acquired all of the outstanding shares of Doobe In Site Ltd. ("Mabaya"), all financed by the available cash resources.
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.
Our future working capital requirements will depend on many factors, including the rate of our revenue growth, the amount and timing of our investments in personnel and capital equipment, and the timing and extent of our introduction of new products and product enhancements.
If our cash and cash equivalents balances and cash flows from operating activities are insufficient to satisfy our liquidity requirements, we may need to raise additional funds through equity, equity-linked or debt financings to support our operations, and such financings may not be available to us on acceptable terms, or at all. We may also need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies, assets or products.
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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.
Historical Cash Flows
The following table sets forth our cash flows for 2017, 20182021, 2020 and 2019:2019 :
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||
| Cash flows provided by operating activities | $ | 245,458 | $ | 260,726 | $ | 222,832 | Cash flows provided by operating activities | $ | 220,913 | $ | 185,356 | $ | 222,832 | |||||||||||||||
| Cash used in investing activities | (106,253 | ) | (226,717 | ) | (103,888 | ) | Cash used in investing activities | (76,367) | (101,093) | (103,888) | ||||||||||||||||||
| Cash used for financing activities | $ | (29,468 | ) | $ | (62,676 | ) | $ | (59,111 | ) | Cash used for financing activities | $ | (80,117) | $ | (57,747) | $ | (59,111) | ||||||||||||
Our cash and cash equivalents at December 31, 20192021 were held for working capital and general corporate purposes, which could include acquisitions. The increase in cash and cash equivalents compared with December 31, 2018,2020, primarily resulted from $222.8an increase of $220.9 million in cash flows from operating activities partially offset by $(103.9)a decrease of $(76.4) million in cash flows used for investing activities and $(59.1)a decrease of $(80.1) million in cash flows used for financing activities.
Operating Activities
Cash provided by operating activities is primarily impacted by the increase in the number of clients using our solution and by the amount of cash we invest in personnel to support the anticipated growth of our business. Cash provided by operating activities has typically been generated from net income and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable and accounts payable and accrued expenses, adjusted for certain non-cash and non-operating expense items such as depreciation, amortization, equity awards compensation, deferred tax assets and income taxes.
In 2021, net cash flows provided by operating activities were $220.9 million and consisted of net income of $137.6 million, $124.9 million in adjustments for non-cash and non-operating items and $(41.6) million of cash flows from working capital. Adjustments for non-cash and non-operating items primarily consisted of depreciation and amortization expense of $90.9 million, equity awards compensation expense of $44.5 million, changes in deferred tax assets of $(18.6) million, $2.0 million generated on disposal of non-current assets, and by $6.0 million of accrued income taxes net of income tax paid.
The $(41.6) million decrease in cash resulting from changes in working capital primarily consisted of a $(2.6) million decrease due to changes in operating lease liabilities and right of use assets, a $(19.7) million increase in other current assets (including prepaid expenses and VAT receivables) and a $(135.0) million increase in accounts receivable partially offset by a $33.6 million increase in accrued expenses such as payroll and payroll related expenses and VAT payables and $82.7 million increase in accounts payable.
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In 2020, net cash flows provided by operating activities were $185.4 million and consisted of net income of $74.7 million, $154.6 million in adjustments for non-cash and non-operating items and $(44.0) million of cash flows from working capital. Adjustments for non-cash and non-operating items primarily consisted of depreciation and amortization expense of $106.6 million, equity awards compensation expense of $28.8 million, changes in deferred tax assets of $3.7 million, $2.7 million generated on disposal of non-current assets, $1.9 million from other non-operating items, and by $10.9 million of accrued income taxes net of income tax paid. The $(44.0) million decrease in cash resulting from changes in working capital primarily consisted of a $(33.3) million decrease in accounts payable, a $(5.8) million decrease due to changes in operating lease liabilities and right of use assets, a $(7.2) million increase in other current assets (including prepaid expenses and VAT receivables) and a $(4.0) million increase in accounts receivable partially offset by a $6.3 million increase in accrued expenses such as payroll and payroll related expenses and VAT payables.
In 2019, net cash flows provided by operating activities were $222.8 million and consisted of net income of $96.0 million, $126.3 million in adjustments for non-cash and non-operating items and $0.6 million of cash flows from working capital. Adjustments for non-cash and non-operating items primarily consisted of depreciation and amortization expense of $97.1 million, equity awards compensation expense of $41.0 million, $15.4 million of changes in deferred tax assets and $0.8 million of changes in other items, partially offset by $28.0 million of accrued income taxes net of income tax paid. The $0.6 million increase in cash resulting from changes in working capital primarily consisted of a $11.4 million increase in accrued expenses such as payroll and payroll related expenses and VAT payables, a $7.6 million decrease in other current assets (including prepaid expenses and VAT receivables) and a $0.9 million decrease in accounts receivable partially offset by a $14.1 million decrease in accounts payable and a $5.2 million decrease due to changes in operating lease liabilities and right of use assets.
Investing Activities
Our investing activities to date have consisted primarily of purchases of servers and other data-center equipment and business acquisitions.
In 2021, net cash flows used in investing activities were $76.4 million and consisted of $53.0 million for purchases of servers and other data-center equipment and capitalized software development costs, $10.4 million for business acquisitions and $12.9 million change in other non-current financial assets resulting from investments in Marketable Securities (see Note 4 ).
In 2020, net cash flows used in investing activities were $101.1 million and consisted of $65.5 million for purchases of servers and other data-center equipment, $1.2 million for business acquisitions and $34.4 million change in other non-current financial assets resulting from investments in Marketable Securities (see Note 2 and 3).
In 2019, net cash flows used in investing activities were $103.9 million and consisted of $97.9 million for purchases of servers and other data-center equipment, $4.6 million for business acquisitions and $1.2 million in other financial liabilities.
Financing Activities
In 2018,2021, net cash flows used in investingfinancing activities were $226.7was $80.1 million mainly resulting from the $25.2 million proceeds from stock-options exercises and consisted of $125.5the $100.0 million for purchases of property and equipment, and by $101.2 million related to the Storetail and Manage acquisitions and disposal of a business.impact from our share repurchase program.
In 2017,2020, net cash flows used in investingfinancing activities were $106.3was $57.7 million mainly resulting from the $10.9 million impact of the €140 million drawing from May 2020 to November 2020 as part of our available Revolving Credit Facility (RCF) and consisted of $108.5the $43.7 million for purchases of property and equipment, partially offset by $1.1 million related to change in acquisition price of HookLogic due to the working capital adjustment and $1.1 million of lease deposits refunds.
In 2019, net cash used in financing activities was $59.1 million resulting from $58.6 million relating to the share repurchase program, $1.2 million of changes in other financial liabilities and $1.0 million for the repayment of borrowings, partially offset by $1.7 million related to proceeds from capital increase.
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C.Research and $16.8 million of changes in other financial liabilities relating to the cash impact of the settlement of hedging derivatives, offset by $80.0 million relating to the share repurchase programDevelopment, Patents and by $1.0 million for the repayment of borrowings.
We invest substantial resources in research and development to enhance our solution and technology infrastructure, develop new features, conduct quality assurance testing and improve our core technology. Our engineering group is primarily located in research and development centers in Paris, Grenoble, France and Ann Arbor, Michigan. We expect to continue to expand the capabilities of our technology in the future and to invest significantly in continued research and development efforts. We had 681682 employees primarily engaged in research and development at December 31, 2019.2021. Research and development expense totaled $173.9$151.8 million, $179.3$132.5 million and $172.6 million for 2017, 20182021, 2020 and 2019, respectively.
D.Trend Information. |
Key Metrics
We review three key metrics to help us monitor the performance of our business and to identify trends affecting our business. These key metrics include number of clients, RevenueContribution ex-TAC, and Adjusted EBITDA. We believe these metrics are useful to understanding the underlying trends in our business. The following table summarizes our key metrics for 2017, 20182021, 2020 and 2019.
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (in thousands, except number of clients) | |||||||||||||||||
| Number of clients | 21,745 | 21,460 | 20,247 | ||||||||||||||
| Contribution ex-TAC | $ | 920,795 | $ | 825,046 | $ | 946,569 | |||||||||||
| Adjusted EBITDA | $ | 322,495 | $ | 250,995 | $ | 298,972 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2018 | 2019 | |||||||||
| (in thousands, except number of clients) | |||||||||||
| Number of clients | 18,118 | 19,419 | 20,247 | ||||||||
| Revenue ex-TAC | $ | 941,136 | $ | 965,980 | $ | 946,569 | |||||
| Adjusted EBITDA | $ | 309,584 | $ | 321,059 | $ | 298,972 | |||||
Number of Clients
We define a client to be a unique party from whom we have received a signed contract or an insertion order and for whom we have delivered an advertisement or monetized an advertising inventory during the previous 12 months. We believe this criteria best identifies clients who are actively usinguse our solution.set of solutions. We count specific brands or divisions within the same business as distinct clients so long as those entities have separately signed insertion orders with us. In the case of some solutions within Criteo Retail Media, we count the parent company of the brands as an individual client, even if several distinct brands pertaining to the same parent company have signed separate contracts or insertion orders with us. On the other hand, we count a client who runs campaigns in multiple geographies as a single client, even though multiple insertion orders may be involved. When the insertion order is with an advertising agency, we generally consider the client on whose behalf the advertising campaign is conducted as the “client” for purposes of this calculation. In the event a client has its advertising spend with us managed by multiple agencies, that client is counted as a single client.
We believe that our ability to increase the number of clients is an important indicator of our ability to grow revenue over time. While our client count has increased over time, this metric can also fluctuate from quarter to quarter due to the seasonal trends in advertising spend of clients and the timing and amount of revenue contribution from new clients. In addition, over time we have added an increasing number of midmarket clients that generate a lower revenue per client than large clients on average, and may continue to add a significant number of midmarket clients in the future. Therefore, there is not necessarily a direct correlation between a change in clients in a particular period and an increase or decrease in our revenue.revenue over that same period.
We consider RevenueContribution ex-TAC as a key measure of our business activity. Our traffic acquisition costs primarily consist of purchases of impressions from publishers on a CPM basis.
Our management views our RevenueContribution ex-TAC as a key measure to evaluate, plan and make decisions on our business activities and sales performance. In particular, we believe that the elimination of TAC from revenuethis can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that RevenueContribution 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. RevenueContribution ex-TAC is not a measure calculated in accordance with U.S. GAAP. Please see footnote 3 to the "Other Financial and Operating Data" table in "Item 6. Selected Financial Data" in this Form 10-Kabove for a discussion of the limitations of RevenueContribution ex-TAC and a reconciliation of RevenueContribution ex-TAC to revenue,gross profit, the most comparable U.S. GAAP measure, for 2015, 2016, 2017, 2018, 2019, 2020 and 2019.2021.
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Adjusted EBITDA
Adjusted EBITDA represents our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring related and transformation costs, and acquisition-related costs and deferred price consideration. Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of equity awards compensation expense, pension service costs, restructuring related and transformation costs, and acquisition-related costs and deferred price consideration in calculating 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. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. Please see footnote 5 to the "Other Financial and Operating Data" table in "Item 6. Selected Financial Data" in this Form 10-Kabove for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP measure, for 2015, 2016, 2017, 2018, 2019, 2020 and 2019.2021.
Highlights and Trends
Revenue
We believe the expansion of our business with existing clients as well as the addition of new clients have both been significant drivers of our historical growth. We believe significant opportunities exist for us to continue to expand our business going forward. Specifically, as part of our Commerce Media Platform strategy, we believe that we can further strengthen our core business, continue to expand our product portfolio, explore strategic game changeschangers for our business and drive further technology excellenceinnovation and innovationoperational excellence to further expand our business over time. However, due to external challenges and other factors, we may not be able to maintain our historical growth rates in the future.
We are focused on maximizing our RevenueContribution ex-TAC on an absolute basis. We believe this focus builds sustainable long-term value for our business by fortifying a number of our competitive strengths, including access to digital advertising inventory, breadth and depth of data and continuous improvement of the Criteo AI Engine’s performance, allowing us to deliver more relevant advertisements at scale. As part of this focus, we are continuing to invest in building preferred relationships with direct publishers, including with ecommerce retailers, and increasing access to leading advertising exchanges, which includes purchasing advertising inventory that may have lower margins on an individual impression basis, but generates incremental RevenueContribution ex-TAC. We believe this strategy maximizes the growth of our RevenueContribution ex-TAC on an absolute basis and strengthens our market position. As a result, in Marketing Solutions, we expect our traffic acquisition costs to continue to increase on an absolute basis as we continue to grow our revenue. However, our traffic acquisition costs might also increase as a percentage of revenue as we continue to invest in building liquidity and long-term value for clients and publishers over optimizing near-term gross margins, and as we grow our new solutions, some of which might involve a higher level of traffic acquisition costs as a percentage of revenue relative to our historical trends.
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Adjusted EBITDA
Our Adjusted EBITDA for 20192021 was $299.0$ 322.5 million, a (7)%28% decreaseincrease over 2018.2020. Our decreaseincrease in Adjusted EBITDA for 20192021 compared to 20182020 was primarily the result of the (2)%12% decreaseincrease in RevenueContribution ex-TAC over the period, slightlypartly offset by the decreasea 16% increase in our Non-GAAP operating expenses. InThis drove a 35% adjusted EBITDA margin in 2021. While this margin improvement was largely driven by operating leverage from revenue growth and productivity improvement, it also reflects several structural cost measures initiated in 2020, including in our hosting and facilities costs, as well as COVID-19-related savings related to the short-term,lack of marketing events and travel and entertainment during the pandemic. For 2022, we expect to continue to have a disciplined management of our expense base crossinvest in the company and to drive efficiency through more automation and operational excellence across all functions, in order to be in a position to reinvest a portion of savings driven by such efficiency gains into strategic growth areas of our business. We anticipatebusiness, such as Retail Media, our first-party media network, Contextual advertising, video, Connected TV and Commerce Insights to accelerate growth in 2023, driving a slight decrease in ourlower Adjusted EBITDA margin as a percentage of RevenueContribution ex-TAC in 2020.compared to 2021. Over time, we expect Adjusted EBITDA to increase slightly as a percentagecontinue to invest in the growth areas of our Revenue ex-TAC,business and to maintain a healthy profitability as we continue to deliver sustainable revenue growth and as we benefit from disciplined expenses managementoperating leverage and operating leverage.continued discipline in our expense management. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. Please see footnote 5 to the "Other Financial and Operating Data" table in "Item 6. Selected Financial Data" in this Form 10-Kabove for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP measure.
Number of Clients
Since our inception, we have significantly grown the number of clients with which we do business. Our base of clients increased to more than 20,000close to 22,000 at December 31, 2019,2021, a 4%1% increase over December 31, 2018.2020. This growth in our number of clients has been driven by a number of factors, including our global footprint and our commercial expansion in existing markets, our continued development of large clients in the retail, travel and classifieds industry verticals,Retail vertical, especially in ecommerce, our expansion of midmarket clients and our penetration into the consumer brand vertical through some of our Criteo Retail Media offerings. We believe that our ability to increase our number of clients is a leading indicator of our ability to grow revenue over time. We expect to continue to focus our attention and investment on further growing our client base across all regions, client categories and verticals. While we intend to grow our client base across all categories, we expect midmarket customers to continue to increase their contribution in the mix of our total revenue.verticals, with continued strong focus on ecommerce.
Client Retention
We believe our ability to retain and grow revenue from our existing clients is a useful indicator of the stability of our revenue base and the long-term value of our client relationships. Our offering, the Criteo Commerce Media Platform, is powered by AI technology and aims to cover the entire marketing funnel (Awareness, Consideration,Audience Targeting, Conversion). Our technology is optimized to drive impactful business resultsoutcomes from marketing and monetization for advertisers across multiple marketing goals.retailers and brands. We measure our client satisfaction through our ability to retain them and the revenue they generate quarter after quarter. We define client retention rate as the percentage of live clients during the previous quarter that continued to be live clients during the current quarter. This metric is calculated on a quarterly basis, and for annual periods, we use an average of the quarterly metrics. We define a live client as a client whose advertising campaign has or had been generating Revenue ex-TACrevenue for us on any day over the relevant measurement period. In each of 2017, 20182021, 2020 and 2019, our client retention rate was approximately 90%1. We define our revenue retention rate with respect to a given 12-month period as (1) revenue recognized during such period from clients that contributed to revenue recognized in the prior 12-month period divided by (2) total revenue recognized in such prior 12-month period. Our revenue retention rate was 115%, 101% and 94% for the years ended December 31, 2017, 2018 and 2019, respectively1.
Seasonality
Our client base consists primarily of businesses in the digital retail, travelRetail, Travel and classifiedsClassifieds industries, which we define as commerce clients. In the digital retailRetail industry and the consumer brand verticals in particular, many businesses devote the largest portion of their advertising spend to the fourth quarter of the calendar year, to coincide with increased holiday spending by consumers. With respect to Criteo Retail Media, the concentration of advertising spend in the fourth quarter of the calendar year is particularly pronounced. Our retail commerceRetail clients typically conduct fewer advertising campaigns in the first and second quarters than they do in other quarters, while our travelTravel clients typically increase their travel campaigns in the first and third quarters and conduct fewer advertising campaigns in the second quarter. As a result, our revenue tends to be seasonal in nature, but the impact of this seasonality has, to date, been partly offset by our significant growth and geographic expansion. If the seasonal fluctuations become more pronounced, our operating cash flows could fluctuate materially from period to period.
1 Excluding Criteo Retail Media.
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| Less than 1 year | 1 to 5 years | More than 5 years | Total | ||||||||||||
| (in thousands of U.S. Dollars) | |||||||||||||||
| Long-term debt | $ | 1,557 | $ | 638 | $ | 14 | $ | 2,209 | |||||||
| Other financial liabilities | 537 | 433 | — | 970 | |||||||||||
| Financial derivatives | 1,284 | — | — | 1,284 | |||||||||||
| Other purchase obligations | 7,435 | 346 | — | 7,781 | |||||||||||
| Total | $ | 10,813 | $ | 1,417 | $ | 14 | $ | 12,244 | |||||||
E.Safe Harbor. |
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and as defined in the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking Statements."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are mainly exposed to changes of foreign currency exchange rate fluctuations.
For a description of our foreign exchange risk and a sensitivity analysis of the impact of foreign currency exchange rates on our net income, please see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – B. Liquidity and Capital Resources" in this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is set forth on pages F-1 through F-65F-60 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in our independent registered public accounting firm, Deloitte & Associés, or disagreements with our accountants on matters of accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Criteo carried out an evaluation as of December 31, 2019,2021, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to reasonably assure that information required to be disclosed in our reports filed or furnished under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures are also designed to reasonably assure that this information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2019,2021, our disclosure controls and procedures were effective to provide reasonable assurance.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management assessed, with the oversight of our board of directors, the effectiveness of our internal control over financial reporting as of December 31, 2019.2021. In making this assessment, our management used the criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2019.2021. The effectiveness of the Company's internal control over financial reporting as of December 31, 20192021 has been audited by Deloitte & Associés, our independent registered public accounting firm, as stated in its attestation report, which appears on page F-3F-2 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the quarter ended December 31, 2019,2021, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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 decisions 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 not be detected.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item (other than the information set forth in the next paragraph in this Item 10) will be included in our definitive proxy statement with respect to our 20202022 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics (the "Code of Conduct") that is applicable to all of our employees, officers and directors, including our chief executive and senior financial officers. The Code of Conduct is available on our website at criteo.investorroom.com under "Governance." The Audit Committee of our board of directors is responsible for overseeing the Code of Conduct and our board of directors is required to approve any waivers of the Code of Conduct for employees, executive officers and directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements required to be disclosed under the rules of the SEC or Nasdaq will be disclosed on our website.
Item 11. Executive Compensation
The information called for by this item will be included in our definitive proxy statement with respect to our 20202022 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this item will be included in our definitive proxy statement with respect to our 20202022 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this item will be included in our definitive proxy statement with respect to our 20202022 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information called for by this item will be included in our definitive proxy statement with respect to our 20202022 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The financial statements listed in the accompanying Index to Consolidated Financial Statements on page F-1 are filed as part of this Form 10-K. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(b) Exhibits
| Incorporated by Reference | |||||||||||||||||||||||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | ||||||||||||||||||||||||
| 8-K | 001-36153 | 2.1 | October 4, 2016 | ||||||||||||||||||||||||||
| 8-K | 001-36153 | 2.1 | December 22, 2021 | ||||||||||||||||||||||||||
| 8-K | 001-36153 | 4.1 | December 29, 2021 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 4.3 | March 2, 2020 | ||||||||||||||||||||||||||
| F-1 | 333-191223 | 10.5 | October 2, 2013 | ||||||||||||||||||||||||||
| S-8 | 333-197373 | 99.1 | July 11, 2014 | ||||||||||||||||||||||||||
| S-8 | 333-258256 | 99.1 | July 29, 2021 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.7 | February 29, 2016 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.9 | March 1, 2017 | ||||||||||||||||||||||||||
| F-1 | 333-191223 | 10.8 | September 18, 2013 | ||||||||||||||||||||||||||
| F-1 | 333-191223 | 10.11 | September 18, 2013 | ||||||||||||||||||||||||||
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| Incorporated by Reference | |||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | ||||
| 8-K | 001-36153 | 2.1 | October 4, 2016 | ||||||
| F-1 | 333-191223 | 4.1 | October 2, 2013 | ||||||
| F-1 | 333-191223 | 10.1 | October 2, 2013 | ||||||
| F-1 | 333-191223 | 10.3 | October 23, 2013 | ||||||
| F-1 | 333-191223 | 10.5 | October 2, 2013 | ||||||
| F-1 | 333-191223 | 10.6 | October 2, 2013 | ||||||
| S-8 | 333-197373 | 99.1 | July 11, 2014 | ||||||
| S-8 | 333-232329 | 99.1 | June 25, 2019 | ||||||
| 10-K | 001-36153 | 10.7 | February 29, 2016 | ||||||
| 10-K | 001-36153 | 10.9 | March 1, 2017 | ||||||
| Incorporated by Reference | |||||||||||||||||||||||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | ||||||||||||||||||||||||
| S-8 | 333-258256 | 99.2 | July 29, 2021 | ||||||||||||||||||||||||||
| S-8 | 333-258256 | 99.3 | July 29, 2021 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.15 | February 29, 2016 | ||||||||||||||||||||||||||
| 8-K | 001-36153 | 10.1 | September 3, 2020 | ||||||||||||||||||||||||||
| 10-Q | 001-36153 | 10.1 | May 5, 2021 | ||||||||||||||||||||||||||
| 8-K | 001-36153 | 4.1 | March 30, 2017 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.22 | March 1, 2019 | ||||||||||||||||||||||||||
| 8-K | 001-36153 | 10.1 | October 30, 2019 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.18 | March 2, 2020 | ||||||||||||||||||||||||||
| 10-K | 001-36153 | 10.19 | March 2, 2020 | ||||||||||||||||||||||||||
99
| Incorporated by Reference | |||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | ||||
| F-1 | 333-191223 | 10.8 | September 18, 2013 | ||||||
| F-1 | 333-191223 | 10.11 | September 18, 2013 | ||||||
| S-8 | 333-232329 | 99.2 | June 25, 2019 | ||||||
| S-8 | 333-232329 | 99.3 | June 25, 2019 | ||||||
| 10-K | 001-36153 | 10.15 | February 29, 2016 | ||||||
| F-1 | 333-191223 | 10.12 | October 2, 2013 | ||||||
| 8-K | 001-36153 | 4.1 | March 30, 2017 | ||||||
| 10-K | 001-36153 | 10.22 | March 1, 2019 | ||||||
| 8-K | 001-36153 | 10.1 | October 30, 2019 | ||||||
| 8-K | 001-36153 | 10.1 | December 17, 2019 | ||||||
| 10-Q | 001-36153 | 10.1 | August 2, 2019 | ||||||
| Incorporated by Reference | |||||||||||||||||||||||||||||
| Exhibit | Description | Schedule/ Form | File Number | Exhibit | File Date | ||||||||||||||||||||||||
| The following financial statements from Criteo S.A.'s Annual Report on Form 10-K for the fiscal year ended December 31, | |||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | ||||||||||||||||||||||||||||
† Indicates management contract or compensatory plan.
# Filed herewith.
* Furnished herewith.
Item 16. Form 10-K Summary
Not applicable.
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. | ||||||||
| February 25, 2022 | ||||||||
| By: | /s/ Megan Clarken | |||||||
| Megan Clarken | ||||||||
| Chief Executive Officer | ||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated below.
100
| Signature | Title | Date | ||||||||||||
| /s/ Megan Clarken | Chief Executive Officer and Director (Principal Executive Officer) | |||||||||||||
| Megan Clarken | ||||||||||||||
| /s/ | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||||||||
| /s/ Nathalie Balla | Director | |||||||||||||
| Nathalie Balla | ||||||||||||||
| /s/ Marie Lalleman | Director | |||||||||||||
| Marie Lalleman | ||||||||||||||
| /s/ Edmond Mesrobian | Director | |||||||||||||
| Edmond Mesrobian | ||||||||||||||
| /s/ Hubert de Pesquidoux | Director | |||||||||||||
| Hubert de Pesquidoux | ||||||||||||||
| /s/ Rachel Picard | Director | |||||||||||||
| Rachel Picard | ||||||||||||||
| /s/ James Warner | Director | |||||||||||||
| James Warner | ||||||||||||||
Index to Consolidated Financial Statements
| Page | |||||
Reports of Deloitte & Associés, Independent Registered Public Accounting Firm(PCAOB ID No. 1756) | |||||
| Consolidated Statements of Financial Position as of December 31, | |||||
| Consolidated Statements of Income for the Years Ended December 31, | |||||
| Consolidated Statements of Comprehensive Income for the Years Ended December 31, | |||||
| Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, | |||||
| Consolidated Statements of Cash Flows for the Years Ended December 31, | |||||
| Notes to the Consolidated Financial Statements | |||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Criteo S.A.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Criteo S.A. and subsidiaries (the “Company”“Company”) as of December 31, 20192021 and 2018, and2020, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2019,2021, and the related notes (collectively referred to as the “financial statements”“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2020,February 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of this critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue -— Refer to Note 17Notes 1 and 26 to the financial statements
Critical Audit Matter Description
The Company’s revenue consists of selling personalized display advertisements featuring product-level recommendations either directly to clients or to advertising agencies. This is primarily achieved by converting the Company’s clients’ website visitors into customers, enabling the Company to charge its clients when users engage with an ad the Company delivers, either by clicking on it (cost-per-click basis), or through installing an application by clicking on an advertiserad that the Company delivers (cost-per-install and cost-per-impression basis),(cost-per-install). Because of the nature of the Company’s revenue, which is made up of a significant volume of low-dollar value transactions, sourced from multiple databases and other tools. Because of the nature of the Company’s transactions are based either on a cost-per-click or cost-per-install,tools, the Company uses highly automated systems to process and record its revenue transactions based on contractual terms with advertisers.transactions.
F-2
We identified revenue as a critical audit matter because the Company’s systems to process and record its revenue transactions are highly automated and thus required significantly more involvement and effort from our information technology (IT) internal specialist team to identify, test, and evaluate the Company’s system, software applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
With the assistance of our IT specialists, our audit procedures related to the Company’s system to process and record its revenue transactions included the following:
•Identified the significant applications and systems used to process revenue transactions and tested the general IT controls over each of these applications and systems, including testing of user access controls, change management controls, and IT operations controls.
•Performed testing of system interface controls and automated controls within the relevant revenue solutions, as well as the controls designed to address the occurrence, accuracy and completeness of revenue.
•Tested internal controls within the relevant revenue business process, including those in place to reconcile the various applications to the Company’s general ledger.
/s/ Deloitte & Associés
Paris-La Défense, France
We have served as the Company's auditor since 2011.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Criteo S.A.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Criteo S.A. and subsidiaries (the “Company”“Company”) as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 20192021 of the Company and our report dated March 2, 2020,February 25, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Associés
Paris-La Défense, France
F-4
Criteo S.A. and subsidiaries
Consolidated Statements of Financial Position
| Year Ended December 31, | ||||||||||||||||||||||||||
| Notes | 2018 | 2019 | Year Ended December 31, | |||||||||||||||||||||||
| (in thousands) | Notes | 2021 | 2020 | |||||||||||||||||||||||
| Assets | Assets | (in thousands) | ||||||||||||||||||||||||
| Current assets: | Current assets: | |||||||||||||||||||||||||
| Cash and cash equivalents | 4 | $ | 364,426 | $ | 418,763 | Cash and cash equivalents | 5 | $ | 515,527 | $ | 488,011 | |||||||||||||||
Trade receivables, net of allowances of $25.9 million and $16.1 million as of December 2018 and 2019, respectively. | 5 | 473,901 | 481,732 | |||||||||||||||||||||||
Trade receivables, net of allowances of $45.4 million and $39.9 million as of December 31, 2021 and December 31, 2020, respectively. | Trade receivables, net of allowances of $45.4 million and $39.9 million as of December 31, 2021 and December 31, 2020, respectively. | 6 | 581,988 | 474,055 | ||||||||||||||||||||||
| Income taxes | 19,370 | 21,817 | Income taxes | 8,784 | 11,092 | |||||||||||||||||||||
| Other taxes | 53,338 | 60,924 | Other taxes | 73,388 | 69,987 | |||||||||||||||||||||
| Other current assets | 6 | 22,816 | 17,225 | Other current assets | 7 | 34,182 | 21,405 | |||||||||||||||||||
| Marketable securities - current portion | Marketable securities - current portion | 50,299 | — | |||||||||||||||||||||||
| Total current assets | 933,851 | 1,000,461 | Total current assets | 1,264,168 | 1,064,550 | |||||||||||||||||||||
| Property, plant and equipment, net | 7 | 184,013 | 194,161 | Property, plant and equipment, net | 8 | 139,961 | 189,505 | |||||||||||||||||||
| Intangible assets, net | 8 | 112,036 | 86,886 | Intangible assets, net | 9 | 82,627 | 79,744 | |||||||||||||||||||
| Goodwill | 9 | 312,881 | 317,100 | Goodwill | 10 | 329,699 | 325,805 | |||||||||||||||||||
| Right of use asset - operating lease | 13 | — | 142,044 | Right of use asset - operating lease | 14 | 120,257 | 114,012 | |||||||||||||||||||
| Marketable securities - non current portion | Marketable securities - non current portion | 5,000 | 41,809 | |||||||||||||||||||||||
| Non-current financial assets | 10 | 20,460 | 21,747 | Non-current financial assets | 11 | 6,436 | 18,109 | |||||||||||||||||||
| Deferred tax assets | 22 | 33,894 | 27,985 | Deferred tax assets | 22 | 35,443 | 19,876 | |||||||||||||||||||
| Total non current assets | 663,284 | 789,923 | Total non current assets | 719,423 | 788,860 | |||||||||||||||||||||
| Total assets | $ | 1,597,135 | $ | 1,790,384 | Total assets | $ | 1,983,591 | $ | 1,853,410 | |||||||||||||||||
| Liabilities and shareholders' equity | Liabilities and shareholders' equity | |||||||||||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||||||||||
| Trade payables | $ | 425,376 | $ | 390,277 | Trade payables | $ | 430,245 | $ | 367,025 | |||||||||||||||||
| Contingencies | 11 | 2,640 | 6,385 | Contingencies | 12 | 3,059 | 2,250 | |||||||||||||||||||
| Income taxes | 7,725 | 3,422 | Income taxes | 6,641 | 2,626 | |||||||||||||||||||||
| Financial liabilities - current portion | 12 | 1,018 | 3,636 | Financial liabilities - current portion | 13 | 642 | 2,889 | |||||||||||||||||||
| Lease liability - operating - current portion | 13 | — | 45,853 | Lease liability - operating - current portion | 14 | 34,066 | 48,388 | |||||||||||||||||||
| Other taxes | 55,592 | 50,099 | Other taxes | 60,236 | 58,491 | |||||||||||||||||||||
| Employee-related payables | 65,878 | 74,781 | Employee-related payables | 98,136 | 85,272 | |||||||||||||||||||||
| Other current liabilities | 14 | 47,115 | 35,886 | Other current liabilities | 15 | 39,523 | 33,390 | |||||||||||||||||||
| Total current liabilities | 605,344 | 610,339 | Total current liabilities | 672,548 | 600,331 | |||||||||||||||||||||
| Deferred tax liabilities | 22 | 10,770 | 9,272 | Deferred tax liabilities | 22 | 3,053 | 5,297 | |||||||||||||||||||
| Retirement benefit obligation | 15 | 5,537 | 8,485 | Retirement benefit obligation | 16 | 5,531 | 6,167 | |||||||||||||||||||
| Financial liabilities - non current portion | 12 | 2,490 | 769 | Financial liabilities - non current portion | 13 | 360 | 386 | |||||||||||||||||||
| Lease liability - operating - non current portion | 13 | — | 117,988 | Lease liability - operating - non current portion | 14 | 93,893 | 83,007 | |||||||||||||||||||
| Other non-current liabilities | 5,103 | 5,543 | Other non-current liabilities | 9,886 | 5,535 | |||||||||||||||||||||
| Total non-current liabilities | 23,900 | 142,057 | Total non-current liabilities | 112,723 | 100,392 | |||||||||||||||||||||
| Total liabilities | 629,244 | 752,396 | Total liabilities | 785,271 | 700,723 | |||||||||||||||||||||
| Commitments and contingencies | Commitments and contingencies | 0 | 0 | |||||||||||||||||||||||
| Shareholders' equity: | Shareholders' equity: | |||||||||||||||||||||||||
Common shares, €0.025 per value, 67,708,203 and 66,197,181 shares authorized, issued and outstanding at December 31, 2018 and December 31, 2019, respectively. | 2,201 | 2,158 | ||||||||||||||||||||||||
Treasury stock, 3,459,119 and 3,903,673 shares at cost as of December 31, 2018 and December 31, 2019, respectively. | (79,159 | ) | (74,900 | ) | ||||||||||||||||||||||
Common shares, €0.025 per value, 65,883,347 and 66,272,106 shares authorized, issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | Common shares, €0.025 per value, 65,883,347 and 66,272,106 shares authorized, issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | 2,149 | 2,161 | |||||||||||||||||||||||
Treasury stock, 5,207,873 and 5,632,536 shares at cost as of December 31, 2021 and December 31, 2020, respectively. | Treasury stock, 5,207,873 and 5,632,536 shares at cost as of December 31, 2021 and December 31, 2020, respectively. | (131,560) | (85,570) | |||||||||||||||||||||||
| Additional paid-in capital | 663,281 | 668,389 | Additional paid-in capital | 731,248 | 693,164 | |||||||||||||||||||||
| Accumulated other comprehensive (loss) | (30,522 | ) | (40,105 | ) | ||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (40,294) | 16,028 | |||||||||||||||||||||||
| Retained earnings | 387,869 | 451,725 | Retained earnings | 601,588 | 491,359 | |||||||||||||||||||||
| Equity - attributable to shareholders of Criteo S.A. | 943,670 | 1,007,267 | Equity - attributable to shareholders of Criteo S.A. | 1,163,131 | 1,117,142 | |||||||||||||||||||||
| Non-controlling interests | 24,221 | 30,721 | Non-controlling interests | 35,189 | 35,545 | |||||||||||||||||||||
| Total equity | 967,891 | 1,037,988 | Total equity | 1,198,320 | 1,152,687 | |||||||||||||||||||||
| Total equity and liabilities | $ | 1,597,135 | $ | 1,790,384 | Total equity and liabilities | $ | 1,983,591 | $ | 1,853,410 | |||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Criteo S.A. and subsidiaries
Consolidated Statements of Income
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| Notes | 2017 | 2018 | 2019 | Notes | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||
| Revenue | 17 | $ | 2,296,692 | $ | 2,300,314 | $ | 2,261,516 | Revenue | $ | 2,254,235 | $ | 2,072,617 | $ | 2,261,516 | ||||||||||||||||||||||
| Cost of revenue | Cost of revenue | |||||||||||||||||||||||||||||||||||
| Traffic acquisition costs | 18 | (1,355,556 | ) | (1,334,334 | ) | (1,314,947 | ) | Traffic acquisition costs | 18 | (1,333,440) | (1,247,571) | (1,314,947) | ||||||||||||||||||||||||
| Other cost of revenue | 18 | (121,641 | ) | (131,744 | ) | (117,533 | ) | Other cost of revenue | 18 | (138,851) | (137,028) | (117,533) | ||||||||||||||||||||||||
| Gross profit | 819,495 | 834,236 | 829,036 | Gross profit | 781,944 | 688,018 | 829,036 | |||||||||||||||||||||||||||||
| Operating expenses: | Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development expenses | 18,19 | (173,925 | ) | (179,263 | ) | (172,591 | ) | Research and development expenses | 18,19 | (151,817) | (132,513) | (172,591) | ||||||||||||||||||||||||
| Sales and operations expenses | 18,19 | (380,649 | ) | (372,707 | ) | (375,477 | ) | Sales and operations expenses | 18,19 | (325,616) | (330,285) | (375,477) | ||||||||||||||||||||||||
| General and administrative expenses | 18,19 | (127,077 | ) | (135,159 | ) | (139,754 | ) | General and administrative expenses | 18,19 | (152,634) | (116,395) | (139,754) | ||||||||||||||||||||||||
| Total operating expenses | (681,651 | ) | (687,129 | ) | (687,822 | ) | Total operating expenses | (630,067) | (579,193) | (687,822) | ||||||||||||||||||||||||||
| Income from operations | 137,844 | 147,107 | 141,214 | Income from operations | 151,877 | 108,825 | 141,214 | |||||||||||||||||||||||||||||
| Financial (expense) | 21 | (9,534 | ) | (5,084 | ) | (5,749 | ) | |||||||||||||||||||||||||||||
| Financial and Other Income (Expense) | Financial and Other Income (Expense) | 21 | 1,939 | (1,939) | (5,749) | |||||||||||||||||||||||||||||||
| Income before taxes | 128,310 | 142,023 | 135,465 | Income before taxes | 153,816 | 106,886 | 135,465 | |||||||||||||||||||||||||||||
| Provision for income taxes | 22 | (31,651 | ) | (46,144 | ) | (39,496 | ) | Provision for income taxes | 22 | (16,169) | (32,197) | (39,496) | ||||||||||||||||||||||||
| Net income | $ | 96,659 | $ | 95,879 | $ | 95,969 | Net income | $ | 137,647 | $ | 74,689 | $ | 95,969 | |||||||||||||||||||||||
| Net income available to shareholders of Criteo S.A. | $ | 91,214 | $ | 88,644 | $ | 90,745 | Net income available to shareholders of Criteo S.A. | $ | 134,456 | $ | 71,679 | $ | 90,745 | |||||||||||||||||||||||
| Net income available to non-controlling interests | $ | 5,445 | $ | 7,235 | $ | 5,224 | Net income available to non-controlling interests | $ | 3,191 | $ | 3,010 | $ | 5,224 | |||||||||||||||||||||||
| Net income allocated to shareholders per share: | Net income allocated to shareholders per share: | |||||||||||||||||||||||||||||||||||
| Basic | 23 | $ | 1.40 | $ | 1.33 | $ | 1.41 | Basic | 23 | $ | 2.21 | $ | 1.18 | $ | 1.41 | |||||||||||||||||||||
| Diluted | 23 | $ | 1.34 | $ | 1.31 | $ | 1.38 | Diluted | 23 | $ | 2.09 | $ | 1.16 | $ | 1.38 | |||||||||||||||||||||
| Weighted average shares outstanding used in computing per share amounts: | Weighted average shares outstanding used in computing per share amounts: | |||||||||||||||||||||||||||||||||||
| Basic | 23 | 65,143,036 | 66,456,890 | 64,305,965 | Basic | 23 | 60,717,446 | 60,876,480 | 64,305,965 | |||||||||||||||||||||||||||
| Diluted | 23 | 67,851,971 | 67,662,904 | 65,598,588 | Diluted | 23 | 64,231,637 | 61,818,593 | 65,598,588 | |||||||||||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Criteo S.A. and subsidiaries
Consolidated Statements of Comprehensive Income
| Year Ended December 31, | |||||||||||
| 2017 | 2018 | 2019 | |||||||||
| (in thousands) | |||||||||||
| Net income | $ | 96,659 | $ | 95,879 | $ | 95,969 | |||||
| Foreign currency translation differences, net of taxes | 77,023 | (18,781 | ) | (8,070 | ) | ||||||
| Foreign currency translation differences | 77,023 | (18,781 | ) | (8,070 | ) | ||||||
| Income tax effect | — | — | — | ||||||||
| Actuarial (losses) gains on employee benefits, net of taxes | (87 | ) | 916 | (1,211 | ) | ||||||
| Actuarial (losses) gains on employee benefits | (103 | ) | 1,235 | (1,373 | ) | ||||||
| Income tax effect | 16 | (319 | ) | 162 | |||||||
| Comprehensive income | 173,595 | 78,014 | 86,688 | ||||||||
| Attributable to shareholders of Criteo S.A. | 167,566 | 77,594 | 86,353 | ||||||||
| Attributable to non-controlling interests | $ | 6,029 | $ | 420 | $ | 335 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net income | $ | 137,647 | $ | 74,689 | $ | 95,969 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Foreign currency translation differences, net of taxes | (61,406) | 53,213 | (8,070) | ||||||||||||||
| Foreign currency translation differences | (61,406) | 53,213 | (8,070) | ||||||||||||||
| Income tax effect | — | — | — | ||||||||||||||
| Actuarial (losses) gains on employee benefits, net of taxes | 1,205 | 4,692 | (1,211) | ||||||||||||||
| Actuarial (losses) gains on employee benefits | 1,374 | 5,214 | (1,373) | ||||||||||||||
| Income tax effect | (169) | (522) | 162 | ||||||||||||||
| Comprehensive income | 77,446 | 132,594 | 86,688 | ||||||||||||||
| Attributable to shareholders of Criteo S.A. | 81,302 | 130,821 | 86,353 | ||||||||||||||
| Attributable to non-controlling interests | $ | (3,856) | $ | 1,773 | $ | 335 | |||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Criteo S.A. and subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
| Share capital | Treasury stock | Additional paid-in capital | Accumulated other comprehensive (loss) income | Retained earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Common shares) | (Shares) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | 67,708,203 | $ | 2,201 | (3,459,119) | $ | (79,159) | $ | 663,281 | $ | (30,522) | $ | 387,869 | $ | 943,670 | $ | 24,221 | $ | 967,891 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 90,745 | 90,745 | 5,224 | 95,969 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (9,617) | — | (9,617) | 335 | (9,282) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares | 83,266 | 2 | — | — | 1,829 | — | — | 1,831 | — | 1,831 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in treasury stock | (1,594,288) | (45) | (444,554) | 4,259 | (36,091) | (296) | (26,710) | (58,883) | — | (58,883) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 39,399 | — | — | 39,399 | 214 | 39,613 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | (29) | 330 | (179) | 122 | 727 | 849 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 66,197,181 | $ | 2,158 | (3,903,673) | $ | (74,900) | $ | 668,389 | $ | (40,105) | $ | 451,725 | $ | 1,007,267 | $ | 30,721 | $ | 1,037,988 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 71,679 | 71,679 | 3,010 | 74,689 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 56,133 | — | 56,133 | 1,773 | 57,906 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares | 231,784 | 8 | — | — | 1,928 | — | — | 1,936 | — | 1,936 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in treasury stock | — | — | (1,728,863) | (14,570) | — | — | (29,017) | (43,587) | — | (43,587) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 26,913 | — | — | 26,913 | 188 | 27,101 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other changes in equity (1) | (156,859) | (5) | — | — | (4,066) | — | (3,028) | (3,199) | (147) | (3,346) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 66,272,106 | $ | 2,161 | (5,632,536) | $ | (85,570) | $ | 693,164 | $ | 16,028 | $ | 491,359 | $ | 1,117,142 | $ | 35,545 | $ | 1,152,687 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 134,456 | 134,456 | 3,191 | 137,647 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (56,345) | — | (56,345) | (3,856) | (60,201) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares | 1,109,950 | 32 | — | — | 25,441 | — | — | 25,473 | — | 25,473 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in treasury stock (2) | (1,498,709) | (44) | 424,663 | (45,990) | (29,782) | — | (24,227) | (100,043) | — | (100,043) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 42,425 | — | — | 42,425 | 309 | 42,734 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | — | 23 | — | 23 | — | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 65,883,347 | $ | 2,149 | (5,207,873) | $ | (131,560) | $ | 731,248 | $ | (40,294) | $ | 601,588 | $ | 1,163,131 | $ | 35,189 | $ | 1,198,320 | ||||||||||||||||||||||||||||||||||||||||||||
| Share capital | Treasury stock | Additional paid-in capital | Accumulated other comprehensive (loss) income | Retained earnings | Equity - attributable to shareholders of Criteo S.A. | Non controlling interests | Total equity | ||||||||||||||||||||||||||||||
| (in thousands, except share data) | |||||||||||||||||||||||||||||||||||||
| (Common shares) | (Shares) | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2017 | 63,978,204 | $ | 2,093 | — | $ | — | $ | 488,277 | $ | (88,593 | ) | $ | 198,355 | $ | 600,132 | $ | 9,745 | $ | 609,877 | ||||||||||||||||||
| Net income | — | — | — | — | — | — | 91,214 | 91,214 | 5,445 | 96,659 | |||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 76,352 | — | 76,352 | 584 | 76,936 | |||||||||||||||||||||||||||
| Issuance of ordinary shares | 2,106,893 | 49 | — | — | 33,617 | — | — | 33,666 | — | 33,666 | |||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 69,510 | — | — | 69,510 | 399 | 69,909 | |||||||||||||||||||||||||||
Other changes in equity (1) | — | 10 | — | — | — | — | 10,641 | 10,651 | — | 10,651 | |||||||||||||||||||||||||||
| Balance at December 31, 2017 | 66,085,097 | 2,152 | — | — | 591,404 | (12,241 | ) | 300,210 | 881,525 | 16,173 | 897,698 | ||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 88,644 | 88,644 | 7,235 | 95,879 | |||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (18,285 | ) | — | (18,285 | ) | 420 | (17,865 | ) | ||||||||||||||||||||||||
| Issuance of ordinary shares | 1,623,106 | 4 | — | — | 2,951 | — | — | 2,955 | — | 2,955 | |||||||||||||||||||||||||||
Change in treasury stock (3) | — | — | (3,459,119 | ) | (79,159 | ) | — | — | — | (79,159 | ) | — | (79,159 | ) | |||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 64,725 | — | — | 64,725 | 393 | 65,118 | |||||||||||||||||||||||||||
Other changes in equity (2) | — | 45 | — | — | 4,201 | 4 | (985 | ) | 3,265 | — | 3,265 | ||||||||||||||||||||||||||
| Balance at December 31, 2018 | 67,708,203 | 2,201 | (3,459,119 | ) | (79,159 | ) | 663,281 | (30,522 | ) | 387,869 | 943,670 | 24,221 | 967,891 | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 90,745 | 90,745 | 5,224 | 95,969 | |||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (9,617 | ) | — | (9,617 | ) | 335 | (9,282 | ) | ||||||||||||||||||||||||
| Issuance of ordinary shares | 83,266 | 2 | — | — | 1,829 | — | — | 1,831 | — | 1,831 | |||||||||||||||||||||||||||
Change in treasury stock (3) | (1,594,288) | (45 | ) | (444,554 | ) | 4,259 | (36,091 | ) | (296 | ) | (26,710 | ) | (58,883 | ) | — | (58,883 | ) | ||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 39,399 | — | — | 39,399 | 214 | 39,613 | |||||||||||||||||||||||||||
| Other changes in equity | — | — | — | — | (29 | ) | 330 | (179 | ) | 122 | 727 | 849 | |||||||||||||||||||||||||
| Balance at December 31, 2019 | 66,197,181 | $ | 2,158 | (3,903,673) | $ | (74,900 | ) | $ | 668,389 | $ | (40,105 | ) | $ | 451,725 | $ | 1,007,267 | $ | 30,721 | $ | 1,037,988 | |||||||||||||||||
(1) FromIncludes deferred consideration in the context of Storetail Marketing Services SAS acquisition in 2018 and 2020 and from January 1, 2017, we adopted 2020, the adoption of ASU 2016-09, 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsCompensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting , 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).
(2) Deferred considerationOn February 5, 2021 Criteo's Board of Directors authorized a share repurchase program of up to $175.0 million of the Company's outstanding American Depositary Shares. The change in the contexttreasury stocks is comprised of Storetail Marketing Services SAS acquisition (see note 9).2,647,742 shares repurchased at an average price of $37.99 offset by 1,573,696 treasury shares used for RSUs vesting and 1,498,709 treasury shares cancelled.
The accompanying notes form an integral part of these consolidated financial statements.
Criteo S.A. and subsidiaries
Consolidated Statements of Cash Flows
| Year Ended December 31, | |||||||||||
| 2017 | 2018 | 2019 | |||||||||
| (in thousands) | |||||||||||
| Net income | $ | 96,659 | $ | 95,879 | $ | 95,969 | |||||
| Non-cash and non-operating items | 155,894 | 154,436 | 126,281 | ||||||||
| Amortization and provisions | 104,025 | 111,825 | 97,110 | ||||||||
Equity awards compensation expense (1) | 71,612 | 66,600 | 40,999 | ||||||||
| Change in deferred taxes | (13,269 | ) | (8,157 | ) | 15,418 | ||||||
| Income tax for the period | (11,439 | ) | (12,744 | ) | (28,015 | ) | |||||
Other (2) | 4,965 | (3,088 | ) | 769 | |||||||
| Change in working capital related to operating activities | (7,095 | ) | 10,411 | 582 | |||||||
| (Increase) / Decrease in trade receivables | (76,907 | ) | 1,358 | 876 | |||||||
| Increase / (Decrease) in trade payables | 32,915 | 9,047 | (14,145 | ) | |||||||
| (Increase) / Decrease in other current assets | (3,381 | ) | 3,974 | 7,631 | |||||||
Increase / (Decrease) in other current liabilities (2) | 40,278 | (3,968 | ) | 11,390 | |||||||
| Change in operating lease liabilities and right of use assets | — | — | (5,170 | ) | |||||||
| Cash from operating activities | 245,458 | 260,726 | 222,832 | ||||||||
| Acquisition of intangibles assets, property, plant and equipment | (122,203 | ) | (116,984 | ) | (82,716 | ) | |||||
| Change in accounts payable related to intangible assets, property, plant and equipment | 13,692 | (8,494 | ) | (15,224 | ) | ||||||
| (Payment for) Disposal of businesses, net of cash acquired (disposed) | 1,110 | (101,180 | ) | (4,582 | ) | ||||||
| Change in other financial non-current assets | 1,148 | (59 | ) | (1,366 | ) | ||||||
| Cash used for investing activities | (106,253 | ) | (226,717 | ) | (103,888 | ) | |||||
| Issuance of long term borrowings | 3,700 | — | — | ||||||||
| Repayment of borrowings | (89,731 | ) | (964 | ) | (1,022 | ) | |||||
| Proceeds from capital increase | 31,961 | 1,473 | 1,691 | ||||||||
| Change in treasury stocks | — | (80,000 | ) | (58,588 | ) | ||||||
Change in other financial liabilities (2) | 24,602 | 16,815 | (1,192 | ) | |||||||
| Cash used for financing activities | (29,468 | ) | (62,676 | ) | (59,111 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents (2) | 34,057 | (21,018 | ) | (5,496 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 143,794 | (49,685 | ) | 54,337 | |||||||
| Net cash and cash equivalents - beginning of period | 270,317 | 414,111 | 364,426 | ||||||||
| Net cash and cash equivalents - end of period | $ | 414,111 | $ | 364,426 | $ | 418,763 | |||||
| Supplemental disclosures of Cash Flow information | |||||||||||
| Cash paid for taxes, net of refunds | $ | (56,360 | ) | $ | (67,045 | ) | $ | (52,093 | ) | ||
| Cash paid for interest, net of amounts capitalized | $ | (2,102 | ) | $ | (1,695 | ) | $ | (1,403 | ) | ||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net income | $ | 137,647 | $ | 74,689 | $ | 95,969 | |||||||||||
| Non-cash and non-operating items | 124,879 | 154,629 | 126,281 | ||||||||||||||
| Amortization and provisions | 90,934 | 106,591 | 97,110 | ||||||||||||||
Equity awards compensation expense (1) | 44,528 | 28,770 | 40,999 | ||||||||||||||
| Net gain on disposal of non-current assets | 1,965 | 2,714 | — | ||||||||||||||
| Change in deferred taxes | (18,642) | 3,720 | 15,418 | ||||||||||||||
| Change in income taxes | 6,043 | 10,867 | (28,015) | ||||||||||||||
| Other | 51 | 1,967 | 769 | ||||||||||||||
| Change in working capital related to operating activities | (41,613) | (43,962) | 582 | ||||||||||||||
| (Increase) / Decrease in trade receivables | (134,950) | (3,957) | 876 | ||||||||||||||
| Increase / (Decrease) in trade payables | 82,691 | (33,314) | (14,145) | ||||||||||||||
| (Increase) / Decrease in other current assets | (19,742) | (7,188) | 7,631 | ||||||||||||||
| Increase / (Decrease) in other current liabilities | 33,033 | 6,261 | 11,390 | ||||||||||||||
| Change in operating lease liabilities and right of use assets | (2,645) | (5,764) | (5,170) | ||||||||||||||
| Cash from operating activities | 220,913 | 185,356 | 222,832 | ||||||||||||||
| Acquisition of intangibles assets, property, plant and equipment | (54,983) | (67,287) | (82,716) | ||||||||||||||
| Change in accounts payable related to intangible assets, property, plant and equipment | 1,973 | 1,818 | (15,224) | ||||||||||||||
| Payment for businesses, net of cash acquired | (10,419) | (1,176) | (4,582) | ||||||||||||||
| Change in other financial non-current assets | (12,938) | (34,448) | (1,366) | ||||||||||||||
| Cash used for investing activities | (76,367) | (101,093) | (103,888) | ||||||||||||||
| Proceeds from borrowings under line-of-credit agreement | — | 153,188 | — | ||||||||||||||
| Repayment of borrowings | (1,249) | (167,344) | (1,022) | ||||||||||||||
| Proceeds from capital increase | 25,196 | 1,727 | 1,691 | ||||||||||||||
| Change in treasury stocks | (100,027) | (43,655) | (58,588) | ||||||||||||||
| Change in other financial liabilities | (4,037) | (1,663) | (1,192) | ||||||||||||||
| Cash used for financing activities | (80,117) | (57,747) | (59,111) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (36,913) | 42,732 | (5,496) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 27,516 | 69,248 | 54,337 | ||||||||||||||
| Net cash and cash equivalents - beginning of period | 488,011 | 418,763 | 364,426 | ||||||||||||||
| Net cash and cash equivalents - end of period | $ | 515,527 | $ | 488,011 | $ | 418,763 | |||||||||||
| Supplemental disclosures of Cash Flow information | |||||||||||||||||
| Cash paid for taxes, net of refunds | $ | (28,767) | $ | (17,610) | $ | (52,093) | |||||||||||
| Cash paid for interest, net of amounts capitalized | $ | (1,486) | $ | (2,155) | $ | (1,403) | |||||||||||
(1) Of which $65.1$42.7 million and $39.6$27.1 million of equity awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the twelve month period ended December 31, 20182021 and 2019,2020, respectively.
The accompanying notes form an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
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 powering the world's marketers with trusted and impactful advertising. We strive to deliver measurable business results at scale across multiple marketing goals for retailersenable brands' and brands,retailers' growth by activating commerce data through our self-service Criteo Platform. Using shopping data, artificial intelligence ("AI") technology, reaching consumers on an extensive scale across all stages of the consumer journey, and extensive consumer reach, we help marketers drive Awareness, Consideration and Conversion for their products and services1, and help retailers generategenerating advertising revenues from consumer brands.brands for large retailers. Our vision is to build the world's leading Commerce Media Platform to deliver measurable business outcomes at scale for global brands, agencies and retailers across multiple marketing goals. Our data is pooled among our clients and offers deep insights into consumer intent and purchasing habits. To drive trusted and impactful advertising for marketers, we activate our data assets in a privacy-by-design way through proprietary AI technology to engage consumers in real time by designing, pricing and delivering highly relevant digital advertisements ("ads") across devices and environments. We price our offering on a range of pricing models and measure our value based on clear, well-defined performance metrics, making our impact on the business of our clients both transparent and easy to measure.
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".
F-9
Note 1. Principles and Accounting Methods
Basis of Preparation
We prepared the consolidated financial statements in accordance with the U.SU.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts of Criteo S.A and its wholly owned subsidiaries.
Consolidation Methods
We have control over all our subsidiaries, and consequently they are all fully consolidated. Intercompany transactions and balances have been eliminated. The table below presents at each period’s end and for all entities included in the consolidation scope the following information: the country of incorporation and the percentage of voting rights and ownership interests.
| 2018 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Country | Voting rights | Ownership Interest | Voting rights | Ownership Interest | Consolidation Method | Country | Voting rights | Ownership Interest | Voting rights | Ownership Interest | Consolidation Method | |||||||||||||||||||||||||||||||||||||||
| Parent company | Parent company | |||||||||||||||||||||||||||||||||||||||||||||||||
Criteo S.A (1) | France | 100 | % | 100 | % | 100 | % | 100 | % | Parent company | ||||||||||||||||||||||||||||||||||||||||
| Criteo S.A | Criteo S.A | France | 100 | % | 100 | % | 100 | % | 100 | % | Parent company | |||||||||||||||||||||||||||||||||||||||
| French subsidiaries | French subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||
| Criteo France SAS | France | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo France SAS | France | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Finance SAS | France | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Finance SAS | France | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Storetail Marketing Services SAS | France | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Technology | Criteo Technology | France | 100 | % | 100 | % | — | % | — | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Condigolabs SAS | France | — | % | — | % | 100 | % | 40 | % | Fully consolidated | Condigolabs SAS | France | 40 | % | 40 | % | 40 | % | 40 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Foreign subsidiaries | Foreign subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||
| Criteo Ltd | United Kingdom | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Ltd | United Kingdom | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
HookLogic Ltd (2) | United Kingdom | 100 | % | 100 | % | — | — | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Storetail Marketing Services Ltd | United Kingdom | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Corp | United States | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Manage, Inc. | United States | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Gmbh | Germany | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Corp. | Criteo Corp. | United States | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Madyourself Technologies, Inc. | Madyourself Technologies, Inc. | United States | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Doobe In Site Ltd. | Doobe In Site Ltd. | Israel | 100 | % | 100 | % | — | % | — | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo GmbH | Criteo GmbH | Germany | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
Criteo Nordics AB | Sweden | — | % | — | % | 100 | % | 100 | % | Fully consolidated | Sweden | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||
Criteo Korea Ltd. | Korea | — | % | — | % | 100 | % | 100 | % | Fully consolidated | Korea | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||
| Criteo KK | Japan | 66 | % | 66 | % | 66 | % | 66 | % | Fully consolidated | Criteo KK | Japan | 66 | % | 66 | % | 66 | % | 66 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Do Brasil LTDA | Brazil | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo do Brasil Desenvolvime nto De Serviços De Internet LTDA. | Criteo do Brasil Desenvolvime nto De Serviços De Internet LTDA. | Brazil | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo BV | The Netherlands | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo BV | The Netherlands | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Pty | Australia | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Australia Pty Ltd | Criteo Australia Pty Ltd | Australia | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo Srl | Italy | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Srl | Italy | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Advertising (Beijng) Co. Ltd | China | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Advertising (Beijing) Co. Ltd | Criteo Advertising (Beijing) Co. Ltd | China | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo Singapore Pte. Ltd. | Singapore | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Singapore Pte. Ltd. | Singapore | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo LLC | Russia | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo LLC | Russia | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Europa S.L. | Spain | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Espana S.L. | Spain | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Storetail Marketing Services S.L.U | Spain | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | ||||||||||||||||||||||||||||||||||||||||
| Criteo Europa MM S.L. | Criteo Europa MM S.L. | Spain | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo España S.L. | Criteo España S.L. | Spain | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
| Criteo Canada Corp. | Canada | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Canada Corp. | Canada | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo Reklamcılık Hizmetleri ve Ticaret Anonim Şirketi | Turkey | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo Reklamcılık Hizmetleri ve Ticaret Anonim Şirketi | Turkey | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo MEA FZ-LLC | United Arab Emirates | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo MEA FZ-LLC | United Arab Emirates | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Criteo India Private Ltd. | India | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | Criteo India Private Ltd. | India | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||
| Gemini HoldCo, LLC | Gemini HoldCo, LLC | United States | 100 | % | 100 | % | 100 | % | 100 | % | Fully consolidated | |||||||||||||||||||||||||||||||||||||||
Functional Currency and Translation of Financial Statements in Foreign Currency
The Consolidated Financial Statements are presented in U.S. dollars, which differs from the functional currency of the Parent, being the Euro. The statements of financial position of consolidated entities having a functional currency different from the U.S. dollar are translated into U.S. dollars at the closing exchange rate (spot exchange rate at the statement of financial position date) and the statements of income, statements of comprehensive income and statements of cash flow of such consolidated entities are translated at the average period to date exchange rate. The resulting translation adjustments are included in equity under the caption “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Changes in Shareholders' Equity.
F-10
Conversion of Foreign Currency Transactions
Foreign currency transactions are converted to U.S. dollars at the rate of exchange applicable on the transaction date. At period-end, foreign currency monetary assets and liabilities are converted at the rate of exchange prevailing on that date. The resulting exchange gains or losses are recorded in the Consolidated Statements of Income in “Other financial income (expense)” with the exception of exchange differences arising from monetary items that form part of the reporting entity’s net investment in a foreign operation which are recognized in other comprehensive income (loss); they will be recognized in profit or loss on disposal of the net investment.
Use of Estimates
The preparation of our Consolidated Financial Statements requires the use of estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenue and expenses during the period. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.
On an on-going basis, management evaluates its estimates, primarily those related to: (1) revenue recognition criteria (2) allowances for doubtful accounts,credit losses, (3) research tax credits (4) income taxes, including i) recognition of deferred tax assets arising from the subsidiaries projected taxable profit for future years, ii) evaluation of uncertain tax positions associated with our transfer pricing policy and iii) recognition of income tax position in respect with tax reforms recently enacted in countries we operate, (5) assumptions used in valuing acquired assets and assumed liabilities in business combinations, (6) assumptions used in the valuation of goodwill, intangible assets and right of use assets - operating lease, and (7) assumptions used in the valuation model to determine the fair value of share-based compensation plan.
The spread of COVID-19 and the various attempts to contain it have continued to create volatility, uncertainty and economic disruption to global society, economics, financial markets and business practices and increase the uncertainty associated with these estimates, in particular those related to allowance for credit losses, assumptions used in the valuation of goodwill and estimates relating to income taxes.
Business combinations
We include the results of operations of the businesses that we acquire as of the acquisition date. We allocate the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Intangible Assets
Acquired intangible assets are accounted for at acquisition cost, less accumulated amortization. Acquired intangible assets are composed of software, technology and customer relationships amortized on a straight-line basis over their estimated useful lives comprised between one and three years for the software, and three and nine years, for the technology and customer relationships. Intangible assets are reviewed for impairment whenever events or changes in circumstances such as, but not limited to, significant declines in revenue, earnings or cash flows or material adverse changes in the business climate indicate that the carrying amount of an asset may be impaired.
F-11
Software development costs also include costs to develop software to be used solely to meet internal needs and cloud based applications used to deliver our services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Amortization of these costs begins when assets are placed in service and is calculated on a straight-line basis over the assets’ useful lives estimated at three to five years.
Cloud computing arrangements (“CCAs”), such as software as a service and other hosting arrangements, are evaluated for capitalized implementation costs in a similar manner as capitalized software development costs. If a CCA includes a software license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses. If a CCA does not include a software license, the service element of the arrangement is accounted for as a service contract. The Company capitalized certain implementation costs for its CCAs that are service contracts, which are included in other current assets. The Company amortizes capitalized implementation costs in a CCA over the life of the service contract.
Property, Plant and Equipment
Property, plant and equipment are accounted for at acquisition cost less cumulative depreciation and any impairment loss. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives as follows:
Servers........................................................................................................... 5 years over the life of the warranty
Furniture and IT equipments............................................................................................................... 3 to 5 years
Leasehold improvements are depreciated over their useful life or over the lease term, whichever is shorter.
Impairment of Assets
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net tangible and intangible assets acquired. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives. The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.
Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that it operates as a2 single reporting unitunits and has selected December 31 as the date to perform its annual impairment test. Goodwill has been allocated to these 2 segments using a relative fair value allocation approach.
In the impairment assessment of its goodwill, the Company performs a two-stepan impairment test, which involves assumptions regarding estimated future cash flows to be derived from the Company. The estimated future cash flows are used to derive the fair value of the reporting unit, which is then compared to its net book value, including goodwill . If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill.
If the net book value exceeds its fair value, then the Company would perform the second step of the goodwill impairment testbe required to determine the amount of therecognize an impairment loss. The impairment loss to be recognized would be calculated by comparing the implied fair value of the Company to its net book value. In calculating the implied fair value, of the Company’s goodwill, the fair value of the Company would be allocated to all of the other assets and liabilities based on their fair values. The excess of the fair value of the Company over the amount assigned to its other assets and liabilities is the implied fair value ofincluding goodwill. An impairment loss would be recognized in the Consolidated Statement of Income when the carrying amount of goodwill exceeds its implied fair value.
F-12
With respect to intangible assets, acquired intangible assets are accounted for at acquisition cost less cumulative amortization and any impairment loss. Acquired intangible assets are amortized over their estimated useful lives of onethree to nine years on a straight-line method. Intangible assets are reviewed for impairment whenever events or changes in circumstances such as, but not limited to, significant declines in revenue, earnings or cash flows or material adverse changes in the financial and economic environment indicate that the carrying amount of an asset may be impaired.
Property, Plant and Equipment and Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is impaired or the estimated useful life is no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with an asset are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair value. Fair value is estimated based on discounted future cash flows.
Leases
We lease office space and data centers mainly under non-cancellable operating lease agreements.leases for our offices and data centers. Our office leases typically include rent free periods and rent escalation periods, renewal options and may also include leasehold improvement incentives. Leases for data centers may also include rent free periods and rent escalation periods. Our leases typically do not include residual value guarantees. Both office and data center leases may contain both lease components (rent) and non-lease components such as maintenance,(maintenance, electrical costs, and other service charges.charges). Non-lease components are accounted for separately. Office
Both office and data center leases typically contain options to renew, and/or early terminate the lease. Options have been included in the lease early.term if management has determined it is reasonably certain that they will be exercised.
Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. OptionsAs most of our leases do not provide an implicit rate, we use our incremental borrowing rate at lease commencement to determine the present value of future payments. We have been includeda centralized treasury function, and the majority of our leases are negotiated and signed by representatives of Criteo SA. As such, the incremental borrowing rate of Criteo SA is used for all of our contracts. It is then adjusted in consideration of the currency of the lease and the lease term as of the lease commencement date.
Lease expense is recognized for minimum lease payments on a straight-line basis over the lease term. Variable costs include changes in indexation and are expensed in the calculation if management has determined that it is reasonablyperiod incurred.
We chose to use certain thatpractical expedients offered by the option will be exercised.standard including:
•We did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or the initial direct costs for any existing leases,
•We do not recognize a lease liability or right of use asset for leases with a term of 12 months or less, and we do not recognize a lease liability or right of use asset for low value leases.
•We recognize a single lease cost under which the operating lease right of use and liability are amortized on a straight-line basis overused hindsight in determining the lease term. Variable costs are expensed in the period incurred.
Financial Assets and Liabilities, Excluding Derivative Financial Instruments
Financial assets, excluding cash and cash equivalents, consist exclusively of loans and receivables. Loans and receivables are non-derivative financial assets with a payment, which is fixed or can be determined, not listed on an active market. They are included in current assets, except those that mature more than twelve months after the reporting date. Loans are measured at amortized cost using the effective interest method. The recoverable amount of loans and advances is estimated whenever there is an indication that the asset may be impaired and at least on each reporting date. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized in the Consolidated Statements of Income.
F-13
Financial liabilities are initially recorded at their fair value at the transaction date. Subsequently they are measured at amortized cost using the effective interest method.
Derivative financial instruments
We buy and sell derivative financial instruments (mainly put, forward buying and selling) in order to manage and reduce our exposure to the risk of exchange rate fluctuations. We deal only with major financial institutions. Financial instruments may only be classified as hedges when we can demonstrate and document the effectiveness of the hedging relationship at inception and throughout the life of the hedge. Derivatives not designated as hedging instruments mainly consist of put, forward buying and selling 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, as well as the related costs in the financial income (expense), net, along with the foreign currency gains and losses on monetary assets and liabilities.
Fair value measurements
Financial instruments are presented in three categories based on a hierarchical method used to determine their fair value : (i) level 1: fair value calculated using quoted prices in an active market for identical assets and liabilities; (ii) level 2: fair value calculated using valuation techniques based on observable market data such as prices of similar assets and liabilities or parameters quoted in an active market; (iii) level 3: fair value calculated using valuation techniques based wholly or partially on unobservable inputs such as prices in an active market or a valuation based on multiples for unlisted companies. The Company's valuation techniques used to measure the fair value of money market funds and certain short term investments were derived from quoted prices in active markets. The valuation techniques used to measure the fair value of the Company's financial liabilities and all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model-driven valuations using inputs derived from or corroborated by observable market data.
Cash, and Cash Equivalents and Marketable Securities
Cash includes cash on handdeposit with banks and highly liquid investments such as demand deposits with banks. Cash equivalents include short-term, highly liquid investments, with a remaining maturity at the date of purchase of three months or less for which the risk of changes in value is considered to be insignificant. DemandHighly liquid demand deposits therefore meet the definition of cash equivalents. Cash
We hold investments in marketable securities, consisting mainly of term deposits with banks, not meeting the cash equivalents definition. We classify marketable securities as either available-for-sale or held-to-maturity investments, depending on whether we have the positive intent and ability to hold the term deposits to maturity.
F-14
Our available-for-sale investments are measuredcarried at estimated fair value using level 1with any unrealized gains and level 2, respectively, for cashlosses, net of taxes, included in accumulated other comprehensive income (loss) in stockholders' equity.
Our held-to-maturity investments are carried at handamortized cost, and money market funds using quoted prices, and any changes are recognized in the Consolidated Statements of Income.subject to impairment assessments. Interest income generated from held-to-maturity investments is recorded as financial income.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company’s cash and cash equivalents are held and foreign exchange contracts are transacted with major financial institutions that the Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts.
The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring agencies' and advertisers' accounts receivable balances. As of December 31, 20192021 and 20182020 no customer accounted for 10% or more of accounts receivable. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, no single customer represented 10% or more of revenue.
Employee Benefits
Depending on the laws and practices of the countries in which we operate, employees may be entitled to compensation when they retire or to a pension following their retirement. For state-managed plans and other defined contribution plans, we recognize them as expenses when they become payable, our commitment being limited to our contributions.
The liability with respect to defined benefit plans is estimated using the following main assumptions:
•discount rate;
•future salary increases;
•employee turnover; and
•mortality tables.
Service costs are recognized in profit or loss and are allocated by function.
Actuarial gains and losses are recognized in other comprehensive income and subsequently amortized into the income statement over a specified period, which is generally the expected average remaining service period of the employees participating in the plan. Actuarial gains and losses arise as a result of changes in actuarial assumptions or experience adjustments (differences between the previous actuarial assumptions and what has actually occurred).
Contingencies
An estimated loss from a loss contingency is recognized if the following two conditions are met:
• information available before the financial statements are issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements;
• the amount of loss can be reasonably estimated.
With respect to litigation and claims that may result in a provision to be recognized, we exercise significant judgment in measuring and recognizing provisions or determining exposure to contingent liabilities that are related to pending litigation or other outstanding claims. These judgment and estimates are subject to change as new information becomes available.
F-15
Revenue Recognition
We sell personalized display advertisements featuring product-level recommendations either directly to clients or to advertising agencies. Historically, the Criteo model has focused solely on converting our clients' website visitors into customers, enabling us to charge our clients only when users engage with an ad we adopted Topic 606 usingdeliver, usually by clicking on it. More recently, we have expanded our solutions to address a broader range of marketing goals for our clients.
We offer two families of solutions to our commerce and brand clients:
•Criteo Marketing Solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the modified retrospective method. The new standard had no significant impactweb, mobile and offline store environments.
•Criteo Retail Mediasolutions allow 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 our Consolidated Financial Statements.their own digital property or on the open Internet, that address multiple marketing goals.
We have multiple pricing models which now include percentage of spend models in addition to cost-per-click, cost-per-install and cost-per-impression pricing models.
Cost-per-click, cost-per-install and cost-per-impression pricing models
We recognize revenues when we transfer control of promised services directly to our clients or to advertising agencies, which we collectively refer to as our clients, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those services.
For campaigns priced on a cost-per-impression basis, we bill our clients based on the number of times an advertisement is displayed to Note 17. Revenuea user. For this pricing model, we recognize revenue when an advertisement is displayed as we consider the display of advertisements our performance obligation.
Percentage of spend models
Criteo's Retail Media Platform enables the buying and selling of retail media with an end-to-end, self-service platform geared toward our brand, agency and retailer customers and is priced using a percentage of spend model.
We generate revenues when we provide a platform for further discussion regarding the adoptionpurchase and sale of ASC 606retail media digital advertising inventory. The platform connects sellers and revenue.buyers of retail media inventory, in an online marketplace. Retailers provide advertising inventory to the platform and brands and agencies bid on the retailers digital advertising inventory. Winning bids can create advertising, or paid impressions, which retailers display to their website visitors.
The total volume of spending between buyers and sellers on the Company's platform is referred to as working media spend. We charge both the brands and agencies and retailers a fee, based on a percentage of working media spend, for the use of our platform. We recognize revenue when an ad is displayed or clicked on.
F-16
Agent vs Principal
When a third-party is involved in the delivery of our services to the client, through the supply of digital advertising inventory, we assess whether we act as principal or agent in the arrangement. The assessment is based on the degree we control the specified services at any time before they are transferred to the customer. The determination of whether we are acting as principal or agent requires judgment.
We act as principal in our Criteo Marketing Solutions arrangements because (i) we control the advertising inventory before it is transferred to our clients; (ii) we bear sole responsibility in fulfillment of the advertising promise and bear inventory risks and (iii) we have full discretion in establishing prices. Therefore, based on these and other factors, we have determined that we act as principal for our Criteo Marketing Solutions engagements and accordingly report the revenue earned and related costs incurred on a gross basis.
We act either as principal or as agent in our Criteo Retail Media solutions. For the arrangements related to transactions using our legacy Retail Media solutions, we consider that we act as principal, as we exercise significant control over the client’s advertising campaign. For arrangements related to transactions using our Retail Media Platform, a self-service solution providing transparency, measurement and control to our brand, agency and retailer customers, we act as agent, because we (i) do not control the advertising inventory before it is transferred to our clients, (ii) do not have inventory risks because we do not purchase the inventory upfront and (iii) have limited discretion in establishing prices as we charge a platform fee based on a percentage of the digital advertising inventory purchased through the use of the platform. Therefore, we report the revenue earned and related costs incurred by the Retail Media Platform solution on a net basis.
Customer Credit Notes
We offer credit notes to certain customers as a form of incentive, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and they are recognized as a reduction of revenue. We believe that there will not be significant changes to our estimates of variable consideration.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance. Our payment terms vary depending on the service or the type of customer. For certain customers, we require payment before the services are delivered.
Practical Expedients
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and operating expenses.
Cost of Revenue
Our cost of revenue primarily includes traffic acquisition costs and other cost of revenue.
Traffic Acquisition Costs. Traffic acquisition costs consist primarily of purchases of impressions from publishers on a CPM basis. We purchase impressions directly from publishers or third-party intermediaries, such as advertisement exchanges. We recognize cost of revenue on a publisher by publisher basis as incurred. Costs owed to publishers but not yet paid are recorded in our Consolidated Statements of Financial Position as trade payables and other current liabilities.payables.
F-17
For some solutions within Criteo Retail Media, we pay for the inventory of our ecommerce retailer partners on a revenue sharing basis, effectively paying the retailers a portion of the click-based revenue generated by user clicks on the sponsored products advertisements or impressions on the commerce display advertisements displaying the products of our consumer brand manufacturer clients.
Other Cost of Revenue. Other cost of revenue includes expenses related to third-party hosting fees, depreciation of data center equipment, and data purchased from third parties.parties and digital taxes. The Company does not build or operate its own data centers and none of its Research and Development employments are dedicated to revenue generating activities. As a result, we do not include the costs of such personnel in other cost of revenue.
Share-Based Compensation
Shares, employee share options and employee and non-employee warrants are primarily awarded to our employees or directors. These awards are measured at their fair value on the date of grant. The fair value is calculated with the most relevant formula regarding the settlement and the conditions of each plan. The fair value is recorded in personnel expenses (allocated by function in the Consolidated Statements of Income) on a straight-line basis over each milestone composing the vesting period with a corresponding increase in shareholders’ equity.
At each closing date, we re-examine the number of options likely to become exercisable. If applicable, the impact of the review of the estimate is recognized in the Consolidated Statements of Income with a corresponding adjustment in equity.
Income Taxes
Income taxes are accounted for under the asset and liability method of accounting. Deferred taxes are recorded on all temporary differences between the financial reporting and tax bases of assets and liabilities, and on tax losses, using the liability method. Differences are defined as temporary when they are expected to reverse within a foreseeable future. We may only recognize deferred tax assets on net operating losses if, based on the projected taxable incomes within the next three years, we determine that it is probable that future taxable profit will be available against which the unused tax losses and tax credits can be utilized. As a result, the measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. If future taxable profits are considerably different from those forecasted that support recording deferred tax assets, we will have to revise downwards or upwards the amount of deferred tax assets, which would have a significant impact on our financial results. Tax assets and liabilities are not discounted. Amounts recognized in the Consolidated Financial Statements are calculated at the level of each tax entity included in the consolidation scope. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The French Research Tax Credit, Crédit d’Impôt Recherche (“CIR”), is a French tax incentive to stimulate research and development (“R&D”). Generally, the CIR offsets the income tax to be paid and the remaining portion (if any) can be refunded at the end of a three-fiscal year period. The CIR is calculated based on the claimed volume of eligible R&D expenditures by us. As a result, the CIR is presented as a deduction to “research and development expenses” in the Consolidated Statements of Income, as the CIR is not within the scope of ASC 740. We have exclusively claimed R&D performed in France for purposes of the CIR.
The U.SU.S. Research Tax Credit is a U.S. tax credit to incentivize research and development activities in the U.S. Qualifying R&D expenses generating a tax credit which may be used to offset future taxable income once all net operating losses and foreign tax credits have been used. It is not refundable and as such, considered in the scope of ASC 740 as a component of income tax expense. We have exclusively claimed R&D performed in the U.S. for purposes of the U.S. Research Tax Credit.
F-18
Uncertain Tax Positions
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. These uncertain tax positions include our estimates for transfer pricing that have been developed based upon analyses of appropriate arms-length prices. Similarly, our estimates related to uncertain tax positions concerning research tax credits are based on an assessment of whether our available documentation corroborating the nature of our activities supporting the tax credits will be sufficient. Although we believe that we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results.
Operating Segments
Segment information reported is built on the basis of internal management data used for performance analysis of businesses and for the allocation of resources (management approach). An operating segment is a component of the Company for which separate financial information is available that is evaluated regularly by our Chief Operating Decision Maker in deciding how to allocate resources and assessing performance.
Our chief operating decision-maker is our CEO. The CEO reviews consolidated data for revenue, revenue excluding traffic acquisition costs (revenue ex-TAC) and Adjusted EBITDA (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)Contribution ex-TAC, primarily at a solution level, for the purposes of allocating resources and evaluating financial performance.
Commencing with December 31, 2021, we have concluded that our operations constitute 12 operating and reportable segment.segments: Marketing Solutions and Retail Media.
Earnings Per Share
Basic earnings per share (“EPS”) are calculated by dividing the net income attributable to shareholders of the Parent by the weighted average number of shares outstanding. The weighted average number of shares outstanding is calculated according to movements in share capital.
In addition, we calculate diluted earnings per share by dividing the net income attributable to shareholders of the Parent company, Criteo S.A. by the weighted average number of shares outstanding plus any potentially dilutive shares not yet issued.
F-19
Accounting Pronouncements adopted in 20192021
Effective January 1, 2019,2021, we have adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 842 No. 2016-02, LeasesNo.2019-12, Income Taxes (Topic 842)740): Simplifying the Accounting for Income Taxes (ASU 2016-02)2019-12), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets onsimplifies the balance sheetaccounting for operating leases with terms of more than 12 months, in addition to those currently recorded. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option not to restate comparative periods in transition and use the effective date of ASC 842, Leases, as the date of the initial application of transition, which we elected. Prior periods have not been adjusted and continue to be accounted for in accordance with ASC 840. As a result of adopting ASU 842, we recognized total operating lease liabilities of $223.5 million and operating right-of-use assets of $204.3 million as of January 1, 2019.income taxes. The adoption of ASC 842 had an immaterial impact on our condensed consolidated statements of income and our condensed consolidated statement of cash flows for the year ended December 31, 2019. Refer to Note 13. Leases, for additional information and required disclosures.
Recent Accounting Pronouncements
Note 2. Significant Events and Transactions of the Period
On February 8, 2019, the Board of Directors authorized the reduction of capital resulting in the formal retirement of 1.6 million treasury shares.
| Number of Treasury Shares | Amount (in thousands) | |||||
| Balance at January 1, 2018 | — | — | ||||
| Treasury Shares Repurchased to potentially use for M&A | 1,751,147 | 40,000 | ||||
| Treasury Shares Repurchased for RSU Vesting | 1,748,111 | 40,000 | ||||
| Treasury Shares Issued for RSU Vesting | (40,139 | ) | (841 | ) | ||
| Balance at December 31, 2018 | 3,459,119 | $ | 79,159 | |||
| Treasury Shares Retired | (1,594,288 | ) | (36,137 | ) | ||
| Treasury Shares Repurchased to use for M&A or RSU Vesting | 1,498,709 | 28,452 | ||||
| Treasury Shares Repurchased to use for RSU Vesting | 1,743,223 | 30,136 | ||||
| Treasury Shares Issued for RSU Vesting | (1,203,090 | ) | (26,710 | ) | ||
| Balance at December 31, 2019 | 3,903,673 | $ | 74,900 | |||
| Three Months Ended | Twelve Months Ended | ||||||
| December 31, 2019 | |||||||
| (in thousands) | |||||||
| Gain from forfeitures of share-based compensation expense | $ | 4,863 | $ | 4,863 | |||
| Payroll related costs | (5,581 | ) | (5,581 | ) | |||
| Total restructuring costs | (718 | ) | (718 | ) | |||
| Restructuring Liability | |||
| (in thousands) | |||
| Restructuring liability - January 1, 2019 | $ | — | |
| Restructuring costs | 718 | ||
| Restructuring costs - non cash items | 4,863 | ||
| Amounts paid | — | ||
| Restructuring liability - December 31, 2019 | $ | 5,581 | |
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2019 | |||||
| (in thousands) | |||||
| Depreciation and amortization (expense) | 67 | (1,161 | ) | ||
| Impairment related costs | (8,926 | ) | (8,926 | ) | |
| Facilities related costs | (507 | ) | (2,155 | ) | |
| Total restructuring costs | (9,366 | ) | (12,242 | ) | |
| Restructuring Liability | |||
| (in thousands) | |||
| Restructuring liability - January 1, 2019 | $ | — | |
| Restructuring costs | 12,242 | ||
| Restructuring costs - non cash items | (8,260 | ) | |
| Amounts paid | (3,175 | ) | |
| Restructuring liability - December 31, 2019 | $ | 807 | |
| Three Months Ended | Twelve Months Ended | ||||||
| December 31, 2019 | |||||||
| (in thousands) | |||||||
| Gain from forfeitures of share-based compensation expense | $ | (13 | ) | $ | 3,271 | ||
| Payroll related costs | (564 | ) | (3,893 | ) | |||
| Total restructuring costs | (577 | ) | (622 | ) | |||
The following table summarizespresents the breakdown of restructuring activitiesliability as of December 31, 2019 included in other current liabilities2021, presented as part of employees related payables on the balance sheet :sheet:
| Restructuring Liability | |||
| (in thousands) | |||
| Restructuring liability - January 1, 2019 | $ | — | |
| Restructuring costs | 622 | ||
| Restructuring costs - non cash items | 3,271 | ||
| Amounts paid | (3,383 | ) | |
| Restructuring liability - December 31, 2019 | $ | 510 | |
| (in thousands) | |||||||||||
| Restructuring liability - January 1, 2021 | $ | 510 | |||||||||
| Restructuring costs | 4,480 | ||||||||||
| Amount paid | (4,521) | ||||||||||
| Restructuring liability - December 31, 2021 | 469 | ||||||||||
Acquisition of Doobe In Site Ltd.
On May 18, 2021, we completed the acquisition of all of the outstanding shares of Doobe In Site Ltd. ("Mabaya"), a leading retail media technology company that powers sponsored products and retail media monetization for major ecommerce marketplaces globally. The total consideration paid was $9.9 million for the acquisition of shares. The acquisition was financed by available cash resources. The transaction has been accounted for as a business combination under the acquisition method of accounting. The purchase price allocation has been finalized. The valuation of the fair value of Mabaya's assets acquired and liabilities assumed resulted in the identification of technology of $8.0 million, a $5.1 million employee related payable and a $2.5 million liability relating to a redemption fee payable to a governmental agency. Goodwill amounted to $9.0 million. In addition, acquisition costs amounting to $0.5 million were fully expensed as incurred.
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: Marketing Solutions and Retail Media.
Criteo's Marketing Solutions segment allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web, mobile and offline store environments.
Criteo's Retail Media segment allow 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.
Segment operating results, Contribution ex-TAC, is Criteo's segment profitability measure and reflects our gross profit plus other costs of revenue.
F-21
The following table shows revenue by reportable segment:
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Marketing Solutions | $2,007,239 | $1,806,431 | $2,092,590 | ||||||||||||||
| Retail Media | 246,996 | 266,186 | 168,926 | ||||||||||||||
| Total Revenue | $2,254,235 | $2,072,617 | $2,261,516 | ||||||||||||||
The following table shows Contribution ex-TAC by reportable segment and its reconciliation to the Company’s Consolidated Statements of Operation:
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Contribution ex-TAC | |||||||||||||||||
| Marketing Solutions | $796,152 | $746,751 | $895,107 | ||||||||||||||
| Retail Media | 124,643 | 78,295 | 51,462 | ||||||||||||||
| $920,795 | $825,046 | $946,569 | |||||||||||||||
| Other costs of sales | (138,851) | (137,028) | (117,533) | ||||||||||||||
| Gross profit | $781,944 | $688,018 | $829,036 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Research and development expenses | (151,817) | (132,513) | (172,591) | ||||||||||||||
| Sales and operations expenses | (325,616) | (330,285) | (375,477) | ||||||||||||||
| General and administrative expenses | (152,634) | (116,395) | (139,754) | ||||||||||||||
| Total Operating expenses | (630,067) | (579,193) | (687,822) | ||||||||||||||
| Income from operations | $151,877 | $108,825 | $141,214 | ||||||||||||||
| Financial and Other Income (Expense) | 1,939 | (1,939) | (5,749) | ||||||||||||||
| Income before tax | $153,816 | $106,886 | $135,465 | ||||||||||||||
The Company's CODM does not review any other financial information for our 2 segments, other than Contribution ex-TAC, at the reportable segment level.
F-22
Note 3.4. Categories of Financial Assets and Financial Liabilities
Financial assets
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Trade receivables, net of allowances | $ | 581,988 | $ | 474,055 | |||||||||||||||||||
| Other taxes | 73,388 | 69,987 | |||||||||||||||||||||
| Other current assets | 34,182 | 21,405 | |||||||||||||||||||||
| Marketable securities | $ | 55,299 | $ | 41,809 | |||||||||||||||||||
| Non-current financial assets | 6,436 | 18,109 | |||||||||||||||||||||
| Total | $ | 751,293 | $ | 625,365 | |||||||||||||||||||
| Year Ended December 31, | |||||||
| 2018 | 2019 | ||||||
| (in thousands) | |||||||
| Trade receivables, net of allowances | $ | 473,901 | $ | 481,732 | |||
| Other taxes | 53,338 | 60,924 | |||||
| Other current assets | 22,816 | 17,225 | |||||
| Non-current financial assets | 20,460 | 21,747 | |||||
| Total | $ | 570,515 | $ | 581,628 | |||
Credit Risk
We maintain an allowance for estimated credit losses. During the years ended December 31, 20192021 and 2018,2020, our net change in the allowance for doubtful accountscredit losses was $(9.9)$(5.5) million and $5.1$(23.8) million, respectively.
For our financial assets, the fair value approximates the carrying amount, given the nature of the financial assets and the maturity of the expected cash flows.
Trade Receivables
Credit risk is defined as an unexpected loss in cash and earnings if the client is unable to pay its obligations in due time. We perform internal ongoing credit risk evaluations of our clients. When a possible risk exposure is identified, we require prepayments.
As of December 31, 20192021 and 2018,2020, no customer accounted for 10% or more of trade receivables.
F-23
Financial liabilities
| Year Ended December 31, | |||||||
| 2018 | 2019 | ||||||
| (in thousands) | |||||||
| Trade payables | $ | 425,376 | $ | 390,277 | |||
| Other taxes | 55,592 | 50,099 | |||||
| Employee - related payables | 65,878 | 74,781 | |||||
| Other current liabilities | 47,115 | 35,886 | |||||
| Financial liabilities | 3,508 | 4,405 | |||||
| Total | $ | 597,469 | $ | 555,448 | |||
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Trade payables | $ | 430,245 | $ | 367,025 | |||||||||||||||||||
| Other taxes | 60,236 | 58,491 | |||||||||||||||||||||
| Employee - related payables | 98,136 | 85,272 | |||||||||||||||||||||
| Other current liabilities | 39,523 | 33,390 | |||||||||||||||||||||
| Financial liabilities | 1,002 | 3,275 | |||||||||||||||||||||
| Total | $ | 629,142 | $ | 547,453 | |||||||||||||||||||
The fair value of financial liabilities approximates the carrying amount, given the nature of the financial liabilities and the maturity of the expected cash flows.
Fair Value Measurements
We measure the fair value of our cash equivalents, which include interest bearing 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.
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.
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Derivative Assets: | |||||||||||||||||||||||
| Included in other current assets | $ | 60 | $ | — | |||||||||||||||||||
| Derivative Liabilities: | |||||||||||||||||||||||
| Included in financial liabilities - current portion | $ | — | $ | 925 | |||||||||||||||||||
| Year Ended December 31, | |||||||
| 2018 | 2019 | ||||||
| (in thousands) | |||||||
| Derivative Assets: | |||||||
| Included in other current assets | $ | 1,703 | $ | — | |||
| Derivative Liabilities: | |||||||
| Included in financial liabilities - current portion | $ | — | $ | 1,284 | |||
The fair value of derivative financial instruments approximates the carrying amount, given the nature of the derivative financial instruments and the maturity of the expected cash flows.
Marketable Securities
The following table presents for each reporting period, the breakdown of marketable securities:
| December 31, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Securities Available-for-sale | |||||||||||
| Term Deposits | $ | 22,652 | $ | 24,538 | |||||||
| Securities Held-to-maturity | |||||||||||
| Term Deposits | $ | 32,647 | $ | 17,271 | |||||||
| Total | $ | 55,299 | $ | 41,809 | |||||||
The gross unrealized gains or (loss) on our marketable securities were not material as of December 31, 2021.
For our marketable securities, the fair value approximates the carrying amount, given the nature of the term deposit and the maturity of the expected cash flows. The term deposit is considered a level 2 financial instruments as it is 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 | ||||||||||
| December 31, 2021 | |||||||||||
| (in thousands) | |||||||||||
| Due in one year | $ | 27,647 | $ | 22,652 | |||||||
| Due in one to five years | $ | 5,000 | $ | — | |||||||
| Total | $ | 32,647 | $ | 22,652 | |||||||
F-25
Note 4.5. Cash and Cash Equivalents
The following table presents for each reported period, the breakdown of cash and cash equivalents:
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Cash equivalent | $ | 137,228 | $ | 162,457 | |||||||
| Cash on hand | 378,299 | 325,554 | |||||||||
| Total Cash and cash equivalents | $ | 515,527 | $ | 488,011 | |||||||
| Year Ended December 31, | |||||||
| 2018 | 2019 | ||||||
| (in thousands) | |||||||
| Cash equivalent | $ | 125,442 | $ | 189,119 | |||
| Cash on hand | 238,984 | 229,644 | |||||
| Total Cash and cash equivalents | $ | 364,426 | $ | 418,763 | |||
Investments in interest–bearing bank deposits which metmeet 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.
Note 5.6. Trade Receivables
The following table shows the breakdown in trade receivables net book value for the presented periods:
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Trade accounts receivables | $ | 627,379 | $ | 513,954 | |||||||
| (Less) Allowance for doubtful accounts | (45,391) | (39,899) | |||||||||
| Net book value at end of period | $ | 581,988 | $ | 474,055 | |||||||
| Year Ended December 31, | |||||||
| 2018 | 2019 | ||||||
| (in thousands) | |||||||
| Trade accounts receivables | $ | 499,819 | $ | 497,800 | |||
| (Less) Allowance for doubtful accounts | (25,918 | ) | (16,068 | ) | |||
| Net book value at end of period | $ | 473,901 | $ | 481,732 | |||