Criteo 10Q 2020 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended June 30, 2020


☐			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.

(Exact name of registrant as specified in its charter)


France			Not Applicable
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

32 Rue Blanche	Paris	France	75009
(Address of principal executive offices)			(Zip Code)

+33 1 40 40 22 90

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

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.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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 not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x

As of July 30, 2020, the registrant had 60,025,828 ordinary shares, nominal value €0.025 per share, outstanding.

TABLE OF CONTENTS

General

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "Criteo," "we," "us," "our" or similar words or phrases are to Criteo S.A. and its subsidiaries, taken together. In this Form 10-Q, references to "$" and "US$" are to United States dollars. Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or "U.S. GAAP."

Trademarks

“Criteo,” the Criteo logo and other trademarks or service marks of Criteo appearing in this Form 10-Q are the property of Criteo. Trade names, trademarks and service marks of other companies appearing in this Form 10-Q are the property of their respective holders.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than present and historical facts and conditions contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, plans and objectives for future operations, are forward-looking statements. When used in this Form 10-Q, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•the impact of COVID-19 on our workforce, operations and revenue, as well as on the workforce, operations and revenue of our customers, and the effectiveness of our actions taken in response to COVID-19;

•the ability of the Criteo 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;

•our ability to continue to collect and utilize data about user behavior and interaction with advertisers;

•our ability to acquire an adequate supply of advertising inventory from publishers on terms that are favorable to us;

•our ability to meet the challenges of a growing and international company in a rapidly developing and changing industry, including our ability to forecast accurately;

•our ability to maintain an adequate rate of revenue growth and sustain profitability;

•our ability to manage our international operations and expansion and the integration of our acquisitions;

•the effects of increased competition in our market;

•our ability to adapt to regulatory, legislative or self-regulatory developments regarding internet privacy matters;

•our ability to protect users’ information and adequately address privacy concerns;

•our ability to enhance our brand;

•our ability to enter new marketing channels and new geographies;

•our ability to effectively scale our technology platform;

•our ability to attract and retain qualified employees and key personnel;

•our ability to maintain, protect and enhance our brand and intellectual property; and

•failures in our systems or infrastructure.

You should also refer to Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, Part II, Item 1A "Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and to Part II, Item 1A "Risk Factors" of this Form 10-Q, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. The degree to which COVID-19 may affect our results and operations will depend on future developments that are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Form 10-Q and the documents that we reference in this Form 10-Q and have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary factors.

This Form 10-Q may contain market data and industry forecasts that were obtained from industry publications. These data and forecasts involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this Form 10-Q is generally reliable, such information is inherently imprecise.

PART I

Item 1. Financial Statements.

CRITEO S.A. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)


	Notes	December 31, 2019		June 30, 2020
		(in thousands)
Assets
Current assets:
Cash and cash equivalents	3	$	418,763	$	578,181
Trade receivables, net of allowances of $16.1 million and $33.3 million at December 31, 2019 and June 30, 2020, respectively	4	481,732		329,979
Income taxes		21,817		19,932
Other taxes		60,924		54,008
Other current assets	5	17,225		17,306
Total current assets		1,000,461		999,406
Property, plant and equipment, net		194,161		195,736
Intangible assets, net	6	86,886		78,185
Goodwill	6	317,100		316,575
Right of use assets - operating lease	8	142,044		137,808
Marketable securities	3	—		22,396
Non-current financial assets		21,747		19,809
Deferred tax assets		27,985		34,487
Total non-current assets		789,923		804,996
Total assets		$	1,790,384	$	1,804,402

Liabilities and shareholders' equity
Current liabilities:
Trade payables		$	390,277	$	280,626
Contingencies	14	6,385		4,126
Income taxes		3,422		2,440
Financial liabilities - current portion	3	3,636		159,381
Operating lease liabilities - current portion	8	45,853		51,414
Other taxes		50,099		44,085
Employee - related payables		74,781		61,963
Other current liabilities	7	35,886		38,982
Total current liabilities		610,339		643,017
Deferred tax liabilities		9,272		8,079
Retirement benefit obligation		8,485		9,215
Financial liabilities - non-current portion	3	769		44
Operating lease liabilities - non-current portion	8	117,988		105,794
Other non-current liabilities		5,543		3,256
Total non-current liabilities		142,057		126,388
Total liabilities		752,396		769,405
Commitments and contingencies
Shareholders' equity:
Common shares, €0.025 par value, 66,197,181 and 66,204,881 shares authorized, issued and outstanding at December 31, 2019 and June 30, 2020, respectively.		2,158		2,158
Treasury stock, 3,903,673 and 5,589,408 shares at cost as of December 31, 2019 and June 30, 2020, respectively.		(74,900)		(90,714)
Additional paid-in capital		668,389		683,288
Accumulated other comprehensive loss		(40,105)		(44,297)
Retained earnings		451,725		452,247
Equity-attributable to shareholders of Criteo S.A.		1,007,267		1,002,682
Non-controlling interests		30,721		32,315
Total equity		1,037,988		1,034,997
Total equity and liabilities		$	1,790,384	$	1,804,402

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

CRITEO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


			Three Months Ended						Six Months Ended
	Notes		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
		(in thousands, except share per data)

Revenue	9		$	528,147	$	437,614	$	1,086,270	$	940,990

Cost of revenue:
Traffic acquisition costs			(304,229)		(257,698)		(626,658)		(555,062)
Other cost of revenue			(29,059)		(33,914)		(55,104)		(67,720)

Gross profit			194,859		146,002		404,508		318,208

Operating expenses:
Research and development expenses			(44,015)		(31,247)		(90,592)		(68,762)
Sales and operations expenses			(95,503)		(75,781)		(191,412)		(160,755)
General and administrative expenses			(35,767)		(29,185)		(69,537)		(55,100)
Total operating expenses			(175,285)		(136,213)		(351,541)		(284,617)
Income from operations			19,574		9,789		52,967		33,591
Financial income (expense)	11		(1,354)		(1,003)		(3,328)		(1,337)
Income before taxes			18,220		8,786		49,639		32,254
Provision for income taxes	12		(5,683)		(2,636)		(15,701)		(9,676)
Net income			$	12,537	$	6,150	$	33,938	$	22,578

Net income available to shareholders of Criteo S.A.			$	10,823	$	5,716	$	29,943	$	21,175
Net income available to non-controlling interests			$	1,714	$	434	$	3,995	$	1,403

Net income allocated to shareholders of Criteo S.A. per share:
Basic	13		$	0.17	$	0.09	$	0.46	$	0.34
Diluted	13		$	0.16	$	0.09	$	0.45	$	0.34

Weighted average shares outstanding used in computing per share amounts:
Basic	13		64,581,476		61,415,467		64,459,867		61,553,875
Diluted	13		65,624,505		61,790,135		65,833,642		61,958,499

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

CRITEO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)

Net income	$	12,537	$	6,150	$	33,938	$	22,578
Foreign currency translation differences, net of taxes	9,598		11,584		(894)		(4,348)
Actuarial (losses) gains on employee benefits, net of taxes	(585)		(1,357)		(1,638)		377
Other comprehensive income (loss)	$	9,013	$	10,227	$	(2,532)	$	(3,971)
Total comprehensive income (loss)	$	21,550	$	16,377	$	31,406	$	18,607
Attributable to shareholders of Criteo S.A.	$	19,069	$	15,702	$	26,842	$	16,983
Attributable to non-controlling interests	$	2,481	$	675	$	4,564	$	1,624

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

CRITEO S.A.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Share capital			Treasury Stock			Additional paid-in capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Equity - attributable to shareholders of Criteo S.A.	Non controlling interest	Total equity
	Common shares		Shares












	(in thousands, except share amounts )
Balance at December 31, 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	—	—	—	—	—	—	19,120	19,120	2,281	21,401
Other comprehensive income (loss)	—	—	—	—	—	(11,347)	—	(11,347)	(198)	(11,545)
Issuance of ordinary shares	28,596	1	—	—	372	—	—	373	—	373
Change in treasury stocks	(1,594,288)	(45)	1,786,715	40,080	(36,091)	—	(3,944)	—	—	—
Share-Based Compensation	—	—	—	—	13,533	—	—	13,533	(11)	13,522
Other changes in equity	—		—	—	(1)	—	155	154	—	154
Balance at March 31, 2019	66,142,511	$2,157	(1,672,404)	$(39,079)	$641,094	$(41,869)	$403,200	$965,503	$26,293	$991,796
Net income	—	—	—	—	—	—	10,823	10,823	1,714	12,537
Other comprehensive income (loss)	—	—	—	—	—	8,246	—	8,246	767	9,013
Issuance of ordinary shares	19,012	—	—	—	252	—	—	252	—	252
Change in treasury stocks	—	—	553,435	12,515	—	—	(12,515)	—	—	—
Share-Based Compensation	—	—	—	—	11,254	—	—	11,254	108	11,362
Other changes in equity	—	—	—	—	(28)	330	(299)	3	—	3
Balance at June 30, 2019	66,161,523	$2,157	(1,118,969)	$(26,564)	$652,572	$(33,293)	$401,209	$996,081	$28,882	$1,024,963


	Share capital			Treasury Stock			Additional paid-in capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Equity - attributable to shareholders of Criteo S.A.	Non controlling interest	Total equity
	Common shares		Shares
	(in thousands, except share amounts )
Balance at December 31, 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	—	—	—	—	—	—	15,459	15,459	969	16,428
Other comprehensive income (loss)	—	—	—	—	—	(14,178)	—	(14,178)	(20)	(14,198)
Issuance of ordinary shares	5,700	—	—	—	39	—	—	39	—	39
Change in treasury stocks	—	—	(629,977)	(4,934)	—	—	(13,305)	(18,239)	—	(18,239)
Share-Based Compensation	—	—	—	—	8,082	—	—	8,082	49	8,131
Other changes in equity (*)	—	—	—	—	—	—	(3,399)	(3,399)	(142)	(3,541)
Balance at March 31, 2020	66,202,881	$2,158	(4,533,650)	$(79,834)	$676,510	$(54,283)	$450,480	$995,031	$31,577	$1,026,608
Net income	—	—	—	—	—	—	5,716	5,716	434	6,150
Other comprehensive income (loss)	—	—	—	—	—	9,986	—	9,986	241	10,227
Issuance of ordinary shares	2,000	—	—	—	13	—	—	13	—	13
Change in treasury stocks	—	—	(1,055,758)	(10,880)	—	—	(3,981)	(14,861)	—	(14,861)
Share-Based Compensation	—	—	—	—	6,765	—	—	6,765	39	6,804
Other changes in equity	—	—	—	—	—	—	32	32	24	56
Balance at June 30, 2020	66,204,881	$2,158	(5,589,408)	$(90,714)	$683,288	$(44,297)	$452,247	$1,002,682	$32,315	$1,034,997

^(*) From January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost issued by the Financial Accounting Standards Board (FASB).

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

CRITEO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Three Months Ended						Six Months Ended
		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)
Net income		$	12,537	$	6,150	$	33,938	$	22,578
Non-cash and non-operating items		28,961		33,083		53,959		65,911
- Amortization and provisions		18,282		27,907		37,926		54,951
- Net gain or loss on disposal of non-current assets		—		(123)		—		2,143
- Equity awards compensation expense ⁽¹⁾		11,713		7,160		25,595		15,662

- Change in deferred taxes		7,252		(4,939)		1,336		(7,617)
- Change in income taxes		(8,696)		3,056		(10,630)		727
- Other		410		22		(268)		45
Changes in working capital related to operating activities		11,466		(5,856)		32,287		1,631
- Decrease in trade receivables		19,325		27,318		105,343		126,706
- (Decrease) in trade payables		(14,995)		(22,118)		(73,480)		(103,797)
- Decrease in other current assets		7,504		15,448		1,512		5,050
- Increase/ (Decrease) in other current liabilities		3,015		(25,503)		5,451		(26,448)
- Change in operating lease liabilities and right of use assets		(3,383)		(1,001)		(6,539)		120

Cash from operating activities		52,964		33,377		120,184		90,120
Acquisition of intangible assets, property, plant and equipment		(28,812)		(29,471)		(42,104)		(40,729)
Change in accounts payable related to intangible assets, property, plant and equipment		(3,980)		10,939		(14,372)		10,460
(Payment for) Disposal of a business, net of cash acquired (disposed)		637		—		(4,688)		—
Change in other non-current financial assets		(1,152)		(21,238)		(1,184)		(20,349)
Cash used for investing activities		(33,307)		(39,770)		(62,348)		(50,618)
Proceeds from borrowings under line-of-credit agreement		—		154,310		—		154,310
Repayment of borrowings		(167)		1		(339)		(169)
Proceeds from capital increase		(98)		(20)		(87)		(16)
Repurchase of treasury stocks		—		(14,860)		—		(33,101)
Change in other financial liabilities		(209)		(573)		(239)		(927)
Cash (used for) from financing activities		(474)		138,858		(665)		120,097
Effect of exchange rates changes on cash and cash equivalents		7,099		9,210		456		(181)
Net increase in cash and cash equivalents		26,282		141,675		57,627		159,418
Net cash and cash equivalents at beginning of period		395,771		436,506		364,426		418,763
Net cash and cash equivalents at end of period		$	422,053	$	578,181	$	422,053	$	578,181

Supplemental disclosures of cash flow information
Cash paid for taxes, net of refunds		(7,127)		(4,519)		(24,995)		(16,566)
Cash paid for interest		(351)		(317)		(758)		(666)

⁽¹⁾ Of which $11.4 million and $6.8 million of equity awards compensation expense consisted of share-based compensation expense according to ASC 718 Compensation - stock compensation for the quarter ended June 30, 2019 and 2020, respectively, and $24.9 million and $14.9 million for the six months ended June 30, 2019 and 2020, respectively.

The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

CRITEO S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Criteo S.A. was initially incorporated as a société par actions simplifiée, or S.A.S., under the laws of the French Republic on November 3, 2005, for a period of 99 years and subsequently converted to a société anonyme, or S.A.

We are a global technology company building the leading advertising platform for the open Internet. We strive to deliver impactful business results at scale to commerce companies and consumer brands by meeting their marketing goals at their targeted return on investment. Using shopping data, predictive technology and large consumer reach, we help our clients drive Awareness, Consideration and Conversion for their products and services¹, and help retailers generate advertising revenues from brands. Our data is pooled among our clients and offers deep insights into consumer intent and purchasing habits. To drive measurable results for clients, we activate our data assets through proprietary artificial intelligence ("AI") technology to engage consumers in real time through the pricing and delivery of highly relevant digital advertisements ("ads"), across devices and environments. By pricing our offering on a range of pricing models and measuring our value based on clear, well-defined performance metrics, we make the return on investment transparent and easy to measure for advertisers.

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".

^{___________________________________________________}

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.

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements included herein (the "Unaudited Condensed Consolidated Financial Statements") have been prepared by Criteo S.A. pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

Conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in the condensed consolidated financial statements and accompanying notes. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. Our actual results may differ from these estimates. U.S. GAAP requires us to make estimates and judgments in several areas, including, but not limited to: (1) revenue recognition criteria, (2) allowances for credit losses, (3) research tax credits, (4) income taxes, including i) recognition of deferred tax assets arising from the subsidiaries projected taxable profit for future years, ii) evaluation of uncertain tax positions associated with our transfer pricing policy and iii) recognition of income tax position in respect with tax reforms recently enacted in countries we operate, (5) assumptions used in valuing acquired assets and assumed liabilities in business combinations, (6) assumptions used in the valuation of goodwill, intangible assets and right of use assets - operating lease, and (7) assumptions used in the valuation model to determine the fair value of share-based compensation plan.

The ongoing impact of COVID-19 increases 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.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the accounting pronouncements adopted below.

Accounting Pronouncements adopted in 2020

Effective January 1, 2020, we have adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 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. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. This results in earlier recognition of credit losses.

We measure loss allowances for all trade receivables using the lifetime expected credit loss approach, as described above. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date.

Effective January 1, 2020, we have adopted ASU 2017-04, Goodwill and Other (Topic 350). ASU 2017-04 simplifies the subsequent measurement of goodwill and reduces the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. The adoption of the ASU did not have an impact on our financial position or results of operations as we did not recognize an impairment loss during the period.

Effective January 1, 2020, we have adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software - Customer’s Accounting for Implementation Costs incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU was issued to clarify the accounting for implementation costs incurred for SaaS agreements. Previously the guidance only referred to development of internal use software and the accounting for SaaS agreements was not clarified. This ASU states that the implementation costs of SaaS agreements should be capitalized. The adoption of the standard did not have an impact on our financial position or results of operations, however, it did have a minor impact on expense classification in current and future periods.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018 - 14, Compensation - Retirement Benefits - Defined Benefit Plans - General. The purpose of this update is to modify disclosure requirements for Defined Benefit Plans. It removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year among others. It adds disclosure requirements for the items such as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. We intend to adopt the standard on the effective date of January 1, 2021. The adoption of ASU 2018-14 is not expected to have a material impact on our financial position or results of operations but may have an impact on our disclosures.

In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. We intend to adopt the standard on the effective date of January 1, 2021. The adoption of ASU 2019-12 is not expected to have a material impact on our financial position or results of operations but may have an impact on our disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s Consolidated Financial Statements upon adoption.

Note 2. Significant Events and Transactions of the Period

Share repurchase program

On October 25, 2018, Criteo's Board of Directors authorized a share repurchase program of up to $80.0 million of the Company’s outstanding American Depositary Shares. We completed this share repurchase program in 2018. As of December 31, 2018, 3.5 million shares were held as treasury shares.

On February 8, 2019, the Board of Directors authorized the reduction of capital resulting in the formal retirement of 1.6 million treasury shares.

On July 26, 2019, Criteo's Board of Directors authorized a share repurchase program of up to $80.0 million of the Company's outstanding American Depositary Shares. As of December 31, 2019, 3.2 million shares were held as treasury shares as part of the share repurchase program authorized on July 26, 2019. We completed the 2019 share repurchase program in February 2020.

On April 23, 2020, Criteo's Board of Directors authorized a share repurchase program of up to $30.0 million of the Company's outstanding American Depositary Shares. This share repurchase program is still on-going as of June 30, 2020.

As of June 30, 2020, we had 5.6 million treasury shares remaining which may be used to satisfy the Company's obligations under its employee equity plans upon RSU vestings in lieu of issuing new shares, and for M&A activity.


	Number of Treasury Shares	Amount (in thousands of dollars)
Balance at January 1, 2020	3,903,673	$	74,900


Treasury Shares Repurchased for RSU Vesting	2,525,492	33,100
Treasury Shares Issued for RSU Vesting	(839,757)	(17,286)
Balance at June 30, 2020	5,589,408	$	90,714

Restructuring

Cease of our R&D operations in Palo Alto

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 additional net restructuring costs of $0.05 million and $0.5 million for the three and six months ended June 30, 2020, respectively, comprising of payroll expenses included in Research and Development expenses.

The following table summarizes restructuring activities as of June 30, 2020 included in other current liabilities on the balance sheet:


	Six Months Ended
	June 30, 2020
	(in thousands)
Restructuring liability - January 1, 2020	$	5,581
Restructuring costs	497
Restructuring costs - non cash items	—
Amount paid	(5,030)
Restructuring liability - June 30, 2020	1,048

New organization structure

As part of a new organization structure designed to best support our multi-product platform strategy and accelerate execution, commenced in the twelve month period ended December 31, 2019, the Company incurred net restructuring costs of $0.4 million and $1.1 million for the three and six month periods ended June 30, 2020, respectively, comprising of payroll expenses.

For the three and six month periods ended June 30, 2020, respectively, $0.04 million and $0.2 million was included in Research and Development expenses and $0.32 million and $0.9 million was included in Sales and Operations expenses.

The following table summarizes restructuring activities as of June 30, 2020 included in other current liabilities on the balance sheet:


	Six Months Ended
	June 30, 2020
	(in thousands)
Restructuring liability - January 1, 2020	$	510
Restructuring costs	1,133
Amount paid	(1,529)
Restructuring liability - June 30, 2020	114

Changes in Group funding

In September 2015, Criteo S.A. entered into a Multicurrency Revolving Facility Agreement for general purposes of the Group including the funding of business combinations. On May 4, 2020, Criteo decided to draw €140 million ($156.8 million) under its RCF credit facility for general purposes. The drawdown is for an initial period of six months. In addition the parties to the RCF agreement have agreed to extend the term of the agreement for one additional year, from March 2022 to March 2023, composed of a €350 million ($392 million) commitment through March 2022, and a €294 million ($329 million) commitment from the end of March 2022 through March 2023. The cost of the one-year extension is 0.025% of the extended amount.

Changes in Group financial investments

A €20 million ($22 million) amount has been invested in a 24 months term deposit with a yearly yield of 0.25%. This new investment is classified under Marketable Securities as a non-current asset as it does not meet the cash and cash equivalent criteria.

Note 3. Financial Instruments

Financial assets

The maximum exposure to credit risk at the end of each reported period is represented by the carrying amount of financial assets and summarized in the following table:


	December 31, 2019		June 30, 2020
	(in thousands)

Trade receivables, net of allowance	481,732		329,979
Other taxes	60,924		54,008
Other current assets	17,225		17,306
Non-current financial assets	21,747		19,809
Marketable Securities	—		22,396
Total	$	581,628	$	443,498

Credit Risk

We maintain an allowance for estimated credit losses. During the period ended December 31, 2019 and the six-month period ended June 30, 2020, our net change in allowance for credit losses was $9.9 million and $17.2 million, respectively (note 4). The primary cause of this change was the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) from January 1, 2020 resulting in an earlier recognition of credit losses, the cumulative effect of which, was recorded as an adjustment to retained earnings for $3.5 million (note 1), as well as an increase to the provision due to the expected impact of COVID-19 on the Company's future cash collection.

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 or pause the provision of services until payment of past due receivables is made.

As of December 31, 2019 and June 30, 2020, no customer accounted for 10% or more of trade receivables.

Financial Liabilities


	December 31, 2019		June 30, 2020

	(in thousands)
Trade payables	$	390,277	$	280,626
Other taxes	50,099		44,085
Employee-related payables	74,781		61,963
Other current liabilities	35,886		38,982
Financial liabilities	4,405		159,425
Total	$	555,448	$	585,081

For our financial liabilities, the fair value approximates the carrying amount, given the nature of the financial liabilities and the maturity of the expected cash flows.

We are party to several loan agreements and a revolving credit facility, or RCF, with third-party financial institutions. There have been no significant changes from what was disclosed in Note 12 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 except as presented in note 2 relating to a drawing for a total amount of €140 million ($156.8 million) under the RCF credit facility for general purposes. The drawdown is for an initial period of six months. In addition, the parties to the RCF agreement have agreed to extend the term of the agreement for one additional year, from March 2022 to March 2023, composed of a €350 million ($392 million) commitment through March 2022, and a €294 million ($329 million) commitment from the end of March 2022 through March 2023. The cost of the one-year extension is 0.025% of the extended amount.

Fair Value Measurements

We measure the fair value of our cash equivalents and marketable securities, which include interest-bearing bank deposits, as level 2 measurements because they are valued using observable market data.

Financial assets or liabilities include derivative financial instruments used to manage our exposure to the risk of exchange rate fluctuations. These instruments are considered level 2 financial instruments as they are measured using valuation techniques based on observable market data.

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.


	December 31, 2019		June 30, 2020

	(in thousands)
Derivative Assets:
Included in other current assets	$	—	$	389

Derivative Liabilities:
Included in financial liabilities - current portion	$	1,284	$	—

For our derivative financial instruments, the fair value approximates the carrying amount, given the nature of the derivative financial instruments and the maturity of the expected cash flows.

Cash and Cash Equivalents

The following table presents for each reporting period, the breakdown of cash and cash equivalents:


	December 31, 2019		June 30, 2020

	(in thousands)
Cash equivalents	$	189,119	$	174,005
Cash on hand	229,644		404,176
Total cash and cash equivalents	$	418,763	$	578,181

Cash equivalents are investments in interest–bearing bank deposits which meet ASC 230—Statement of Cash flows criteria: short-term, highly liquid investments, for which the risks of changes in value are considered to be insignificant. Interest-bearing bank deposits are considered level 2 financial instruments as they are measured using valuation techniques based on observable market data.

For our cash and cash equivalents, the fair value approximates the carrying amount, given the nature of the cash and cash equivalents and the maturity of the expected cash flows.

Marketable Securities

We have made a €20 million investment into a 24 months term deposit with one of the RCF parties, with a yearly yield of 0.25%. This new investment is classified under Marketable Securities as a non-current asset as it does not meet the cash and cash equivalent criteria.

We determine the appropriate classification of our investments in marketable securities at the time of purchase and re-evaluate such designation at each balance sheet date. We have classified and accounted for our marketable debt securities as available-for-sale. After consideration of our risk versus reward objectives, as well as our liquidity requirements, management may redeem these debt securities prior to their stated maturities.

The following table presents for each reporting period, the breakdown of the fair value of marketable securities:


	December 31, 2019		June 30, 2020

	(in thousands)
Term Deposits	$	—	$	22,396
Marketable Securities	—		$	22,396

The gross unrealized gains on our marketable securities were not material as of June 30, 2020.

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:


	June 30, 2020

	(in thousands)
Due in one year	$	—
Due in one to five years	$	22,396
Total	$	22,396

Note 4. Trade Receivables

The following table shows the breakdown in trade receivables net book value for the presented periods:


	December 31, 2019		June 30, 2020

	(in thousands)
Trade accounts receivables	$	497,800	$	363,273
(Less) Allowance for credit losses	(16,068)		(33,294)
Net book value at end of period	$	481,732	$	329,979

Changes in allowance for credit accounts are summarized below:


	2019		2020

	(in thousands)
Balance at January 1	$	(25,918)	$	(16,068)
Allowance for credit losses through retained earnings (*)	—		(3,483)
Allowance for credit losses	(6,042)		(21,040)
Reversal of provision	12,318		6,974
Currency translation adjustment	96		323
Balance at June 30	$	(19,546)	$	(33,294)

(*) From January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost issued by the Financial Accounting Standards Board (FASB). ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. This results in earlier recognition of credit losses. We adopted ASU 2016-13 effective January 1, 2020 with the cumulative effect of adoption recorded as an adjustment to retained earnings (note 1).

The amount charged to allowance for credit losses for the six months ended June 30, 2020 increased compared to the same period in the prior year due to the application of the expected credit loss model beginning on January 1, 2020 as well as an increase to the provision due to the expected impact of COVID-19 on the Company's future cash collections.

The reversal of provision decreased during the six month period ended June 30, 2020, mainly due to lower payments received and write-offs of long outstanding receivables already reserved for which it is certain we will not collect the receivable. During the six month period ended June 30, 2020, the Company recovered $2.3 million previously written off, accounted for as a reversal of provision.

The Company mitigates its credit risk with respect to accounts receivables by performing credit evaluations and monitoring agencies and advertisers' accounts receivables balances.

Note 5. Other Current Assets

The following table shows the breakdown in other current assets net book value for the presented periods:


	December 31, 2019		June 30, 2020

	(in thousands)
Prepayments to suppliers	$	5,109	$	5,671
Other debtors	4,225		2,809
Prepaid expenses	7,891		8,437
Derivative instruments	—		389
Gross book value at end of period	17,225		17,306

Net book value at end of period	$	17,225	$	17,306

Prepaid expenses mainly consist of office rental advance payments.

Derivative financial instruments include foreign currency swaps or forward purchases or sales contracts 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.

Note 6. Intangible Assets and Goodwill

There have been no significant additions to intangible assets or goodwill since December 31, 2019.

In addition, no events or circumstances have occurred during the three months ended June 30, 2020 that would indicate impairment of intangible assets and goodwill.

The estimated amortization expense related to intangible assets for the next five years and thereafter is as follows:


	Software		Technology and customer relationships		Total
	(in thousands)
From July 1 to December 31, 2020	$	4,639	$	5,721	$	10,360
2021	8,479		11,441		19,920
2022	5,836		11,441		17,277
2023	3,291		10,948		14,239
2024	700		8,700		9,400
Thereafter	61		6,928		6,989
Total	$	23,006	$	55,179	$	78,185

Note 7. Other Current Liabilities

Other current liabilities are presented in the following table:


	December 31, 2019		June 30, 2020

	(in thousands)
Clients' prepayments	$	13,618	$	10,700
Credit notes	16,420		11,913
Accounts payable relating to capital expenditures	4,408		14,576
Other creditors	1,213		1,718
Deferred revenue	227		75
Total	$	35,886	$	38,982

Note 8. Leases

We have adopted Topic 842 effective January 1, 2019 on a modified retrospective basis and elected not to restate comparative periods. We chose to use certain practical expedients offered by the 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 used hindsight in determining the lease term.

We lease space under non-cancellable operating leases for our offices as well as our data centers. Our office leases typically include free rent periods or rent escalation periods, and may also include leasehold improvement incentives. Leases for data centers may also include free rent periods or rent escalation periods. These leases typically do not include residual value guarantees. Both office and data center leases may contain both lease components (rent) and non-lease components (maintenance, electrical costs, and other service charges). Non-lease components are accounted for separately.

Both office and data center leases typically contain options to renew, and/or early terminate. We have evaluated management's expectations for these options as of June 30, 2020. Options have been included in the lease term if management has determined it is reasonably certain it 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. As 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 a 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 are expensed in the period incurred. Variable expenses include changes in indexation. Leases for data centers may have variable costs based on electrical usage.

The components of lease expense are as follows:


	Three Months Ended
	June 30, 2019										June 30, 2020
	Offices		Data Centers		Total		Offices		Data Centers		Total
	(in thousands)
Lease expense	$	8,574	$	6,154	$	14,728	$	7,487	$	6,784	$	14,271
Short term lease expense	523		525		1,048		(69)		(56)		(125)
Variable lease expense	1,821		239		2,060		4		(428)		(424)
Sublease income	(693)		—		(693)		26		—		26
Total operating lease expense	$	10,225	$	6,918	$	17,143	$	7,448	$	6,300	$	13,748


	Six Months Ended
	June 30, 2019										June 30, 2020
	Offices		Data Centers		Total		Offices		Data Centers		Total
	(in thousands)
Lease expense	$	16,914	$	11,341	$	28,255	$	13,801	$	13,320	$	27,121
Short term lease expense	1,448		1,055		2,503		217		—		217
Variable lease expense	1,821		353		2,174		13		88		101
Sublease income	(1,769)		—		(1,769)		(176)		—		(176)
Total operating lease expense	$	18,414	$	12,749	$	31,163	$	13,855	$	13,408	$	27,263

As of June 30, 2020, we had future minimum lease payments as follows:


	June 30, 2020
	Offices		Data Centers		Total
	(in thousands)
Remainder of 2020	$	16,037	$	12,530	$	28,567
2021	30,042		19,486		49,528
2022	27,794		10,725		38,519
2023	18,387		4,397		22,784
2024	9,379		2,243		11,622
Thereafter	14,283		375		14,658
Total minimum lease payments	115,922		49,756		165,678
Impact of Discount Rate	(7,500)		(970)		(8,470)
Total Lease Liability	$	108,422	$	48,786	$	157,208

The weighted average remaining lease term and discount rates as of June 30, 2020 are as follows:



	June 30, 2019		June 30, 2020
Weighted average remaining lease term (years)
Offices	5.19		4.28
Data Centers	2.81		2.61
Weighted average discount rate
Offices	2.64	%	2.59	%
Data Centers	1.75	%	1.59	%

Supplemental cash flow information related to our operating leases is as follows for the three months and six month period ended June 30, 2020:


	Three Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash flow for operating activities	$	(13,967)	$	(12,733)
Right of use assets obtained in exchange for new operating lease liabilities	$	594	$	—


	Six Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash flow for operating activities	$	(27,931)	$	(26,781)
Right of use assets obtained in exchange for new operating lease liabilities	$	11,520	$	—

As of June 30, 2020, we have additional operating leases, that have not yet commenced which will result in additional operating lease liabilities and right of use assets:


	Offices		Data Centers
	(in thousands)
Additional operating lease liabilities	$	12,291	$	7,864
Additional right of use assets	$	9,380	$	7,864

These operating leases will commence during the fiscal year ending December 31, 2020.

Note 9. Revenue

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 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.

In conjunction with broadening our solutions, we have also started expanding our pricing models to now include a combination of cost-per-install and cost-per-impression for selected new solutions, in addition to cost-per-click.

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-click 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 recognize revenue when a user clicks on an advertisement or installs an application.

For campaigns priced on a cost-per-impression basis, we bill our clients based on the number of times an advertisement is displayed to a user. For this pricing model, we recognize revenue when an advertisement is displayed.

We act as principal in our arrangements because (i) we control the advertising inventory (spaces on websites) before it is transferred to our clients; (ii) we bear sole responsibility for fulfillment of the advertising promise and inventory risks and (iii) we have full discretion in establishing prices. Therefore, based on these factors, we report revenue earned and the related costs incurred on a gross basis.

Disaggregation of revenue

The following tables disclose our consolidated revenue for each geographical area for each of the reported periods. Revenue by geographical area is based on the location of advertisers’ campaigns.

The following table presents our revenues disaggregated by geographical area:


	Americas		EMEA		Asia-Pacific		Total
For the three months ended	(in thousands)

June 30, 2019	$	213,974	$	194,359	$	119,814	$	528,147
June 30, 2020	$	185,674	$	159,621	$	92,319	$	437,614


	Americas		EMEA		Asia-Pacific		Total
For the six months ended	(in thousands)

June 30, 2019	$	431,967	$	404,002	$	250,301	$	1,086,270
June 30, 2020	$	377,419	$	349,735	$	213,836	$	940,990

Excluding our historical solution for driving Conversion as part of the Criteo Marketing Solutions family (formerly called Criteo Dynamic Retargeting), no individual solution from either the Criteo Marketing Solutions family, nor the Criteo Retail Media family, accounted for more than 10% of total consolidated revenue for the periods presented.

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.

Note 10. Share-Based Compensation

The board of directors has been authorized by the general meeting of the shareholders to grant employee warrants (Bons de Souscription de Parts de Créateur d’Entreprise or "BSPCEs"), share options (Options de Souscription d'Actions or "OSAs"), restricted share units ("RSUs") and non-employee warrants (Bons de Souscription d'Actions or "BSAs").

During the six months ended June 30, 2020, there were three grants of RSUs and one grant of OSAs under the Employee Share Option Plan 12 as defined in Note 20 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

On March 2, 2020, 40,240 RSUs were granted to Criteo employees subject to continued employment and 43,217 RSUs and 43,217 PSUs were granted to a member of the management subject to continued employment.

On April 23, 2020, 72,411 RSUs were granted to Criteo employees subject to continued employment and 140,513 OSAs were granted to a member of management subject to continued employment.

On June, 22, 2020, 1,626,850 RSUs were granted to Criteo employees, to certain senior managers and members of management subject to continued employment.

There have been no changes in the vesting and method of valuation of the BSPCEs, OSAs, RSUs, or BSAs from what was disclosed in Note 20 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.

Change in Number of BSPCE/OSA/RSU/BSA


	OSA/BSPCE	RSU/PSU	BSA	Total
Balance at January 1, 2020	2,559,534	4,978,986	363,767	7,902,287
Granted	140,513	1,825,935	—	1,966,448
Exercised (OSA/BSPCE/BSA)	(7,700)	—	—	(7,700)
Vested (RSU)	—	(856,938)	—	(856,938)
Forfeited	(166,459)	(479,370)	(12,742)	(658,571)
Expired	(3,600)	—	—	(3,600)
Balance at June 30, 2020	2,522,288	5,468,613	351,025	8,341,926

Breakdown of the Closing Balance


	OSA/BSPCE		RSU	BSA

Number outstanding	2,522,288		5,468,613	351,025
Weighted-average exercise price	€	22.02	NA	€	14.82
Number vested	1,808,388		NA	165,291
Weighted-average exercise price	€	24.24	NA	€	17.13
Weighted-average remaining contractual life of options outstanding, in years	5.80		NA	7.15

Reconciliation with the Unaudited Consolidated Statements of Income


	Three Months Ended
	June 30, 2019														June 30, 2020
	(in thousands)
	R&D		S&O		G&A		Total		R&D		S&O		G&A		Total
RSUs	$	(3,952)	$	(4,669)	$	(3,496)	$	(12,117)	$	(2,068)	$	(1,516)	$	(2,585)	$	(6,169)
Share options / BSPCE	624		777		(646)		755		—		(56)		(579)		(635)
Total share-based compensation	(3,328)		(3,892)		(4,142)		(11,362)		(2,068)		(1,572)		(3,164)		(6,804)
BSAs	—		—		(351)		(351)		—		—		(355)		(355)
Total equity awards compensation expense	$	(3,328)	$	(3,892)	$	(4,493)	$	(11,713)	$	(2,068)	$	(1,572)	$	(3,519)	$	(7,159)


	Six Months Ended
	June 30, 2019														June 30, 2020
	(in thousands)
	R&D		S&O		G&A		Total		R&D		S&O		G&A		Total
RSUs	$	(7,798)	$	(10,624)	$	(6,012)	$	(24,434)	$	(4,438)	$	(5,135)	$	(4,573)	$	(14,146)
Share options / BSPCE	445		531		(1,426)		(450)				(55)		(734)		(789)
Total share-based compensation	(7,353)		(10,093)		(7,438)		(24,884)		(4,438)		(5,190)		(5,307)		(14,935)
BSAs	—		—		(711)		(711)		—		—		(727)		(727)
Total equity awards compensation expense	$	(7,353)	$	(10,093)	$	(8,149)	$	(25,595)	$	(4,438)	$	(5,190)	$	(6,034)	$	(15,662)

Note 11. Financial Income and Expenses

The condensed consolidated statements of income line item “Financial income (expense)” can be broken down as follows:


	Three Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)

Financial income from cash equivalents	$	608	$	61
Interest and fees	(481)		(811)
Interest on debt	(443)		(638)
Fees	(38)		(173)
Foreign exchange gain (loss)	(1,089)		(235)
Other financial expense	(392)		(18)
Total financial income (expense)	$	(1,354)	$	(1,003)


	Six Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)

Financial income from cash equivalents	$	785	$	443
Interest and fees	(1,004)		(1,243)
Interest on debt	(873)		(1,018)
Fees	(131)		(225)
Foreign exchange gain (loss)	(2,687)		(496)
Other financial expense	(422)		(41)
Total financial income (expense)	$	(3,328)	$	(1,337)

The $1.0 million and the $1.3 million financial expenses for the three and six month periods ended June 30, 2020, respectively, were driven by the up-front fees amortization, the non-utilization costs and the financial expense relating to the €140 million ($156.8 million) drawing performed in May 2020 (note 2) as part of our available Revolving Credit Facility (RCF) financing and the recognition of a negative impact of foreign exchange reevaluations net of related hedging.

We manage our exposure to foreign currency risk at Criteo S.A. level and hedge using foreign currency swaps or forward purchases or sales of foreign currencies.

Note 12. Income Taxes

Breakdown of Income Taxes

The tax provision for interim periods is determined using an estimate of our annual effective tax rate (“AETR”), adjusted for discrete items arising in the period. To calculate our estimated AETR, we estimate our income before taxes and the related tax expense or benefit for the full fiscal year (total of expected current and deferred tax provisions), excluding the effect of significant unusual or infrequently occurring items or comprehensive income items not recognized in the statement of income. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated annual tax rate does change, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions and the changes in foreign exchange rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside of France.

The condensed consolidated statements of income line item “Provision for income taxes” can be broken down as follows:


	Six Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)
Current income tax	$	(14,365)	$	(17,293)
Net change in deferred taxes	(1,336)		7,617
Provision for income taxes	$	(15,701)	$	(9,676)

For the six months ended June 30, 2019 and 2020, we used an annual estimated tax rate of 30% to calculate the provision for income taxes. The effective tax rate was 32% and 30% for the six months ended June 30, 2019 and 2020, respectively. The difference between the annual estimated tax rate and the effective tax rate is mainly due to the tax impact of discrete items such as share-based compensation in the United States. Discrete items were immaterial for the six months ended June 30, 2020 resulting in no material difference between the annual estimated tax rate and the effective tax rate.

Current tax assets and liabilities

The total amount of current tax assets consists mainly of prepayments of income taxes and credits of Criteo SA, Criteo Corp and Criteo Gmbh. The current tax liabilities refers mainly to the corporate tax payables of Criteo K.K.

Ongoing tax inspection in the United States

On September 27, 2017, we received a draft notice of proposed adjustment (NOPA) from the Internal Revenue Service ("IRS") audit of Criteo Corp. for the year ended December 31, 2014, confirmed by the definitive notice dated February 8, 2018. Although we disagree with the IRS's position and are currently contesting this issue, the ultimate resolution of this litigation is uncertain and, if resolved in a manner unfavorable to us, could result in an additional federal tax liability of an estimated maximum aggregate amount of approximately $15.0 million, excluding related fees, interest and penalties.

Note 13. Earnings Per Share

Basic Earnings Per Share

We calculate basic earnings per share by dividing the net income for the period attributable to shareholders of the Parent by the weighted average number of shares outstanding.


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
Net income attributable to shareholders of Criteo S.A.	$	10,823	$	5,716	$	29,943	$	21,175
Weighted average number of shares outstanding	64,581,476		61,415,467		64,459,867		61,553,875
Basic earnings per share	$	0.17	$	0.09	$	0.46	$	0.34

Diluted Earnings Per Share

We calculate diluted earnings per share by dividing the net income attributable to shareholders of the Parent by the weighted average number of shares outstanding plus any potentially dilutive shares not yet issued from share-based compensation plans (see Note 10). There were no other potentially dilutive instruments outstanding as of June 30, 2019 and June 30, 2020. Consequently, all potential dilutive effects from shares are considered.

For each period presented, a contract to issue a certain number of shares (i.e. share option, non-employee warrant ("BSA"), restricted share unit ("RSU") or employee warrant ("BSPCE") is assessed as potentially dilutive if it is “in the money” (i.e., the exercise or settlement price is lower than the average market price).


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
Net income attributable to shareholders of Criteo S.A.	$	10,823	$	5,716	$	29,943	$	21,175
Weighted average number of shares outstanding of Criteo S.A.	64,581,476		61,415,467		64,459,867		61,553,875
Dilutive effect of :
Restricted share awards ("RSUs")	737,992		247,062		1,027,671		255,685
Share options and BSPCE	274,298		119,516		305,473		136,651
Share warrants	30,739		8,090		40,631		12,288
Weighted average number of shares outstanding used to determine diluted earnings per share	65,624,505		61,790,135		65,833,642		61,958,499
Diluted earnings per share	$	0.16	$	0.09	$	0.45	$	0.34

The weighted average number of securities that were anti-dilutive for diluted EPS for the periods presented but which could potentially dilute EPS in the future are as follows:


	Three Months Ended			Six Months Ended
	June 30, 2019	June 30, 2020	June 30, 2019	June 30, 2020

Restricted share awards	1,305,872	4,183,514	894,012	3,212,368
Share options and BSPCE	2,795	140,513	34,147	70,257

Weighted average number of anti-dilutive securities excluded from diluted earnings per share	1,308,667	4,324,027	928,159	3,282,625

Note 14. Commitments and contingencies

Commitments

Revolving Credit Facilities "RCF", Credit Line Facilities and Bank Overdrafts

As mentioned in Notes 2 and 3, we are party to an RCF with a syndicate of banks which allow us to draw up to an additional €210.0 million ($235.2 million).

We are also party to short-term credit lines and overdraft facilities with HSBC plc, BNP Paribas and LCL with an authorization to draw up to a maximum of €21.5 million ($24.1 million) in aggregate under the short-term credit lines and overdraft facilities. As of June 30, 2020, we had not drawn on any of these facilities. Any loans or overdrafts under these short-term facilities bear interest based on the one month EURIBOR rate or three month EURIBOR rate. As these facilities are exclusively short-term credit and overdraft facilities, our banks have the ability to terminate such facilities on short notice.

Contingencies

Changes in provisions during the presented periods are summarized below:


	Provision for employee-related litigation		Other provisions		Total
	(in thousands)
Balance at January 1, 2020	$	620	$	5,765	$	6,385
Increase	91		—		91
Provision used	(4)		(442)		(446)
Provision released not used	—		(1,770)		(1,770)
Currency translation adjustments	1		(135)		(134)
Balance at June 30, 2020	$	708	$	3,418	$	4,126
- of which current	708		3,418		4,126

The amount of the provisions represents management’s best estimate of the future outflow.

Note 15. Breakdown of Revenue and Non-Current Assets by Geographical Areas

The Company operates in the following 3 geographical markets:

• Americas (North and South America);

• EMEA (Europe, Middle-East and Africa); and

• Asia-Pacific.

The following tables disclose our consolidated revenue for each geographical area for each of the reported periods. Revenue by geographical area is based on the location of advertisers’ campaigns.


	Americas		EMEA		Asia-Pacific		Total
For the three months ended:	(in thousands)

June 30, 2019	$	213,974	$	194,359	$	119,814	$	528,147
June 30, 2020	$	185,674	$	159,621	$	92,319	$	437,614

Revenue generated in France, the country of incorporation of the Parent, amounted to $35.2 million and $27.3 for the three months ended June 30, 2019 and 2020, respectively.


	Americas		EMEA		Asia-Pacific		Total
For the six months ended:	(in thousands)

June 30, 2019	$	431,967	$	404,002	$	250,301	$	1,086,270
June 30, 2020	$	377,419	$	349,735	$	213,836	$	940,990

Revenue generated in France amounted to $72.6 million and $59.3 million for the six month ended June 30, 2019 and 2020, respectively.

Revenue generated in other significant countries where we operate is presented in the following table:


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)

Americas
United States	$	192,815	$	169,879	$	388,606	$	342,906
EMEA
Germany	$	46,998	$	39,621	$	100,593	$	90,239
United Kingdom	$	21,180	$	20,857	$	42,948	$	41,677
Asia-Pacific
Japan	$	82,263	$	67,782	$	175,431	$	152,419

As of June 30, 2019 and 2020, our largest client represented 1.4% and 1.1%, respectively, of our consolidated revenue.

Other Information

For each reported period, non-current assets (corresponding to the net book value of tangible and intangible assets, excluding right of use assets related to lease agreements) are presented in the table below. The geographical information includes results from the locations of legal entities.


					Of which						Of which
	Holding		Americas		United States		EMEA		Asia-Pacific		Japan		Singapore		Total
(in thousands)

December 31, 2019	$	136,621	$	104,389	$	100,107	$	20,336	$	19,701	$	9,617	$	5,970	$	281,047
June 30, 2020	$	125,403	$	98,751	$	98,538	$	17,016	$	32,751	$	20,405	$	8,460	$	273,921

Note 16. Related Parties

There were no significant related-party transactions during the period nor any change in the nature of the transactions as described in Note 25 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 except as follows:

On May 15, 2020, the Group announced the appointment of Dave Anderson as the Company’s Interim Chief Financial Officer for a six-month term in replacement of Benoit Fouilland, effective May 18, 2020. During his engagement, Mr. Anderson is also the Company’s Principal Financial Officer and Principal Accounting Officer. Mr. Fouilland departed Criteo on June 30, 2020.

The Executive Officers as of June 30, 2020 were:

•Megan Clarken - Chief Executive Officer;

•Dave Anderson - Interim Chief Financial Officer; and

•Ryan Damon - General Counsel and Corporate Secretary.

Note 17. Subsequent Events

Given the ongoing impact that the COVID-19 pandemic is having on the Company's clients' business, it will remain a factor in our analysis of estimates residing in the financial statements, including, but not limited to, estimates related to receivable reserves calculated under the CECL model, the impairment analysis, and the income tax calculation. These estimates involve projections and assumptions regarding the future economic environment and as such it is possible that events may occur rapidly or unexpectedly that could lead to their changes. We will continue to closely monitor the effects of the COVID-19 pandemic, and continuously evaluate its impact on our key estimates.

The Company evaluated all other subsequent events that occurred after June 30, 2020 through the date of issuance of the unaudited condensed consolidated financial statements and determined there are no other significant events that require adjustments or disclosures.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission, or "SEC", on March 2, 2020.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report filed on Form 10-K for the year ended December 31, 2019. Please refer to Note 1,"Summary of Significant Accounting Policies," of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of the changes in accounting policies due to the adoption of this standard.

Recently Issued Pronouncements

See "Recently Issued Accounting Standards" under Note 1, "Summary of Significant Accounting Policies," of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued during 2020.

Use of Non-GAAP Financial Measures

This Form 10-Q includes the following financial measures defined as non-GAAP financial measures by the SEC: Revenue ex-TAC, Adjusted EBITDA and Adjusted Net Income. These measures are not calculated in accordance with U.S. GAAP.

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

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

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

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

Condensed Consolidated Statements of Income Data (Unaudited):


		Three Months Ended						Six Months Ended
		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands, except share and per share data)

Revenue		$	528,147	$	437,614	$	1,086,270	$	940,990

Cost of revenue ⁽²⁾
Traffic acquisition costs		(304,229)		(257,698)		(626,658)		(555,062)
Other cost of revenue		(29,059)		(33,914)		(55,104)		(67,720)
Gross profit		194,859		146,002		404,508��		318,208

Operating expenses
Research and development expenses ⁽²⁾		(44,015)		(31,247)		(90,592)		(68,762)
Sales and operations expenses ⁽²⁾		(95,503)		(75,781)		(191,412)		(160,755)
General and administrative expenses ⁽²⁾		(35,767)		(29,185)		(69,537)		(55,100)
Total operating expenses		(175,285)		(136,213)		(351,541)		(284,617)
Income from operations		19,574		9,789		52,967		33,591
Financial income (expense)		(1,354)		(1,003)		(3,328)		(1,337)
Income before taxes		18,220		8,786		49,639		32,254
Provision for income taxes		(5,683)		(2,636)		(15,701)		(9,676)
Net income		$	12,537	$	6,150	$	33,938	$	22,578
Net income available to shareholders of Criteo S.A. ⁽¹⁾		$	10,823	$	5,716	$	29,943	$	21,175
Net income available to shareholders of Criteo S.A. per share:
Basic		$	0.17	$	0.09	$	0.46	$	0.34
Diluted		$	0.16	$	0.09	$	0.45	$	0.34

Weighted average shares outstanding used in computing per share amounts:
Basic		64,581,476		61,415,467		64,459,867		61,553,875
Diluted		65,624,505		61,790,135		65,833,642		61,958,499

⁽¹⁾For the three month periods ended June 30, 2019 and 2020, this excludes $1.7 million and $0.5 million, respectively, of net income attributable to non-controlling interests held by Yahoo! Japan in our Japanese subsidiary Criteo KK. For the six months ended June 30, 2019 and 2020, this excludes $4.0 million and $1.4 million, respectively, of net income attributable to non-controlling interests held by Yahoo! Japan in our Japanese subsidiary Criteo KK.

⁽²⁾ Cost of revenue and operating expenses include equity awards compensation expense, pension service costs, depreciation and amortization expense, restructuring costs, acquisition-related costs and deferred price consideration as follows:

Detailed Information on Selected Items (unaudited):


		Three Months Ended						Six Months Ended
		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)
Equity awards compensation expense
Research and development expenses		$	4,203	$	2,068	$	8,228	$	4,438
Sales and operations expenses		5,693		1,572		11,894		5,190
General and administrative expenses		4,495		3,519		8,151		6,034
Total equity awards compensation expense		$	14,391	$	7,159	$	28,273	$	15,662

Pension service costs
Research and development expenses		191		269		384		538
Sales and operations expenses		71		95		143		190
General and administrative expenses		129		175		258		349
Total pension service costs ^(a)		$	391	$	539	$	785	$	1,077

Depreciation and amortization expense
Cost of revenue		10,847		13,098		19,982		25,869
Research and development expenses ^(b)		3,534		1,658		7,011		7,308
Sales and operations expenses ^(c)		5,109		4,221		9,973		8,561
General and administrative expenses		1,825		1,231		3,645		2,608
Total depreciation and amortization expense		$	21,315	$	20,208	$	40,611	$	44,346













Restructuring costs ⁽¹⁾
Research and development expenses		124		513		124		1,508
Sales and operations expenses		175		415		2,065		1,436
General and administrative expenses		429		288		429		481
Total Restructuring costs ⁽¹⁾		$	728	$	1,216	$	2,618	$	3,425

⁽¹⁾ For the three and six months ended June 2019, and June 2020, respectively, the Company recognized restructuring charges following its new organizational structure implemented to support its multi-product platform strategy and office right sizing policy:


	Three Months Ended					Six Months Ended
	June 30, 2019		June 30, 2020	June 30, 2019		June 30, 2020
	(in thousands)					(in thousands)
(Gain) from forfeitures of share-based compensation awards		(2,678)		—	(2,678)		—
Depreciation and amortization expense	1,228		—	1,228		—
Facilities and impairment related costs	(243)		807	1,647		1,794
Payroll related costs	2,421		409	2,421		1,631
Total restructuring costs		728		1,216	2,618		3,425

(a) Effective January 1, 2012, actuarial gains and losses are recognized in other comprehensive income.

(b) Includes acquisition-related amortization of intangible assets of $2.7 million and $0.7 million for the three months ended June 30, 2019 and 2020, respectively, and $5.4 million and $5.4 million for six months ended June 2019, 2020, respectively.

(c) Includes acquisition-related amortization of intangible assets of $2.8 million and $2.2 million for the three months ended June 30, 2019 and 2020, respectively and $5.5 million and $4.3 million for the six months ended June 30, 2019 and 2020, respectively.

Consolidated Statements of Financial Position Data (unaudited):


	December 31, 2019		June 30, 2020

	(in thousands)
Cash and cash equivalents	$	418,763	$	578,181
Total assets	1,790,384		1,804,402
Trade receivables, net of credit losses	481,732		329,979
Total financial liabilities	4,405		159,425
Total liabilities	752,396		769,405
Total equity	$	1,037,988	$	1,034,997

Other Financial and Operating Data (unaudited):


		Three Months Ended						Six Months Ended
		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands, except client data)
Number of clients		19,733		20,359		19,733		20,359
Revenue ex-TAC ⁽³⁾		$	223,918	$	179,916	$	459,612	$	385,928
Adjusted Net Income ⁽⁴⁾		$	30,730	$	16,707	$	70,435	$	48,735
Adjusted EBITDA⁽⁵⁾		$	56,399	$	38,911	$	125,254	$	98,101

⁽³⁾We define Revenue ex-TAC (Traffic Acquisition Costs) as our revenue excluding traffic acquisition costs, or TAC, generated over the applicable measurement period. Revenue ex-TAC is not a measure calculated in accordance with U.S. GAAP. We have included Revenue ex-TAC in this Form 10-Q 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 regarding the allocation of capital. In particular, we believe that the elimination of TAC from revenue can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Revenue 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 Revenue ex-TAC 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) other companies, including companies in our industry which have similar business arrangements, may address the impact of TAC differently; (b) other companies may report Revenue 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 Revenue ex-TAC alongside our other U.S. GAAP financial results, including revenue. The following table presents a reconciliation of Revenue ex-TAC to revenue, the most directly comparable U.S. GAAP measure, for each of the periods indicated:


		Three Months Ended						Six Months Ended
		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020

	(in thousands)
Revenue		$	528,147	$	437,614	$	1,086,270	$	940,990
Adjustment:
Traffic acquisition costs		(304,229)		(257,698)		(626,658)		(555,062)
Revenue ex-TAC		$	223,918	$	179,916	$	459,612	$	385,928

⁽⁴⁾We define Adjusted Net Income as our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, restructuring costs, acquisition-related costs and deferred price consideration, and the tax impact of the foregoing adjustments. Adjusted Net Income is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted Net Income in this Form 10-Q 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 regarding the allocation of capital. In particular, we believe that the elimination of equity awards compensation expense, amortization of acquisition-related intangible assets, restructuring costs, acquisition-related costs and deferred price consideration, and the tax impact 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 under U.S. GAAP. Some of these limitations are: (a) Adjusted Net Income does not reflect the potentially dilutive impact of equity-based compensation or the impact of certain acquisition related costs; and (b) other companies, including companies in our industry, may calculate Adjusted Net Income or similarly titled measures differently, which reduces their usefulness as a comparative measure. Because of these and other limitations, you should consider Adjusted Net Income alongside our other U.S. GAAP financial results, including net income. The following table presents a reconciliation of Adjusted Net Income to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated:


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)
Net income	$	12,537	$	6,150	$	33,938	$	22,578
Adjustments:
Equity awards compensation expense	14,391		7,159		28,273		15,662
Amortization of acquisition-related intangible assets	5,465		2,847		10,937		9,695


Restructuring costs ⁽¹⁾	728		1,216		2,618		3,425
Tax impact of the above adjustments	(2,391)		(665)		(5,331)		(2,625)
Adjusted Net Income	$	30,730	$	16,707	$	70,435	$	48,735


		Three Months Ended					Six Months Ended
		June 30, 2019		June 30, 2020	June 30, 2019		June 30, 2020
		(in thousands)
(Gain) from forfeitures of share-based compensation awards	(2,678)		—	(2,678)		—
Depreciation and amortization expense	1,228		—	1,228		—
Facilities and impairment related costs	(243)		807	1,647		1,794
Payroll related costs	2,421		409	2,421		1,631
Total restructuring costs		728		1,216	2,618		3,425

⁽⁵⁾ We define Adjusted EBITDA as our consolidated earnings before financial income (expense), income taxes, depreciation and amortization, adjusted to eliminate the impact of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration. Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. We have included Adjusted EBITDA in this Form 10-Q 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 and long-term operational plans. In particular, we believe that the elimination of equity awards compensation expense, pension service costs, restructuring costs, acquisition-related costs and deferred price consideration in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core 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 other U.S. GAAP financial results, including net income. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated:


	Three Months Ended						Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
	(in thousands)
Net income	$	12,537	$	6,150	$	33,938	$	22,578
Adjustments:
Financial expense (income)	1,354		1,003		3,328		1,337
Provision for income taxes	5,683		2,636		15,701		9,676
Equity awards compensation expense	14,391		7,159		28,273		15,662
Pension service costs	391		539		785		1,077
Depreciation and amortization expense	21,315		20,208		40,611		44,346


Restructuring costs ⁽¹⁾	728		1,216		2,618		3,425
Total net adjustments	43,862		32,761		91,316		75,523
Adjusted EBITDA	$	56,399	$	38,911	$	125,254	$	98,101


		Three Months Ended					Six Months Ended
		June 30, 2019		June 30, 2020	June 30, 2019		June 30, 2020
		(in thousands)
(Gain) from forfeitures of share-based compensation awards		(2,678)		—	(2,678)		—
Depreciation and amortization expense	1,228		—	1,228		—
Facilities and impairment related costs	(243)		807	1,647		1,794
Payroll related costs	2,421		409	2,421		1,631
Total restructuring costs		728		1,216	2,618		3,425

Results of Operations for the Periods Ended June 30, 2019 and 2020 (Unaudited)

Revenue

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended
	June 30, 2019		June 30, 2020		2019 vs 2020

	(in thousands)
Revenue as reported	$	528,147	$	437,614	(17)	%
Conversion impact U.S. dollar/other currencies			7,414
Revenue at constant currency ⁽¹⁾	528,147		445,028		(16)	%
Americas
Revenue as reported	213,974		185,674		(13)	%
Conversion impact U.S. dollar/other currencies			3,338
Revenue at constant currency ⁽¹⁾	213,974		189,012		(12)	%
EMEA
Revenue as reported	194,359		159,621		(18)	%
Conversion impact U.S. dollar/other currencies			4,596
Revenue at constant currency ⁽¹⁾	194,359		164,217		(16)	%
Asia-Pacific
Revenue as reported	119,814		92,319		(23)	%
Conversion impact U.S. dollar/other currencies			(520)
Revenue at constant currency⁽¹⁾	$	119,814	$	91,799	(23)	%

⁽¹⁾Growth at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the 2019 average exchange rates for the relevant period to 2020 figures. We have included revenue at constant currency in this Form 10-Q 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.

Revenue for the three months ended June 30, 2020 decreased (17)% (or decreased by (16)% on a constant currency basis, (as defined in footnote 1 directly above), compared to the three months ended June 30, 2019.

The COVID-19 pandemic impacted our business during the whole quarter, with an estimated impact on revenue of approximately $100 million for the three months ended June 30, 2020, or approximately 19 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 business in Marketing Solutions, in particular in the Travel, Classifieds and brick-and-mortar Retail verticals. However, we believe that spending in the midmarket and in our Retail Media solutions was supported by consumer trends emerging from the COVID-19 pandemic.

In particular, 68% of the year-over-year decrease in revenue was driven by the lower contribution from our existing clients while 32% was caused by client churn offsetting the positive contribution from new clients, both of which we attribute to the COVID-19 outbreak. We added 626 net new clients year-over-year across regions, while revenue from existing clients decreased by 13% at constant currency over the period, of which 21 points were attributable to the pandemic and 8 points of positive contribution related to client stickiness across Marketing Solutions and Retail Media.

Revenue in the Americas region decreased (13)% (or (12)% on a constant currency basis, and (12)% in the U.S.) to $185.7 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This decline was driven by an estimated revenue impact from COVID-19 of $38 million, in particular with large customers in the U.S. and in the broader Classifieds vertical, partially offset by the strong momentum of new products, in particular Retail Media in the U.S.

Revenue in EMEA decreased (18)% (or decreased (16)% on a constant currency basis) to $159.6 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This decrease at constant currency includes an estimated $37 million revenue impact from COVID-19 in the region, mostly in the Travel and Classifieds verticals, although Retail and midmarket proved resilient. New clients business was healthy across EMEA, with success across both direct clients and ad agencies.

Revenue in the Asia-Pacific region decreased (23)% (or decreased (23)% on a constant currency basis) to $92.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The decrease at constant currency, included an estimated $25 million revenue impact from the COVID-19, especially with Large Clients and mostly in the Travel and Classifieds verticals.

Additionally, our $437.6 million of revenue for the three months ended June 30, 2020 was negatively impacted by $7.4 million as a result of changes in foreign currency against the U.S. dollar compared to the three months ended June 30, 2019.

The year-over-year decrease in revenue on a constant currency basis is entirely attributable to the decrease in the average cost-per-click charged to advertisers, partially offset by the increased number of clicks delivered on the advertising banners displayed by us and the increased number of impressions delivered by us.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended
	June 30, 2019		June 30, 2020		2019 vs 2020

	(in thousands)
Revenue as reported	$	1,086,270	$	940,990	(13)	%
Conversion impact U.S. dollar/other currencies			15,532
Revenue at constant currency (1)	1,086,270		956,522		(12)	%
Americas
Revenue as reported	431,967		377,419		(13)	%
Conversion impact U.S. dollar/other currencies			5,096
Revenue at constant currency (1)	431,967		382,515		(11)	%
EMEA
Revenue as reported	404,002		349,735		(13)	%
Conversion impact U.S. dollar/other currencies			10,220
Revenue at constant currency (1)	404,002		359,955		(11)	%
Asia-Pacific
Revenue as reported	250,301		213,836		(15)	%
Conversion impact U.S. dollar/other currencies			216
Revenue at constant currency(1)	$	250,301	$	214,052	(14)	%

Revenue for the six months ended June 30, 2020 decreased (13)% or (12)% on a constant currency basis, to $941.0 million (as defined in footnote 1 directly above), compared to the six months ended June 30, 2019.

The COVID-19 outbreak started having an impact on our revenue from mid-February. Overall, the negative impact of COVID-19 on our revenue for the first six months of 2020 was estimated at approximately $125 million, or more than 11 points of year-over-year growth, as some clients decided to temporarily pause or reduce their campaigns with us.

The year-over-year decrease in revenue was entirely driven by the lower contribution from our existing clients as a result of the COVID-19 outbreak, which exceeded revenues derived from new clients over the period. We added 626 net new clients year-over-year across regions.

Revenue in the Americas region decreased (13)% (or (11)% on a constant currency basis), including (12)% in the U.S.) to $377.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This decline was driven by an estimated revenue impact from COVID-19 of $46 million, in particular with large customers in the U.S. and in the broader Classifieds vertical. This came in addition to a soft start in January, due to client budget slowdowns after very high spend levels during the Q4 2019 peak season in the Americas.

Revenue in EMEA decreased (13)% (or (11)% on a constant currency basis) to $349.7 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This decrease at constant currency includes an estimated $49 million revenue impact from the COVID-19 in the region, in part due to the fact that EMEA is the region with the highest exposure to the Travel vertical, which was most hit by COVID-19. In this difficult context, our performance in the Retail vertical and in the midmarket across the region remained solid and resilient.

Revenue in the Asia-Pacific region decreased (15)% (or (14)% on a constant currency basis) to $213.8 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease at constant currency, included an estimated $30 million revenue impact from the COVID-19, mostly in the Travel and Classifieds verticals.

Additionally, our $941.0 million of revenue for the six months ended June 30, 2020 was negatively impacted by $15.5 million as a result of changes in foreign currency against the U.S. dollar compared to the six months ended June 30, 2019.

Cost of Revenue

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Traffic acquisition costs	$	(304,229)		$	(257,698)		(15)%
Other cost of revenue	$	(29,059)		$	(33,914)		17%
Total Cost of Revenue	$	(333,288)		$	(291,612)		(13)%
% of revenue	(63)		%	(67)		%
Gross profit %	37		%	33		%

Cost of revenue for the three months ended June 30, 2020 decreased $(41.7) million, or (13)%, compared to the three months ended June 30, 2019. This decrease was primarily the result of a decrease of $(46.5) million, or (15)% (or (14)% on a constant currency basis) in traffic acquisition costs and an increase of $4.9 million, or 17% (or 19% on a constant currency basis) in other cost of revenue.

The decrease in traffic acquisition costs on a constant currency basis related primarily to the lower average cost per thousand impressions (or "CPM"), which decreased by (24)% (or (23)% on a constant currency basis). This was mainly driven by lower global demand for advertising inventory, despite the increase in online traffic globally caused by the lockdown imposed in COVID-19 affected areas, making the unit price of inventory cheaper. This was also driven by the effectiveness of our Criteo Direct Bidder, which allows us to buy quality inventory directly from large publishers in the web and in apps and remove intermediary fees in the process.

This decrease was not entirely offset by the 11% increase in the number of impressions we purchased, reflecting higher volumes of inventory available and our expanding relationships with existing and new publisher partners, in particular through direct connections, to support client demand for advertising campaigns.

The increase in other cost of revenue includes a $2.3 million increase in allocated depreciation and amortization expense following the acquisitions of servers and other equipments used in our data centers, a $2.4 million increase in hosting costs and a $0.2 million increase in other costs.

We consider Revenue ex-TAC as a key measure of our business activity. Our strategy focuses on maximizing the growth of our Revenue 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 Engine’s performance, allowing it to deliver more relevant advertisements at scale. As a part of this focus, we continue to invest in building relationships with direct publishers and pursuing access to leading advertising exchanges. Our performance-based business model provides us with significant control over our level of Revenue ex-TAC margin, which we seek to optimize in order to maximize Revenue ex-TAC growth on an absolute basis in accordance with our strategic focus.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Traffic acquisition costs	$	(626,658)		$	(555,062)		(11)%
Other cost of revenue	$	(55,104)		$	(67,720)		23%
Total Cost of Revenue	$	(681,762)		$	(622,782)		(9)%
% of revenue	(63)		%	(66)		%
Gross profit %	37		%	34		%

Cost of revenue for the six months ended June 30, 2020 decreased $(59.0) million, or (9)%, compared to the six months ended June 30, 2019. This decrease was primarily the result of a decrease of $(71.6) million, or (11)% (or (10)% on a constant currency basis) in traffic acquisition costs and an increase of $12.6 million, or 23% (or 25% on a constant currency basis) in other cost of revenue.

The decrease in traffic acquisition costs on a constant currency basis related primarily to the lower average cost per thousand impressions (or "CPM"), which decreased by (19)% (or (18)% on a constant currency basis). This was mainly driven by lower global demand for advertising inventory, despite the increase in online traffic caused by the lockdown imposed in COVID-19 affected areas, making the unit price of inventory cheaper. This was also driven by the effectiveness of our Criteo Direct Bidder, which allows us to buy quality inventory directly from large publishers in the web and in apps and remove intermediary fees in the process. This decrease was not entirely offset by the 10% increase in the number of impressions we purchased, reflecting higher volumes of inventory available and our expanding relationships with existing and new publisher partners, in particular through direct connections, to support client demand for advertising campaigns.

The increase in other cost of revenue includes a $5.9 million increase in allocated depreciation and amortization expense following the acquisitions of servers and other equipments used in our data centers, a $4.5 million increase in hosting costs and a $2.2 million increase in other costs, including the provision for Digital Taxes.

Our performance-based business model provides us with significant control over our level of Revenue ex-TAC margin, which we seek to optimize in order to maximize Revenue ex-TAC growth on an absolute basis in accordance with our strategic focus.

Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region

The following table sets forth our revenue, traffic acquisition costs and Revenue ex-TAC by geographic region, including the Americas (North and South America), Europe, Middle East and Africa, or EMEA, and Asia-Pacific.


		Three Months Ended									Six Months Ended
	Region	June 30, 2019			June 30, 2020		Year over Year Change		June 30, 2019		June 30, 2020		Year over Year Change

Revenue:				(amounts in thousands, except percentages)
	Americas	$	213,974		$	185,674	(13)	%	$	431,967	$	377,419	(13)	%
	EMEA	194,359			159,621		(18)	%	404,002		349,735		(13)	%
	Asia-Pacific	119,814			92,319		(23)	%	250,301		213,836		(15)	%
	Total	528,147			437,614		(17)	%	1,086,270		940,990		(13)	%

Traffic acquisition costs:
	Americas	(129,491)			(115,317)		(11)	%	(261,036)		(235,339)		(10)	%
	EMEA	(107,401)			(90,153)		(16)	%	(224,692)		(198,550)		(12)	%
	Asia-Pacific	(67,337)			(52,228)		(22)	%	(140,930)		(121,173)		(14)	%
	Total	(304,229)			(257,698)		(15)	%	(626,658)		(555,062)		(11)	%

Revenue ex-TAC⁽¹⁾:
	Americas	84,483			70,357		(17)	%	170,931		142,080		(17)	%
	EMEA	86,958			69,468		(20)	%	179,310		151,185		(16)	%
	Asia-Pacific	52,477			40,091		(24)	%	109,371		92,663		(15)	%
	Total	$	223,918		$	179,916	(20)	%	$	459,612	$	385,928	(16)	%

⁽¹⁾We define Revenue ex-TAC as our revenue excluding traffic acquisition costs generated over the applicable measurement period. Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region are not measures calculated in accordance with U.S. GAAP. We have included Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region in this Form 10-Q because they are key measures used by our management and board of directors to evaluate operating performance and generate future operating plans. In particular, we believe that the elimination of TAC from revenue and review of these measures by region can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region 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 Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region 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 Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region or similarly titled measures but define the regions differently, which reduces their effectiveness as a comparative measure; and (c) other companies may report Revenue 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 Revenue ex-TAC and Revenue, Traffic Acquisition Costs and Revenue ex-TAC by Region alongside our other U.S. GAAP financial results, including revenue. The above table provides a reconciliation of revenue ex-TAC by region to revenue by region. Please also refer to footnote 3 to the Other Financial and Operating Data table in "Item 2—Management's Discussion and Analysis" of this Form 10-Q for a reconciliation of revenue ex-TAC to revenue, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

Constant Currency Reconciliation

Information in this Form 10-Q with respect to results presented on a constant currency basis was calculated by applying the 2019 average exchange rates for the relevant period to 2020 figures. We have included information with respect to our results presented 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. Below is a table which reconciles the actual results presented in this section with the results presented on a constant currency basis:


	Three Months Ended											Six Months Ended
	June 30, 2019			June 30, 2020			YoY Change		June 30, 2019			June 30, 2020			YoY Change
	(amounts in thousands, except percentages)

Revenue as reported	$	528,147		$	437,614		(17)	%	$	1,086,270		$	940,990		(13)	%
Conversion impact U.S. dollar/other currencies				7,414								15,532
Revenue at constant currency	$	528,147		$	445,028		(16)	%	$	1,086,270		$	956,522		(12)	%

Traffic acquisition costs as reported	$	(304,229)		$	(257,698)		(15)	%	$	(626,658)		$	(555,062)		(11)	%
Conversion impact U.S. dollar/other currencies				(4,131)								(8,656)
Traffic Acquisition Costs at constant currency	$	(304,229)		$	(261,829)		(14)	%	$	(626,658)		$	(563,718)		(10)	%

Revenue ex-TAC as reported	$	223,918		$	179,916		(20)	%	$	459,612		$	385,928		(16)	%
Conversion impact U.S. dollar/other currencies				3,283								6,876
Revenue ex-TAC at constant currency	$	223,918		$	183,199		(18)	%	$	459,612		$	392,804		(15)	%
Revenue ex-TAC/Revenue as reported	42		%	41		%			42		%	41		%

Other cost of revenue as reported	$	(29,059)		$	(33,914)		17	%	$	(55,104)		$	(67,720)		23	%
Conversion impact U.S. dollar/other currencies				(544)								(968)
Other cost of revenue at constant currency	$	(29,059)		$	(34,458)		19	%	$	(55,104)		$	(68,688)		25	%

Adjusted EBITDA as reported	$	56,399		$	38,911		(31)	%	$	125,254		$	98,101		(22)	%
Conversion impact U.S. dollar/other currencies				600								2,217
Adjusted EBITDA at constant currency	$	56,399		$	39,511		(30)	%	$	125,254		$	100,318		(20)	%

Research and Development Expenses

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Research and development expenses	$	(44,015)		$	(31,247)		(29)%
% of revenue	(8)		%	(7)		%

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Research and development expenses	$	(90,592)		$	(68,762)		(24)%
% of revenue	(8)		%	(7)		%

Research and development expenses for the three months ended June 30, 2020, and the six months ended June 30, 2020 respectively decreased $(12.8) million and $(21.8) million, or (29)% and (24)%, compared to three months ended June 30, 2019 and the six months ended June 30, 2019. The decrease for the three month ended and the six month ended period mainly related to a decrease in headcount-related costs and rent and facilities related costs following the cease of our R&D operations in Palo Alto in 2019, and a lower share-based compensation expense partially offset by an increase in the French Research Tax Credit.

Sales and Operations Expenses

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Sales and operations expenses	$	(95,503)		$	(75,781)		(21)%
% of revenue	(18)		%	(17)		%

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Sales and operations expenses	$	(191,412)		$	(160,755)		(16)%
% of revenue	(18)		%	(17)		%

Sales and operations expenses for the three months ended June 30, 2020 and the six months ended June 30, 2020, respectively decreased $(19.7) million and $(30.7) million or (21)% and (16)%, compared to the three months ended June 30, 2019 and the six months ended June 30, 2019. The decrease for the three months ended and the six months ended period mainly related to a decrease in headcount-related costs, a lower share-based compensation expense, and a decrease in marketing costs partially offset by an increase in provision for doubtful receivables.

General and Administrative Expenses

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
General and administrative expenses	$	(35,767)		$	(29,185)		(18)%
% of revenue	(7)		%	(7)		%

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
General and administrative expenses	$	(69,537)		$	(55,100)		(21)%
% of revenue	(6)		%	(6)		%

General and administrative expenses for the three months ended June 30, 2020 and the six months ended June 30, 2020, respectively decreased $(6.6) million and $(14.4) million or (18)% and (21)%, compared to the three months ended June 30, 2019 and the six months ended June 30, 2019. The decrease for the three and six months ended June 30, 2020 is mainly related to a decrease in headcount-related costs, a lower share-based compensation expense and a decrease in rent and facilities costs following the right-sizing policy implemented to optimize the office spaces.

Financial Income (Expense)

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Financial income (expense)	$	(1,354)		$	(1,003)		(26)%
% of revenue	(0.3)		%	(0.2)		%

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Financial income (expense)	$	(3,328)		$	(1,337)		(60)%
% of revenue	(0.3)		%	(0.1)		%

Financial expense for the three and six months ended June 30, 2020, respectively, decreased by $0.4 million and $(2.0) million, or (26)% and (60)%, compared to the three months ended June 2019 and the six months ended period June 2019. The $1.0 million and the $1.3 million for the three and six month periods ended June 30, 2019 and June 30, 2020, respectively, were driven by the up-front fees amortization, the non-utilization costs and the financial expense relating to the €140 million ($156.8 million) drawing performed in May 2020 (note 2) as part of our available Revolving Credit Facility (RCF) financing and the recognition of a negative impact of foreign exchange reevaluations net of related hedging. We manage our exposure to foreign currency risk at the Criteo S.A. level and hedge using foreign currency swaps or forward purchases or sales of foreign currencies.

Provision for Income Taxes

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Provision for income taxes	$	(5,683)		$	(2,636)		(54)%
% of revenue	(1)		%	(1)		%
Effective tax rate	32		%	30		%

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended							% change
	June 30, 2019			June 30, 2020			2019 vs 2020

	(in thousands, except percentages)
Provision for income taxes	$	(15,701)		$	(9,676)		(38)%
% of revenue	(1)		%	(1)		%
Effective tax rate	32		%	30		%

For the three months ended and the six months ended period June 30, 2019 and June 30, 2020, respectively, we used an annual estimated tax rate of 30% to calculate the provision for income taxes. The effective tax rate was 32% and 30% for the three months ended and six months ended period June 30, 2019 and June 30, 2020, respectively. The difference between the annual estimated tax rate and the effective tax rate is mainly due to the tax impact of discrete items such as share-based compensation in the United States.

Net Income

Three months ended June 30, 2020 compared to the three months ended June 30, 2019


	Three Months Ended						% change
	June 30, 2019			June 30, 2020		2019 vs 2020

	(in thousands, except percentages)
Net income	$	12,537		6,150		(51)%
% of revenue	2		%	1	%

Net income for the three months ended June 30, 2020, decreased $(6.4) million, or (51)%, compared to the three months ended June 30, 2019. This decrease was the result of the factors discussed above, in particular, a $(9.8) million decrease in income from operations, partially offset by a $0.4 million decrease in financial expense and a $3.0 million decrease in provision for income taxes compared to the three months ended June 30, 2019.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019


	Six Months Ended						% change
	June 30, 2019			June 30, 2020		2019 vs 2020

	(in thousands, except percentages)
Net income	$	33,938		22,578		(33)%
% of revenue	3		%	2	%

Net income for the six months ended June 30, 2020, decreased $(11.4) million, or (33)%, compared to the six months ended June 30, 2019. This decrease was the result of the factors discussed above, in particular, a $(19.4) million decrease in income from operations partially offset by a $2.0 million decrease in financial expense and a $6.0 million decrease in provision for income taxes compared to the six months ended June 30, 2019.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and cash generated from operating activities. We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future. In 2018, we completed an $80 million share repurchase program. In July 2019, the Board of Directors authorized a new share repurchase program of up to $80 million of the Company’s outstanding American Depositary Shares, completed in February 2020. In April 2020, the Board of Directors authorized a new share repurchase program of up to $30 million of the Company's outstanding American Depositary Shares, expected to complete in late July 2020. Other than these repurchase programs, we intend to retain all available funds from any future earnings to fund our growth. As discussed in Note 3 to the unaudited condensed consolidated financial statements in Item 1 to this Form 10-Q, we are party to several loan agreements and revolving credit facilities with third-party financial institutions.

Our cash and cash equivalents are invested primarily in demand deposit accounts that are currently providing only a minimal return. Our cash and cash equivalents at June 30, 2020 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $578.2 million as of June 30, 2020. The $159.4 million increase in cash and cash equivalents compared with December 31, 2019 primarily resulted from $90.1 million in cash from operating activities, a $120.1 million in cash from financing activities partially offset by a $(50.6) million in cash used for investing activities over the period. The cash from financing activities is mainly related to $154.3 million cash from the scheduled drawing from our available Revolving Credit Facility, partially offset by $(33.1) million cash used for the share repurchase programs. In addition, the increase in cash includes a $0.2 million negative impact of changes in foreign exchange rates on our cash position over the period. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts that are currently providing only a minimal return.

Furthermore, the Company has immediate access to an additional €210 million from the Revolving Credit Facility, which, combined with its cash position as of June 30, 2020, provides total liquidity in excess of $830 million. Overall, we believe that our current financial liquidity, combined with our expected cash-flow generation in 2020, puts us in a strong position to weather the COVID-19 crisis under multiple scenarios.

Operating and Capital Expenditure Requirements

For the six months ended June 30, 2019 and 2020, our capital expenditures were $56.5 million and $30.3 million, respectively. During the six months ended June 30, 2020, these capital expenditures were primarily related to the acquisition of data center and server equipment, and IT systems. We expect our capital expenditures to remain at, or slightly above, 3% of revenue for 2020, as we plan to continue to build and maintain additional data center equipment capacity in all regions and significantly increase our redundancy capacity to strengthen our infrastructure.

We believe our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.

Our future working capital requirements will depend on many factors, including the 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.

If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing will be dilutive to our shareholders.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Historical Cash Flows

The following table sets forth our cash flows for the six month period ended June 30, 2019 and 2020:


	Six Months Ended
	June 30, 2019		June 30, 2020

	(in thousands)
Cash from operating activities	$	120,184	$	90,120
Cash used for investing activities	$	(62,348)	$	(50,618)
Cash from (used for) financing activities	$	(665)	$	120,097

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 items such as depreciation, amortization and share-based compensation, deferred tax assets and income taxes.

For the six months ended June 30, 2020, net cash provided by operating activities was $90.1 million and consisted of net income of $22.6 million, $65.9 million in adjustments for certain non-cash and non-operating items and changes in working capital of $1.6 million. Adjustments for certain non-operating items primarily consisted of depreciation and amortization expense of $55.0 million, equity awards compensation expense of $15.7 million, $2.1 million for other non-cash items and a $0.7 million change in income taxes, partially offset by a $7.6 million changes in deferred tax assets. The $1.6 million increase in cash from changes in working capital primarily consisted of a $126.7 million decrease in trade receivables, a $5.1 million decrease in other current assets including prepaid expenses and VAT receivables and a $0.1 million increase in lease liabilities and right of use assets, partially offset by a $103.8 million decrease in trade payables, and a $26.4 million decrease in other current liabilities such as payroll and payroll related expenses and value-added tax ("VAT") payables.

Investing Activities

Our investing activities to date have consisted primarily of purchases of servers and other data-center equipment and business acquisitions. For the six months ended June 30, 2020, net cash used for investing activities was $50.6 million and primarily consisted of $30.3 million in capital expenditures, mainly comprised of purchases of servers and other data-center equipment, and a $20.3 million change in other non-current financial assets resulting from the investment in Marketable Securities (notes 2 and 3).

Financing Activities

For the six months ended June 30, 2020, net cash from financing activities was $120.1 million resulting mainly from a $154.3 million drawing from our available Revolving Credit Facilities (note 1), partially offset by $33.1 million for our share repurchase program (note 1), a $0.2 million repayment of borrowings and a $0.9 million change in other financial liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

We are mainly exposed to foreign currency exchange rate fluctuations. There have been no material changes to our exposure to market risk during the three months ended period June 30, 2020.

For a description of our foreign exchange risk, please see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - B. Liquidity and Capital Resources" in our Annual Report on Form 10-K for the year ended December 31, 2019.

A 10% increase or decrease of the Pound Sterling, the Euro, the Japanese yen or the Brazilian real against the U.S. dollar would have impacted the Condensed Consolidated Statements of Income as follows:


	Six Months Ended
	June 30, 2019						June 30, 2020

	(in thousands)
GBP/USD	+10%		-10%		+10%		-10%
Net income impact	$	(759)	$	759	$	(108)	$	108


	Six Months Ended
	June 30, 2019						June 30, 2020

	(in thousands)
BRL/USD	+10%		-10%		+10%		-10%
Net income impact	$	(58)	$	58	$	(31)	$	31


	Six Months Ended
	June 30, 2019						June 30, 2020

	(in thousands)
JPY/USD	+10%		-10%		+10%		-10%
Net income impact	$	775	$	(775)	$	287	$	(287)


	Six Months Ended
	June 30, 2019						June 30, 2020

	(in thousands)
EUR/USD	+10%		-10%		+10%		-10%
Net income impact	$	4,332	$	(4,332)	$	4,885	$	(4,885)

Credit Risk and Trade receivables

For a description of our credit risk and trade receivables, please see "Note 3. Financial instruments" and "Note 4. Trade Receivables" in the Notes to the Consolidated Financial Statements.

The Company has observed a decrease in payments from customers in geographic regions that are most affected by COVID-19 from the last part of the three month period ended March 31, 2020. The expected credit losses model, adapted by the Company on January 1, 2020, requires us to look at how current and future economic conditions impact the amount of expected credit losses. As such, we have increased the provision for credit losses, using our best available current estimates on the impact of COVID-19.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on their evaluation as of June 30, 2020, our management, including our Chief Executive Officer and Interim Chief Financial Officer, concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to provide reasonable assurance that (i) the information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Limitation on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Criteo have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error of fraud may occur and not be detected.

PART II

Item 1. 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, financial condition, results of operations 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 1A. Risk Factors.

You should carefully consider the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. These risks and uncertainties 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 such risks materialize, our business, financial condition and results of operations could be materially harmed and the trading price of our American Depositary Shares could decline. These risks are not exclusive and 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. There have been no material changes to the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the issuer and Affiliated Purchasers

The following table provides certain information with respect to our purchases of our ADSs during the second fiscal quarter of 2020:


Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs⁽¹⁾
April 1 to 30, 2020	—	$	—	—	$	30,000,000.00
May 1 to 31, 2020	394,769	$	9.99	394,769	$	26,056,464.54
June 1 to 30, 2020	872,655	$	12.50	872,655	$	15,152,090.52

Total	1,267,424	$	11.72	1,267,424

⁽¹⁾ On April 29, 2020, Criteo's Board of Directors authorized a share repurchase program of up to $30.0 million of the Company's outstanding American Depositary Shares. The Company intends to use repurchased shares to satisfy employee equity plan vesting in lieu of issuing new shares, and potentially in connection with M&A transactions. The repurchase program commenced in May 2020.

⁽²⁾ Average price paid per share excludes any broker commissions paid.

Item 6. Exhibits.

Exhibit Index

Incorporated by Reference

Exhibit

Description

Schedule/ Form

File
Number

Exhibit

File
Date

3.1

By-laws (statuts) (English translation)

8-K

001-36153

3.1

June 26, 2020

10.1#

Consulting Agreement between the Company and Mr. Dave Anderson, dated May 14, 2020

31.1#

Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

31.2#

Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

32.1*

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104.

Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101.

# Filed herewith.

* Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CRITEO S.A.
		(Registrant)

	By:	/s/ Dave Anderson
Date: July 31, 2020	Name:	Dave Anderson
	Title:	Interim Chief Financial Officer
		(Principal financial officer and duly authorized signatory)

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Criteo (CRTO) 10-Q2020 Q2 Quarterly report

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