Criteo S.A. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

for the quarterly period ended September 30, 2016



¨	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)

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 day Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

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



Large Accelerated Filer	x	Accelerated Filer	¨
Non-accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of October 31, 2016, the registrant had 63,761,455 ordinary shares, nominal value €0.025 per share, outstanding.

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION	2
Item 1	Financial Statements	2
	Condensed Consolidated Statements of Financial Position (Unaudited)	2
	Condensed Consolidated Statements of Income (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4	Controls and Procedures	44
PART II	OTHER INFORMATION	45
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 6	Exhibits	46
Signatures		47

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 positions, business strategy, plans and our 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:


•	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;


•	the ability of the Criteo Engine to accurately predict engagement by a user;


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


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


•	our ability to predict and adapt to changes in widely adopted industry platforms and other new technologies;


•	the effects of increased competition in our market;


•	our ability to enter new marketing channels and to effectively scale our technology platform in new industry verticals;


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


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


•	failures in our systems or infrastructure; and


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

You should refer to Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015 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. 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 statements.

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, 2015			September 30, 2016
		(in thousands)
Assets
Current assets:
Cash and cash equivalents	3	$	353,537		$	407,158
Trade receivables, net of allowances	4	261,581			268,097
Income taxes		2,714			4,422
Other taxes		29,552			45,323
Other current assets	5	16,030			20,288
Total current assets		663,414			745,288
Property, plant and equipment, net		82,482			98,353
Intangible assets, net	6	16,470			18,595
Goodwill	6	41,973			45,690
Non-current financial assets	3	17,184			17,453
Deferred tax assets		20,196			28,586
Total non-current assets		178,305			208,677
Total assets		$	841,719		$	953,965
Liabilities and shareholders' equity
Current liabilities:
Trade payables		$	246,382		$	253,938
Contingencies	13	668			286
Income taxes		15,365			7,133
Financial liabilities - current portion	8	7,156			6,403
Other taxes		30,463			35,844
Employee - related payables		42,275			42,317
Other current liabilities	7	15,531			18,383
Total current liabilities		357,840			364,304
Deferred tax liabilities		139			752
Retirement benefit obligation		1,445			2,262
Financial liabilities - non current portion	8	3,272			2,933
Total non-current liabilities		4,856			5,947
Total liabilities		362,696			370,251
Commitments and contingencies
Shareholders' equity:
Common shares, €0.025 par value, 62,470,881 and 63,760,491 shares authorized, issued and outstanding at December 31, 2015 and September 30, 2016, respectively.		2,052			2,087
Additional paid-in capital		425,220			470,871
Accumulated other comprehensive (loss)		(69,023		)	(57,902		)
Retained earnings		116,076			158,945
Equity-attributable to shareholders of Criteo S.A.		474,325			574,001
Non-controlling interests		4,698			9,713
Total equity		479,023			583,714
Total equity and liabilities		$	841,719		$	953,965

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						Nine Months Ended
	Notes	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
		(in thousands, except share and per share data)
Revenue		$	332,674		$	423,867		$	926,152		$	1,232,321

Cost of revenue:
Traffic acquisition costs		(198,970		)	(247,310		)	(552,097		)	(727,034		)
Other cost of revenue		(17,206		)	(22,332		)	(44,418		)	(60,950		)

Gross profit		116,498			154,225			329,637			444,337

Operating expenses:
Research and development expenses		(22,442		)	(30,701		)	(60,141		)	(88,097		)
Sales and operations expenses		(56,310		)	(68,164		)	(169,120		)	(201,862		)
General and administrative expenses		(19,915		)	(32,492		)	(57,865		)	(85,839		)
Total operating expenses		(98,667		)	(131,357		)	(287,126		)	(375,798		)
Income from operations		17,831			22,868			42,511			68,539
Financial income (expense)	10	(6,650		)	(570		)	(5,276		)	(1,982		)
Income before taxes		11,181			22,298			37,235			66,557
Provision for income taxes	11	(5,388		)	(7,574		)	(13,896		)	(19,968		)
Net income		$	5,793		$	14,724		$	23,339		$	46,589

Net income available to shareholders of Criteo S.A.		$	5,096		$	13,539		$	21,618		$	42,869
Net income available to non-controlling interests		$	697		$	1,185		$	1,721		$	3,720

Net income allocated to shareholders of Criteo S.A. per share:
Basic	12	$	0.08		$	0.21		$	0.35		$	0.68
Diluted	12	$	0.08		$	0.21		$	0.33		$	0.66

Weighted average shares outstanding used in computing per share amounts:
Basic	12	62,082,110			63,628,351			61,662,308			63,163,922
Diluted	12	65,254,238			65,816,422			65,095,690			65,429,757

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						Nine Months Ended
	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
	(in thousands)

Net income	$	5,793		$	14,724		$	23,339		$	46,589
Foreign currency translation differences, net of taxes	4,960			2,649			(24,419		)	12,677
Foreign currency translation differences	4,960			2,649			(24,419		)	12,677
Income tax effect	—			—			—			—
Actuarial (losses) gains on employee benefits, net of taxes	(52		)	(73		)	161			(282		)
Actuarial losses on employee benefits	(63		)	(90		)	194			(341		)
Income tax effect	11			17			(33		)	59
Financial instruments, net of taxes	—			—			—			—
Fair value change on financial instruments	—			—			—			—
Income tax effect	—			—			—			—
Comprehensive income (loss)	$	10,701		$	17,300		$	(919	)	$	58,984
Attributable to shareholders of Criteo S.A.	$	9,942		$	15,991		$	(2,642	)	$	54,113
Attributable to non-controlling interests	$	759		$	1,309		$	1,723		$	4,871

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						Nine Months Ended
	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
	(in thousands)
Net income	$	5,793		$	14,724		$	23,339		$	46,589
Adjustments to reconcile to cash from operating activities	23,155			36,609			62,685			96,235
Amortization and provisions	13,236			16,030			32,436			45,555
Equity awards compensation expense ⁽¹⁾	4,600			13,965			16,242			30,030
Net gain on disposal of non-current assets	59			1			85			1
Interest accrued	2			(972		)	9			608
Non-cash financial expenses	(130		)	11			17			29
Change in deferred taxes	(979		)	(3,121		)	(3,149		)	(7,545		)
Income tax for the period	6,367			10,695			17,045			27,557
Change in working capital requirement	(7,120		)	4,576			(2,341		)	(22,860		)
(Increase)/decrease in trade receivables	(14,795		)	(2,160		)	(27,434		)	(4,528		)
Increase/(decrease) in trade payables	11,899			11,218			39,518			(3,931		)
(Increase)/decrease in other current assets	(8,781		)	(2,856		)	(24,664		)	(18,633		)
Increase/(decrease) in other current liabilities	4,557			(1,626		)	10,239			4,232
Income taxes paid	(4,328		)	(12,278		)	(13,237		)	(38,152		)
Cash from operating activities	17,500			43,631			70,446			81,812
Acquisition of intangibles assets, property, plant and equipment	(21,514		)	(15,792		)	(62,671		)	(54,970		)
Change in accounts payable related to intangible assets, property, plant and equipment	(2,551		)	(4,115		)	7,396			570
Payments for acquired business, net of cash	(476		)	—			(20,551		)	(5,074		)
Change in other financial non-current assets	(1,049		)	(377		)	(6,292		)	197
Cash used for investing activities	(25,590		)	(20,284		)	(82,118		)	(59,277		)
Issuance of long-term borrowings	790			739			3,183			3,798
Repayment of borrowings	(1,484		)	32			(6,130		)	(5,416		)
Proceeds from capital increase	3,575			1,600			10,009			17,182
Change in other financial liabilities	—			(25		)	(1,000		)	(196		)
Cash from financing activities	2,881			2,346			6,062			15,368
Change in net cash and cash equivalents	(5,209		)	25,693			(5,610		)	37,903
Net cash and cash equivalents - beginning of period	321,109			377,407			351,827			353,537
Effect of exchange rate changes on cash and cash equivalents	(1,256		)	4,058			(31,573		)	15,718
Net cash and cash equivalents - end of period	$	314,644		$	407,158		$	314,644		$	407,158

⁽¹⁾ Out of which $13.1 million and $28.6 million is share-based compensation expense according to ASC 718 - Compensation - Stock compensation for the quarter ended and year to date September 30, 2016, 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. is a global technology company specialized in digital performance marketing. We strive to deliver post-click sales to our advertiser clients at scale and according to the client's targeted return on investment. 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". The Company uses its proprietary predictive software algorithms coupled with its deep insights into expressed consumer intent and purchasing habits to price and deliver highly relevant and personalized performance advertisements to consumers in real time.

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements included herein 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 filed on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016. 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) the recognition of revenue; (2) the evaluation of our trade receivables and the recognition of a valuation allowance; (3) the recognition and measurement of goodwill and intangible assets and particularly costs capitalized in relation to our customized internal-use software; (4) the measurement of share-based compensation and (5) the tax provision determination and particularly the estimate of our annual effective tax rate.

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, 2015 that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

Recently Issued Accounting Standards

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount, as if the accounting had been completed at the acquisition date. The Company does not expect the provision of ASU 2015-16 to have a material impact on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted for financial statements that have not yet been made available for issuance.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that all financial assets and liabilities not accounted for under the equity method be measured at fair value, with the changes in fair value recognized in net income. The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update supersede the requirement to disclose the methods and significant assumptions used in calculating the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The Company can early adopt the provision requiring it to recognize in other comprehensive income the fair value change from instrument-specific credit risk measured using the fair value option for financial instruments. Except for this early application guidance, early adoption is not permitted. The Company is still evaluating the effects that the provision of ASU 2016-01 will have on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption as of fiscal years beginning after December 15, 2017, including interim periods within those fiscal year, is permitted.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. The Company is still evaluating the effects that the provision of ASU 2016-02 will have on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted.

In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net). ASU 2016-08 amends the principal-versus-agent implementation guidance and illustrations in the FASB's new revenue standard Revenue from Contracts with Customers (ASC Topic 606). The Company is currently evaluating the impact of ASU 2016-08 on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019. Earlier application is permitted only as of fiscal years beginning after December 15, 2016, including interim periods within that fiscal year, or fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning one year after the fiscal year in which an entity first applies the guidance in Update 2014-09.

In March 2016 the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 was issued as part of FASB’s initiative to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period.

In April 2016 the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue standard Revenue from Contracts with Customers (ASC Topic 606). The Company is currently evaluating the impact of ASU 2016-10 on its consolidated financial statements. The effective date of ASU 2016-10 is the same as for requirements of ASC Topic 606.

In May 2016 the FASB issued ASU 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2015-09 and 2014-06 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update). ASU 2016-11 rescinds certain SEC Staff Guidance relating to ASC topics 605 (Revenue Recognition), 932 (Extractive Activities - Oil and Gas), and 815 (Derivatives and Hedging). The ASU became effective immediately. The Company has evaluated the rescinded SEC Staff Guidance and determined it does not have an impact on the consolidated financial statements.

In May 2016 the FASB issued ASU 2016-12, Narrow Scope Improvements and Practical Expedients. ASU 2016 - 12 amends narrow aspects of the new revenue standard Revenue from Contracts with Customers (ASC Topic 606) including guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The Company is currently evaluating the impact of ASU 2016-12 on its consolidated financial statements. The effective date of ASU 2016-12 is the same as for requirements of ASC Topic 606.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Statements. ASU 2016-13 amends the guidance on the impairment of financial instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses rather than incurred credit losses. In addition, this amendment broadens the information an entity must consider in developing its expected credit loss estimate including the use of forecasts in order to ensure more timely information is used to develop the estimate. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year.

In August 2016, the FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities. As this ASU relates to not-for-profit entities only, it is not applicable to Criteo and it does not have an impact on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends current U.S. GAAP by adding specific guidance on eight cash flows issues in order to eliminate the current diversity in reporting practices. The eight issues addressed include debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The Company is currently evaluating the impact of ASU 2016-15 on its consolidated financial statements. This update will be effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2019. Early adoption is permitted in any interim or annual period.

Note 2. Significant Events and Transactions of the Period

Changes in the scope of consolidation

Business combinations

Monsieur Drive Acquisition

On May 31, 2016, we acquired all of the outstanding shares of Monsieur Drive S.A.S. ("Monsieur Drive"), a Paris-based company building advertising products for the consumer packaged goods vertical. The total consideration paid was $5.1 million (€4.6 million) for the acquisition of the shares, financed by the available cash resources at the acquisition date (Note 6). This business combination has been accounted for under the acquisition method in accordance with ASC 805 – Business Combinations. A preliminary valuation of the fair value of Monsieur Drive's assets acquired, liabilities assumed and the related allocations of purchase price has been performed as of September 30, 2016 resulting in the identification of a technology asset of $1.4 million (€1.3 million) and a related deferred tax liability of $0.2 million (€0.2 million). Residual goodwill has been valued at $3.9 million (€3.5 million). Once this valuation analysis is finalized, the estimate of the fair value of the assets acquired and liabilities assumed may be adjusted. In addition, acquisition costs were fully expensed as incurred for a total amount of $0.2 million (€0.2 million).

Consolidation scope

Creation of Criteo India Pvt Ltd (India)

Creation of Criteo Finance SAS (France)

This new subsidiary is 100% held and controlled by the Parent company. It is included in the Company’s consolidation scope as of September 30, 2016, but its contribution to the unaudited condensed consolidated financial statements is not material. The business objective of this subsidiary is to enhance the service level to strategic global customers by providing them with one single billing relationship and to consolidate the management of the foreign exchange risk.

Note 3. Financial Instruments

Financial Assets

The following schedules disclose our financial assets categories for the presented periods:



	December 31, 2015
	Carrying Value		Loans and receivables		Assets designated at FVTPL ⁽¹⁾		Fair value
	(in thousands)
Cash and cash equivalents	$	353,537	$	—	$	353,537	$	353,537
Trade receivables, net of allowances	261,581		261,581		—		261,581
Other taxes	29,552		29,552		—		29,552
Other current assets	16,030		16,030		—		16,030
Non-current financial assets	17,184		17,184		—		17,184
Total	$	677,884	$	324,347	$	353,537	$	677,884


⁽¹⁾	Fair value through profit or loss.



	September 30, 2016
	Carrying Value		Loans and receivables		Assets designated at FVTPL ⁽¹⁾		Fair value
	(in thousands)
Cash and cash equivalents	$	407,158	$	—	$	407,158	$	407,158
Trade receivables, net of allowances	268,097		268,097		—		268,097
Other taxes	45,323		45,323		—		45,323
Other current assets	20,288		20,288		—		20,288
Non-current financial assets	17,453		17,453		—		17,453
Total	$	758,319	$	351,161	$	407,158	$	758,319


⁽¹⁾	Fair value through profit or loss.

Financial Liabilities



	December 31, 2015
	Carrying Value		Amortized Cost		Liabilities designated at FVTPL⁽¹⁾		Fair value
	(in thousands)
Trade payables	$	246,382	$	246,382	$	—	$	246,382
Other taxes	30,463		30,463		—		30,463
Employee-related payables	42,275		42,275		—		42,275
Other current liabilities	15,531		15,531		—		15,531
Financial liabilities	10,428		9,876		552		10,428
Total	$	345,079	$	344,527	$	552	$	345,079


⁽¹⁾	Fair value through profit or loss.



	September 30, 2016
	Carrying Value		Amortized Cost		Liabilities designated at FVTPL⁽¹⁾		Fair value
	(in thousands)
Trade payables	$	253,938	$	253,938	$	—	$	253,938
Other taxes	35,844		35,844		—		35,844
Employee-related payables	42,317		42,317		—		42,317
Other current liabilities	18,383		18,383		—		18,383
Financial liabilities	9,336		8,700		636		9,336
Total	$	359,818	$	359,182	$	636	$	359,818


⁽¹⁾	Fair value through profit or loss.

Fair Value Measurements

We measure the fair value of our cash equivalents, which include money market funds and interest bearing deposits, as level 1 and level 2 measurements because they are valued using quoted market prices and observable market data, respectively.

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.

The following tables provide information for the assets and liabilities carried at fair value as of December 31, 2015 and September 30, 2016:



			Fair Value Measurements Using
	December 31, 2015		Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	54,188	$	54,188	$	—	$	—
Interest-bearing bank deposits	114,127		—		114,127		—
Cash	185,222		185,222		—		—
Derivative instruments	—		—		—		—
Total assets measured at fair value	$	353,537	$	239,410	$	114,127	$	—

Derivative instruments	$	552	$	—	$	552	$	—
Total liabilities measured at fair value	$	552	$	—	$	552	$	—



			Fair Value Measurements Using
	September 30, 2016		Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	140,802	$	140,802	$	—	$	—
Interest-bearing bank deposits	133,626		—		133,626		—
Cash	132,730		132,730		—		—
Derivative instruments	—		—		—		—
Total assets measured at fair value	$	407,158	$	273,532	$	133,626	$	—

Derivative instruments	$	636	$	—	$	636	$	—
Total liabilities measured at fair value	$	636	$	—	$	636	$	—

Note 4. Trade Receivables

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



	December 31, 2015			September 30, 2016
	(in thousands)
Trade accounts receivables	$	267,845		$	279,344
(Less) Allowance for doubtful accounts	(6,264		)	(11,247		)
Net book value at end of period	$	261,581		$	268,097

Changes in allowance for doubtful accounts are summarized below:



	2015			2016
	(in thousands)
Balance at January 1	$	(3,930	)	$	(6,264	)
Allowance for doubtful accounts	(2,258		)	(7,733		)
Reversal of provision	—			2,760
Change in consolidation scope	(135		)	—
Currency translation adjustment	333			(10		)
Balance at September 30	$	(5,990	)	$	(11,247	)

The change in allowance for doubtful accounts for the nine months ended September 30, 2016 related mainly to increased business with categories of clients associated with a higher credit risk.

Note 5. Other Current Assets

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



	December 31, 2015		September 30, 2016
	(in thousands)
Prepayments to suppliers	$	2,774	$	2,790
Employee-related receivables	94		129
Prepaid expenses	9,475		13,658
Other debtors	3,687		3,711
Derivative instruments	—		—
Gross book value at end of period	16,030		20,288
(Less) Allowance for doubtful accounts	—		—
Net book value at end of period	$	16,030	$	20,288

Prepaid expenses mainly consist of office rental advance payments.

Note 6. Intangible assets and Goodwill

Intangible assets

The main changes in intangible assets since December 31, 2015 relate to additions to technology and customer relationships regarding Monsieur Drive, which were identified as intangible assets further to the preliminary purchase price allocation (Note 2). In addition, no triggering events have occurred which would indicate impairment in the balance of either intangible assets or 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
Remainder of 2016	$	(1,151	)	$	(1,035	)	$	(2,186	)
2017	(4,212		)	(3,053		)	(7,265		)
2018	(3,602		)	(2,483		)	(6,085		)
2019	(1,952		)	(505		)	(2,457		)
2020	(591		)	—			(591		)
Thereafter	(11		)	—			(11		)
Total	$	(11,519	)	$	(7,076	)	$	(18,595	)

Goodwill

On May 31, 2016, we acquired all of the outstanding shares of Monsieur Drive. The total consideration paid was $5.1 million (€4.6 million) for the acquisition of the shares, financed by the available cash resources at the acquisition date. This business combination has been accounted for under the acquisition method in accordance with ASC 805 – Business Combinations. A preliminary valuation of the fair value of Monsieur Drive's assets acquired, liabilities assumed and the related allocation of purchase price has been performed as of September 30, 2016, resulting in the identification of a technology asset of $1.4 million (€1.3 million) and related deferred tax liability of $0.2 million (€0.2 million). Residual goodwill has been valued at $3.9 million (€3.5 million). Once this valuation analysis is finalized, the estimate of the fair value of the assets acquired and liabilities assumed may be adjusted. In addition, acquisition costs amounting to $0.2 million (€0.2 million) were fully expensed as incurred.

Note 7. Other Current Liabilities

Other current liabilities are presented in the following table:



	December 31, 2015		September 30, 2016
	(in thousands)
Clients' prepayments	$	6,244	$	7,859
Accounts payable relating to capital expenditures	8,037		8,702
Other creditors	1,091		1,678
Deferred revenue	159		144
Total	$	15,531	$	18,383

Note 8. Financial Liabilities

The changes in current and non-current financial liabilities during the period ended September 30, 2016 are illustrated in the following schedules:



	As of January 1, 2016		New borrowings		Repayments			Change in scope		Other ⁽¹⁾			Currency translation adjustment			As of September 30, 2016
	(in thousands)
Borrowings	$	5,973	$	4,066	$	(5,049	)	$	—	$	647		$	(67	)	$	5,570
Financial liabilities relating to finance leases	23		—		(23		)	—		—			—			—
Other financial liabilities	608		—		(427		)	—		—			16			197
Derivative instruments	552		—		—			—		69			15			636
Current portion	7,156		4,066		(5,499		)	—		716			(36		)	6,403
Borrowings	3,272		—		—			—		(647		)	81			2,706
Financial liabilities relating to finance leases	—		—		—			—		—			—			—
Other financial liabilities	—		227		—			—		—			—			227
Non current portion	3,272		227		—			—		(647		)	81			2,933
Borrowings	9,245		4,066		(5,049		)	—		—			14			8,276
Financial liabilities relating to finance leases	23		—		(23		)	—		—			—			—
Other financial liabilities	608		227		(427		)	—		—			16			424
Derivative instruments	552		—		—			—		69			15			636
Total	$	10,428	$	4,293	$	(5,499	)	$	—	$	69		$	45		$	9,336

⁽¹⁾Includes reclassification from non-current to current portion based on maturity of the financial liabilities.

Borrowings are financial liabilities at amortized cost and are measured using level 2 fair value measurements.

We are party to loan agreements with Le Credit Lyonnais (LCL), Bpifrance Financement (French Public Investment Bank), HSBC, as well as with a bank syndicate composed of Natixis (coordinator and documentation agent), LCL (facility agent), HSBC France, Société Générale Corporate & Investment Banking and BNP Paribas (each acting individually as bookrunners and mandated lead arrangers).

There have been no changes in the terms of our loan agreements and other financial liabilities, including maturity and allocation by currency, from what was disclosed in Note 14 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Note 9. Equity awards compensation expense

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 nine months ended September 30, 2016, there were four grants of RSUs and one grant of OSAs under the Employee Share Option Plan 8 and one grant of BSAs under the Plan E, as defined in Note 19 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015:


•	On January 29, 2016, 33,010 RSUs were granted to senior management subject to achievement of internal performance objectives and continued employment. Based on the assumptions known as of September 30, 2016, we determined share-based compensation expense by applying a probability ratio on performance objectives completion.


•	On February 25, 2016, 181,885 RSUs were granted to Criteo employees subject to continued employment.


•	On April 20, 2016, 140,135 RSUs were granted to Criteo employees subject to continued employment and 9,100 BSAs were granted to a board member subject to continued engagement on the board of directors.


•	On June 28, 2016, 1,075,827 RSUs and 429,043 OSAs were granted to Criteo employees subject to continued employment.

On June 29, 2016, the general meeting of the shareholders authorized the board of directors (i) to grant up to 4,600,000 OSAs and/or RSUs, each representing the right to receive one ordinary share and (ii) to grant up to 100,000 BSAs, each representing the right to receive one ordinary share (any BSAs granted will also be deducted from the 4,600,000 limit), such authorizations collectively referred to as "Plan 9". On July 28, 2016, the board of directors granted 247,100 RSUs and 147,400 OSAs to Criteo employees under the Plan 9. The vesting of these RSUs and OSAs is subject to continued employment and 195,250 RSUs are subject to achievement of internal performance objectives. Based on the assumptions known as of September 30, 2016, we determined share-based compensation expense by applying a probability ratio on performance objectives completion.

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 19 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016.

Change in Number of BSPCE/OSA/RSU/BSA



	OSA/BSPCE		RSU		BSA		Total
Balance at January 1, 2016	6,547,854		1,095,585		154,910		7,798,349
Granted	576,443		1,677,957		9,100		2,263,500
Exercised	(1,252,610	)	—		(13,000	)	(1,265,610	)
Forfeited	(494,766	)	(133,232	)	(2,440	)	(630,438	)
Expired	—		—		—		—
Balance at September 30, 2016	5,376,921		2,640,310		148,570		8,165,801

Breakdown of the Closing Balance



	OSA/BSPCE		RSU	BSA
Number outstanding	5,376,921		2,640,310	148,570
Weighted-average exercise price	€	23.94	NA	€	15.06
Number exercisable	2,573,427		NA	112,536
Weighted-average exercise price	€	17.04	NA	€	10.71
Weighted-average remaining contractual life of options outstanding, in years	7.61		NA	6.83

Equity awards compensation expense



	Three Months Ended
	September 30, 2015												September 30, 2016
	(in thousands)
	R&D			S&O			G&A			Total			R&D			S&O			G&A			Total
RSUs	$	—		$	—		$	—		$	—		$	(3,295	)	$	(4,154	)	$	(2,471	)	$	(9,920	)
Share options / BSPCE	(1,714		)	(1,715		)	(1,101		)	(4,530		)	(986		)	(720		)	(1,505		)	(3,211		)
Total share-based compensation	(1,714		)	(1,715		)	(1,101		)	(4,530		)	(4,281		)	(4,874		)	(3,976		)	(13,131		)
BSAs	—			—			(70		)	(70		)	—			—			(834		)	(834		)
Total equity awards compensation expense	$	(1,714	)	$	(1,715	)	$	(1,171	)	$	(4,600	)	$	(4,281	)	$	(4,874	)	$	(4,810	)	$	(13,965	)



	Nine Months Ended
	September 30, 2015												September 30, 2016
	(in thousands)
	R&D			S&O			G&A			Total			R&D			S&O			G&A			Total
RSUs	$	—		$	—		$	—		$	—		$	(6,010	)	$	(7,638	)	$	(4,755	)	$	(18,403	)
Share options / BSPCE	(4,354		)	(8,072		)	(3,648		)	(16,074		)	(2,852		)	(3,114		)	(4,276		)	(10,242		)
Total share-based compensation	(4,354		)	(8,072		)	(3,648		)	(16,074		)	(8,862		)	(10,752		)	(9,031		)	(28,645		)
BSAs	—			—			(168		)	(168		)	—			—			(1,385		)	(1,385		)
Total equity awards compensation expense	$	(4,354	)	$	(8,072	)	$	(3,816	)	$	(16,242	)	$	(8,862	)	$	(10,752	)	$	(10,416	)	$	(30,030	)

Note 10. Financial Income and Expenses

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



	Three Months Ended
	September 30, 2015			September 30, 2016
	(in thousands)
Financial income from cash equivalents	$	812		$	295
Interest on debt	(80		)	(555		)
Foreign exchange gain (loss)	(7,512		)	(301		)
Other financial expense	130			(9		)
Total financial income (expense)	$	(6,650	)	$	(570	)

The $0.6 million financial expense for the three-month period ended September 30, 2016 was mainly the result of a limited impact of foreign exchange reevaluations and related hedging together with the recognition of the fees related to the revolving credit facility entered into in September 2015. The $6.7 million financial expense for the three months ended September 30, 2015 included a significant negative impact of foreign exchange reevaluations and related hedging, mainly related to intra-group positions between Criteo S.A. and its Brazilian subsidiary, and to the remaining proceeds from our initial public offering.



	Nine Months Ended
	September 30, 2015			September 30, 2016
	(in thousands)
Financial income from cash equivalents	$	1,754		$	1,165
Interest on debt	(538		)	(1,643		)
Foreign exchange gain (loss)	(6,475		)	(1,476		)
Other financial expense	(17		)	(28		)
Total financial income (expense)	$	(5,276	)	$	(1,982	)

The $2.0 million financial expense for the nine months ended September 30, 2016 was mainly a result of the recognition of negative impact of foreign exchange reevaluations and related hedging negative foreign exchange recorded during the first quarter, together with the fees related to the revolving credit facility contracted in September 2015. The $5.3 million financial income for the nine months ended September 30, 2015 included a significant negative impact of foreign exchange reevaluations and related hedging, mainly related to intra-group positions between Criteo S.A. and its Brazilian subsidiary, and to the remaining proceeds from our initial public offering. As of September 30, 2016, the main positions bearing a risk of foreign currency are centralized at the Parent company level and hedged using foreign currency swaps and forward purchases or sales of foreign currencies.

Note 11. Income Taxes

Breakdown of Income Taxes

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



	Three Months Ended
	September 30, 2015			September 30, 2016
	(in thousands)
Current income tax	$	(6,367	)	$	(10,695	)
France	(4,238		)	(4,338		)
International	(2,129		)	(6,357		)
Net change in deferred taxes	979			3,121
France	2,014			2,871
International	(1,035		)	250
Provision for income taxes	$	(5,388	)	$	(7,574	)



	Nine Months Ended
	September 30, 2015			September 30, 2016
	(in thousands)
Current income tax	$	(17,045	)	$	(27,513	)
France	(10,172		)	(12,511		)
International	(6,873		)	(15,002		)
Net change in deferred taxes	3,149			7,545
France	2,962			7,087
International	187			458
Provision for income taxes	$	(13,896	)	$	(19,968	)

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate (“AETR”). 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 changes, 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.

Current tax assets and liabilities

The total amount of current tax assets consists mainly of prepayments of income taxes by Criteo do Brasil LTDA and withholding taxes deductible from future income taxes of Criteo Corp. The current tax liabilities refers mainly to the net corporate tax payables of Criteo S.A., Criteo Srl, and Criteo KK.

Note 12. 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				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016

	(in thousands, except share and per share data)

Net income attributable to shareholders of Criteo S.A.	$	5,096	$	13,539	$	21,618	$	42,869
Weighted average number of shares outstanding	62,082,110		63,628,351		61,662,308		63,163,922
Basic earnings per share	$	0.08	$	0.21	$	0.35	$	0.68

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 9). There were no other potentially dilutive instruments outstanding as of September 30, 2015 and 2016. 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 non-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				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016

	(in thousands, except share and per share data)

Net income attributable to shareholders of Criteo S.A.	$	5,096	$	13,539	$	21,618	$	42,869
Weighted average number of shares outstanding of Criteo S.A.	62,082,110		63,628,351		61,662,308		63,163,922
Dilutive effect of :
Restricted share units ("RSUs")	—		266,970		—		152,317
Share options and employee warrants ("BSPCEs")	3,035,325		1,841,080		3,293,370		2,030,088
Non-employees warrants ("BSAs")	136,803		80,021		140,012		83,430
Weighted average number of shares outstanding used to determine diluted earnings per share	65,254,238		65,816,422		65,095,690		65,429,757
Diluted earnings per share	$	0.08	$	0.21	$	0.33	$	0.66

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		Nine Months Ended
	September 30, 2015	September 30, 2016	September 30, 2015	September 30, 2016

Restricted share units ("RSUs")	—	32,176	—	345,732
Share options and employee warants ("BSPCEs")	991,879	455,474	829,981	426,777
Non-employees warrants ("BSAs")	25,630	—	17,087	—
Weighted average number of anti-dilutive securities excluded from diluted earnings per share	1,017,509	487,650	847,068	772,509

Note 13. Commitments and contingencies

Commitments

Leases

We are party to various operating lease agreements mainly related to our offices as well as hosting services. Certain of these arrangements have free rent periods or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis.

Operating lease expenses totaled $7.1 million and $8.3 million for the three-month period ended September 30, 2015 and 2016, respectively, and $18.7 million and $23.3 million for the nine-month period ended September 30, 2015 and 2016, respectively. Hosting costs totaled $8.3 million and $10.6 million for the three-month period ended September 30, 2015 and 2016, respectively and $21.9 million and $30.4 million for the nine-month period ended September 30, 2015 and 2016, respectively.

Revolving Credit Facilities, Credit Line Facilities and Bank Overdrafts

As mentioned in Note 8, we are party to various credit facilities, short term credit lines, and overdraft facilities. As of September 30, 2016, an additional RMB 5.0 million ($0.8 million) had been drawn by Criteo China, our wholly owned subsidiary, on the RMB 40.0 million ($6.0 million) revolving loan facility with HSBC China, increasing the total amount drawn from RMB 25.0 million ($3.7 million) as of December 31, 2015 to RMB 30.0 million ($4.5 million) as of September 30, 2016. Other than this draw, there have been no significant changes in the terms, conditions, or the amounts drawn on these facilities since December 31, 2015.

All of these credit facilities are unsecured and contain customary events of default but do not contain any affirmative, financial or negative covenants, with the exception of the €250.0 million ($279.0 million) revolving credit facility disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2015 which contains covenants, including compliance with a total net debt to adjusted EBITDA ratio and restrictions on incurring additional indebtedness. At September 30, 2016, we were in compliance with the required leverage ratio.

Contingencies

Changes in provisions during the presented periods are summarized below:



	Provision for employee related litigation			Provision for tax related litigation			Other provisions			Total
	(in thousands)
Balance at January 1, 2016	$	236		$	44		$	388		$	668
Charges	444			—			—			444
Provision used	(405		)	—			(40		)	(445		)
Provision released not used	—			(45		)	(345		)	(390		)
Change in consolidation scope	—			—			—			—
Currency translation adjustments	6			1			2			9
Other	—			—			—			—
Balance at September 30, 2016	$	281		$	—		$	5		$	286
- of which current	281			—			5			286
- of which non-current	—			—			—			—

The amount of the provisions represent management’s best estimate of the future outflow. As of September 30, 2016, provisions are mainly in relation to employee related litigations.

Note 14. Breakdown of Revenue and Non-Current Assets by Geographical Areas

The Company operates in the following three 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)
September 30, 2015	$	124,024	$	137,185	$	71,465	$	332,674
September 30, 2016	$	160,739	$	157,921	$	105,207	$	423,867

Revenue generated in France amounted to $29.2 million and $31.8 million for the three months ended September 30, 2015 and 2016, respectively.



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

September 30, 2015	$	335,520	$	396,200	$	194,432	$	926,152
September 30, 2016	$	464,435	$	471,226	$	296,660	$	1,232,321

Revenue generated in France amounted to $87.0 million and $95.2 million for the nine months ended September 30, 2015 and 2016, respectively.

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



	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016
	(in thousands)
Americas
United States	$	102,064	$	134,504	$	273,071	$	395,769
EMEA
Germany	$	28,188	$	33,692	$	81,795	$	98,278
United Kingdom	$	26,485	$	24,285	$	78,759	$	80,024
Asia-Pacific
Japan	$	50,485	$	76,841	$	137,248	$	209,404

For the nine months ended September 30, 2015 and 2016, our largest client represented 2.2% and 2.5%, 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) are presented in the table below. The geographical information results from the locations of legal entities.



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

December 31, 2015	$	48,160	$	24,437	$	23,332	$	8,847	$	17,508	$	7,807	$	98,952
September 30, 2016	$	52,351	$	27,418	$	26,516	$	8,449	$	28,730	$	9,476	$	116,948

Note 15. Related Parties

There were no significant related-party transactions during the period nor any evolution in the nature of the transactions as described in Note 24 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Note 16. Subsequent Events

On October 3, 2016, Criteo Corp., a wholly owned subsidiary of Criteo S.A., entered into an Agreement and Plan of Merger Agreement with TBL Holdings, Inc. ("TBL Holdings"), a wholly-owned subsidiary of Criteo Corp., HookLogic, Inc. ("HookLogic") and Fortis Advisors LLC, solely in its capacity as the Stockholder Agent, to acquire all of the issued and outstanding capital stock of HookLogic for a purchase price of $250 million, subject to working capital, net debt and other closing adjustments. Pursuant to the Merger Agreement, at the effective time of the merger, TBL Holdings shall be merged with and into HookLogic, and HookLogic will continue as the surviving corporation and a wholly-owned subsidiary of Criteo Corp. Consummation of the acquisition is subject to customary closing conditions and is expected to occur during the fourth quarter of 2016.

If the acquisition is consummated prior to the end of the year, the impact of the transaction will be reflected in our consolidated financial statements as of December 31, 2016. The determination of the fair value of assets acquired and liabilities assumed will be performed within the twelve months following the acquisition date.

The Company evaluated all other subsequent events that occurred after September 30, 2016 through the date of issuance of the unaudited condensed consolidated financial statements and determined that there are no other significant events that require adjustments or disclosure.

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, 2015, filed with the Securities and Exchange Commission, or "SEC," on February 29, 2016.

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, 2015.

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 2016.

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 and Revenue ex-TAC by Region 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.

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, 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, acquisition-related costs and deferred price consideration, 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 the market generally in understanding and evaluating our results of operations in the same manner as our management and board of directors.

Adjusted Net Income is our net income adjusted to eliminate the impact of equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration, and the tax impact of these adjustments. Adjusted Net Income 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 by eliminating equity awards compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs and deferred price consideration and the tax impact of these adjustments, 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 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 analytical tools, 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						Nine Months Ended
	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
	(in thousands, except share and per share data)
Revenue	$	332,674		$	423,867		$	926,152		$	1,232,321

Cost of revenue ⁽²⁾:
Traffic acquisition costs	(198,970		)	(247,310		)	(552,097		)	(727,034		)
Other cost of revenue	(17,206		)	(22,332		)	(44,418		)	(60,950		)
Gross profit	116,498			154,225			329,637			444,337

Operating expenses
Research and development expenses ⁽²⁾	(22,442		)	(30,701		)	(60,141		)	(88,097		)
Sales and operations expenses ⁽²⁾	(56,310		)	(68,164		)	(169,120		)	(201,862		)
General and administrative expenses ⁽²⁾	(19,915		)	(32,492		)	(57,865		)	(85,839		)
Total operating expenses	(98,667		)	(131,357		)	(287,126		)	(375,798		)
Income from operations	17,831			22,868			42,511			68,539
Financial income (expense)	(6,650		)	(570		)	(5,276		)	(1,982		)
Income before taxes	11,181			22,298			37,235			66,557
Provision for income taxes	(5,388		)	(7,574		)	(13,896		)	(19,968		)
Net income	$	5,793		$	14,724		$	23,339		$	46,589
Net income available to shareholders of Criteo S.A. ⁽¹⁾	$	5,096		$	13,539		$	21,618		$	42,869
Net income available to shareholders of Criteo S.A. per share:
Basic	$	0.08		$	0.21		$	0.35		$	0.68
Diluted	$	0.08		$	0.21		$	0.33		$	0.66
Weighted average shares outstanding used in computing per share amounts:
Basic	62,082,110			63,628,351			61,662,308			63,163,922
Diluted	65,254,238			65,816,422			65,095,690			65,429,757

⁽¹⁾For the three months ended September 30, 2015 and September 30, 2016, this excludes $0.7 million and $1.2 million, respectively, and for the nine months ended September 30, 2015 and September 30, 2016, this excludes $1.7 million and $3.7 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, acquisition-related costs and deferred price consideration as follows:

Detailed Information on Selected Items:



	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016
	(in thousands)
Equity award compensation expense
Research and development	$	1,714	$	4,667	$	4,354	$	9,248
Sales and operations	1,715		5,143		8,072		11,021
General and administrative	1,171		4,155		3,816		9,761
Total equity awards compensation expense	$	4,600	$	13,965	$	16,242	$	30,030

Pension service costs
Research and development	41		55		123		160
Sales and operations	37		38		115		107
General and administrative	32		39		94		125
Total pension service costs	$	110	$	132	$	332	$	392

Depreciation and amortization expense
Cost of revenue	8,503		10,406		21,287		27,846
Research and development ^(a)	1,690		1,640		4,811		5,105
Sales and operations	1,330		1,813		3,434		5,604
General and administrative	369		912		1,066		2,033
Total depreciation and amortization expense	$	11,892	$	14,771	$	30,598	$	40,588

Acquisition-related costs
General and administrative	—		1,793		—		1,941
Total acquisition-related costs	$	—	$	1,793	$	—	$	1,941

Acquisition-related deferred price consideration
Research and development	54		3		278		88
Total acquisition-related deferred price consideration	$	54	$	3	$	278	$	88

(a) Includes acquisition-related amortization of intangible assets of $1.2 million and $0.9 million for the three months ended September 30, 2015 and September 30, 2016, respectively, and $3.8 million and $3.1 million for the nine months ended September 30, 2015 and September 30, 2016, respectively.

Consolidated Statements of Financial Position Data (Unaudited):



	December 31, 2015		September 30, 2016
	(in thousands) (unaudited)
Cash and cash equivalents	$	353,537	$	407,158
Total assets	841,719		953,965
Trade receivables, net of allowances for doubtful accounts	261,581		268,097
Total financial liabilities	10,428		9,336
Total liabilities	362,696		370,251
Total equity	$	479,023	$	583,714

Other Financial and Operating Data (Unaudited):



	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016
	(in thousands, except number of clients) (unaudited)
Number of clients	9,290		12,882		9,290		12,882
Revenue ex-TAC ⁽³⁾	$	133,704	$	176,557	$	374,055	$	505,287
Adjusted net income ⁽⁴⁾	$	11,373	$	31,299	$	42,823	$	81,277
Adjusted EBITDA⁽⁵⁾	$	34,487	$	53,532	$	89,961	$	141,578

⁽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						Nine Months Ended
	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
	(in thousands) (unaudited)
Revenue	$	332,674		$	423,867		$	926,152		$	1,232,321
Adjustment:
Traffic acquisition costs	(198,970		)	(247,310		)	(552,097		)	(727,034		)
Revenue ex-TAC	$	133,704		$	176,557		$	374,055		$	505,287

⁽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, 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, 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						Nine Months Ended
	September 30, 2015			September 30, 2016			September 30, 2015			September 30, 2016
	(in thousands)
Net income	$	5,793		$	14,724		$	23,339		$	46,589
Adjustments:
Equity awards compensation expense	4,600			13,965			16,242			30,030
Amortization of acquisition-related intangible assets	1,200			943			3,794			3,145
Acquisition-related costs	—			1,793			—			1,941
Acquisition-related deferred price consideration	54			3			278			88
Tax impact of the above adjustments	(274		)	(129		)	(830		)	(516		)
Adjusted net income	$	11,373		$	31,299		$	42,823		$	81,277

⁽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, 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 evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the elimination of equity awards compensation expense, pension service costs, 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				Nine Months Ended
	September 30, 2015		September 30, 2016		September 30, 2015		September 30, 2016
	(in thousands)
Net income	$	5,793	$	14,724	$	23,339	$	46,589
Adjustments:
Financial expense (income)	6,650		570		5,276		1,982
Provision for income taxes	5,388		7,574		13,896		19,968
Equity awards compensation expense	4,600		13,965		16,242		30,030
Pension service costs	110		132		332		392
Depreciation and amortization expense	11,892		14,771		30,598		40,588
Acquisition-related costs	—		1,793		—		1,941
Acquisition-related deferred price consideration	54		3		278		88
Total net adjustments	28,694		38,808		66,622		94,989
Adjusted EBITDA	$	34,487	$	53,532	$	89,961	$	141,578

Results of Operations for the Periods Ended September 30, 2015 and 2016 (Unaudited)

Revenue

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended
	September 30, 2015		September 30, 2016			2016 vs 2015
	(in thousands)
Revenue as reported	$	332,674	$	423,867		27.4	%
Conversion impact U.S dollar/other currencies			(7,986		)
Revenue at constant currency ⁽¹⁾	332,674		415,881			25.0	%
Americas
Revenue as reported	124,024		160,739			29.6	%
Conversion impact U.S dollar/other currencies			(447		)
Revenue at constant currency ⁽¹⁾	124,024		160,292			29.2	%
EMEA
Revenue as reported	137,185		157,921			15.1	%
Conversion impact U.S dollar/other currencies			4,952
Revenue at constant currency ⁽¹⁾	137,185		162,873			18.7	%
Asia-Pacific
Revenue as reported	71,465		105,207			47.2	%
Conversion impact U.S dollar/other currencies			(12,491		)
Revenue at constant currency⁽¹⁾	$	71,465	$	92,716		29.7	%

⁽¹⁾Growth at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the 2015 average exchange rates for the relevant period to 2016 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 September 30, 2016 increased to $423.9 million, growing 27.4% (or 25.0% on a constant currency basis), compared to the three months ended September 30, 2015. Revenue from new clients contributed 58.3% to the year-over-year revenue growth while revenue from existing clients contributed 41.7% to the year-over-year revenue growth. This increase in revenue was primarily driven by the continued roll-out of technology innovations, the addition of a new record number of net new clients of over 1,000 in the quarter, and the continued expansion of our publisher relationships. Technology improvements and broader inventory reach helped generate more revenue from existing clients at constant currency. Our continuing ability to convert and maintain a large portion of our clients to uncapped budgets was a key driver of the increase in revenue per existing client across large and midmarket clients.

The year-over-year increase was the result of our rapid growth across all geographies. Revenue in the Americas region increased 29.6% (or 29.2% on a constant currency basis) to $160.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, and the region remained the largest contributor to our global growth. We launched campaigns with new large accounts and our business with existing large clients continued to grow, driven by the continued roll-out of technology innovation. Midmarket growth remained solid across the region. Revenue in EMEA increased 15.1% (or 18.7% on a constant currency basis) to $157.9 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. Established markets continued to post solid double-digit growth, especially Germany where new client additions were particularly strong. We signed several new large clients including Idealo, Germany's largest price comparison website. Travel clients further increased their business with us across several markets in EMEA. Revenue in the Asia-Pacific region increased 47.2% (or 29.7% on a constant currency basis) to $105.2 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. Momentum remained solid across key large markets. Japan continued to deliver strong performance, in particular in our business with existing large strategic clients, some of which continued to spend over 40% more with us, compared with the prior year period. Our partnership with Kakao quickly ramped up to represent close to 20% of Korea's revenue. Business activity was strong in Taiwan and accelerated across the Pacific markets.

Additionally, our $423.9 million of revenue for the three months ended September 30, 2016 was positively impacted by $8.0 million as a result of changes in foreign currency against the U.S. dollar compared to the three months ended September 30, 2015.

The year-over-year growth in revenue on a constant currency basis is primarily attributable to an increased volume of clicks delivered on the advertising banners displayed by us (i.e. higher volumes of impressions).

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended
	September 30, 2015		September 30, 2016			2016 vs 2015
	(in thousands)
Revenue as reported	$	926,152	$	1,232,321		33.1	%
Conversion impact U.S dollar/other currencies			(4,186		)
Revenue at constant currency ⁽¹⁾	926,152		1,228,135			32.6	%
Americas
Revenue as reported	335,520		464,435			38.4	%
Conversion impact U.S dollar/other currencies			5,868
Revenue at constant currency ⁽¹⁾	335,520		470,303			40.2	%
EMEA
Revenue as reported	396,200		471,226			18.9	%
Conversion impact U.S dollar/other currencies			10,202
Revenue at constant currency ⁽¹⁾	396,200		481,428			21.5	%
Asia-Pacific
Revenue as reported	194,432		296,660			52.6	%
Conversion impact U.S dollar/other currencies			(20,256		)
Revenue at constant currency⁽¹⁾	$	194,432	$	276,404		42.2	%

Revenue for the nine months ended September 30, 2016 increased to $1,232.3 million, growing 33.1% (or 32.6% on a constant currency basis), compared to the nine months ended September 30, 2015. Revenue from new clients contributed 39.9% to the year-over-year revenue growth while revenue from existing clients contributed 60.1% to the year-over-year revenue growth. This increase in revenue was primarily driven by the continued roll-out of technology innovations, the addition of over 2,680 clients, and the continued expansion of our publisher relationships. Technology improvements and broader inventory reach continued to help generate more revenue from existing clients at constant currency across both our large and midmarket clients. Our continuing ability to convert and maintain a large portion of our clients to uncapped budgets was a key driver of the increase in revenue per existing client.

The year-over-year increase was the result of our rapid growth across all geographies. Revenue in the Americas region increased 38.4% (or 40.2% on a constant currency basis) to $464.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We signed and launched campaigns with several new large clients in the United States and our midmarket segment continued to grow rapidly across the Americas. Existing large clients continued to increase their spend with us across the region. Revenue in EMEA increased 18.9% (or 21.5% on a constant currency basis) to $471.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We signed several large and midmarket clients in the region and continued to grow our revenue from existing clients across client segments and markets. We continued to see strong performance in the travel sector across the region. Revenue in the Asia-Pacific region increased 52.6% (or 42.2% on a constant currency basis) to $296.7 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, as we continued to grow our client base, in particular in Japan, South-East Asia, and India.

Additionally, our $1,232.3 million revenue for the nine months ended September 30, 2016 was positively impacted by $4.2 million as a result of changes in foreign currency against the U.S. dollar compared to the nine months ended September 30, 2015.

Cost of Revenue

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Traffic acquisition costs	$	(198,970	)	$	(247,310	)	24.3%
Other cost of revenue	$	(17,206	)	$	(22,332	)	29.8%
% of revenue	(65.0		)%	(63.6		)%
Gross profit %	35.0		%	36.4		%

Cost of revenue for the three months ended September 30, 2016 increased $53.5 million, or 24.7%, compared to the three months ended September 30, 2015. This increase was primarily the result of an increase of $48.3 million, or 24.3% (or 21.8% on a constant currency basis), in traffic acquisition costs and a $5.1 million, or 29.8% (or 28.3% on a constant currency basis), increase in other cost of revenue.

The increase in traffic acquisition costs related primarily to an increase of 26.5% in the number of impressions we purchased, driven by both publishers with whom we have direct relationships, including the Criteo Publisher Marketplace, and the main real-time bidding exchanges, both global and local. Over the period, the average cost per thousand impressions (or "CPM") decreased by 1.7% (or 3.7% on a constant currency basis).

The year-over year growth in traffic acquisition costs was the result of our strong growth across all geographies. Traffic acquisition costs in the Americas region increased 28.5% (or 28.2% on a constant currency basis) to $97.2 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, as our purchases of impressions from the main real-time bidding exchanges increased and we maintained strong direct relationships with large premium publishers. Traffic acquisition costs in EMEA increased 9.3% (or 12.9% on a constant currency basis) to $87.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, as our purchases of impressions from both large publishers with whom we have direct relationships and the main real-time bidding exchanges increased across several markets in the region. Traffic acquisition costs in the Asia-Pacific region increased 44.5% (or 26.9% on a constant currency basis) to $63.0 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, as we continued to increase our purchases of impressions from global and local real-time bidding exchanges to enable and support our rapid development across several markets in the region, as well as maintained strong relationships with large premium publishers in the region, in particular in Japan.

The increase in other cost of revenue includes a $2.3 million increase in hosting costs, a $1.9 million increase in allocated depreciation and amortization expense and a $0.9 million increase in other cost of sales.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Traffic acquisition costs	$	(552,097	)	$	(727,034	)	31.7%
Other cost of revenue	$	(44,418	)	$	(60,950	)	37.2%
% of revenue	(64.4		)%	(63.9		)%
Gross profit %	35.6		%	36.1		%

Cost of revenue for the nine months ended September 30, 2016 increased $191.5 million, or 32.1%, compared to the nine months ended September 30, 2015. This increase was primarily the result of an increase of $174.9 million, or 31.7% (or 31.1% on a constant currency basis), in traffic acquisition costs and a $16.5 million, or 37.2% (or 36.6% on a constant currency basis), increase in other cost of revenue.

The increase in traffic acquisition costs related primarily to an increase of 22.5% in the number of impressions we purchased, driven by both publishers with whom we have direct relationships, including the Criteo Publisher Marketplace, and the main real-time bidding exchanges, both global and local. Over the period, the average cost per thousand impressions (or CPM) increased 7.5% (or 7.0% on a constant currency basis). The year-over-year increase in average CPM remained largely driven by the improving quality of inventory, evolving formats of ad units available to us on an individual basis, as well as price dynamics.

The year-over year growth in traffic acquisition costs was the result of our strong growth across all geographies. Traffic acquisition costs in the Americas region increased 39.7% (or 41.3% on a constant currency basis) to $284.7 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, as our purchases of impressions from the main real-time bidding exchanges and the Facebook mobile application increased and we maintained strong direct relationships with large premium publishers. Traffic acquisition costs in EMEA increased 14.7% (or 17.3% on a constant currency basis) to $265.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, as our purchases of impressions from both large publishers with whom we have direct relationships and the main real-time bidding exchanges increased across our markets. Traffic acquisition costs in the Asia-Pacific region increased 51.1% (or 40.4% on a constant currency basis) to $177.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, as we continued to increase our purchases of impressions from global and local real-time bidding exchanges to enable and support our rapid development across our markets in the region, as well as maintained strong relationships with large premium publishers in the region, in particular in Japan.

The increase in other cost of revenue includes a $8.5 million increase in hosting costs, a $6.6 million increase in allocated depreciation and amortization expense and a $1.6 million increase in other cost of sales, partially offset by a $0.2 million decrease in data acquisition 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.

Research and Development Expenses

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Research and development expenses	$	(22,442	)	$	(30,701	)	36.8%
% of revenue	(6.7		)%	(7.2		)%

Research and development expense for the three months ended September 30, 2016 increased $8.3 million, or 36.8%, compared to the three months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 474 employees resulting in $6.4 million of additional headcount related costs, a $1.1 million increase in allocated rent and facilities costs and a $0.8 million increase in consulting and professional fees.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Research and development expenses	$	(60,141	)	$	(88,097	)	46.5%
% of revenue	(6.5		)%	(7.1		)%

Research and development expenses for the nine months ended September 30, 2016 increased $28.0 million, or 46.5%, compared to the nine months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 474 employees resulting in $22.7 million of additional headcount related costs, a $3.3 million increase in allocated rent and facilities costs, a $0.3 million increase in amortization and depreciation of assets, a $1.5 million increase in consulting and professional fees and a $0.6 million increase in other costs, partially offset by an increase in the French Research Tax Credit of $0.4 million.

Sales and Operations Expenses

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Sales and operations expenses	$	(56,310	)	$	(68,164	)	21.1%
% of revenue	(16.9		)%	(16.1		)%

Sales and operations expenses for the three months ended September 30, 2016 increased $11.9 million, or 21.1%, compared to the three months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 1,356 employees resulting in $9.0 million of additional headcount related costs, a $0.4 million increase in marketing events, a $0.5 million increase in allocated depreciation and amortization expense, a $0.6 million increase in allocated rent and facilities costs and a $1.4 million increase in other costs including operational taxes.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Sales and operations expenses	$	(169,120	)	$	(201,862	)	19.4%
% of revenue	(18.3		)%	(16.4		)%

Sales and operations expense for the nine months ended September 30, 2016 increased $32.7 million, or 19.4%, compared to the nine months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 1,356 employees resulting in $21.4 million of additional headcount related costs, a $2.0 million increase in marketing events, a $2.2 million increase in allocated depreciation and amortization expense, a $3.8 million increase in allocated rent and facilities costs, a $2.7 million increase in provisions for doubtful receivables, and a $0.6 million increase in other costs including operational taxes.

General and Administrative Expenses

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
General and administrative expenses	$	(19,915	)	$	(32,492	)	63.2%
% of revenue	(6.0		)%	(7.7		)%

General and administrative expenses for the three months ended September 30, 2016 increased $12.6 million, or 63.2%, compared to the three months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 382 employees resulting in $7.5 million of additional headcount related costs, a $0.5 million increase in allocated rent and facilities costs, a $0.5 million increase in allocated depreciation and amortization expense, a $3.9 million increase in consulting and professional fees mainly resulting from exceptional items (litigation and business combinations) and a $0.2 million increase in other operating expenses.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
General and administrative expenses	$	(57,865	)	$	(85,839	)	48.3%
% of revenue	(6.2		)%	(7.0		)%

General and administrative expenses for the nine months ended September 30, 2016 increased $28.0 million, or 48.3%, compared to the nine months ended September 30, 2015. This increase was primarily the result of a growth in headcount to 382 employees resulting in $21.0 million of additional headcount related costs, a $1.5 million increase in allocated rent and facilities costs, a $1.0 million increase in allocated depreciation and amortization expense, a $4.1 million increase in consulting and professional fees mainly resulting from exceptional items (litigation and business combinations), and a $0.4 million increase in other operating expenses.

Financial Income (Expense)

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Financial income (expense)	$	(6,650	)	$	(570	)	(91.4)%
% of revenue	(2.0		)%	(0.1		)%

Financial income (expense) for the three months ended September 30, 2016 increased by $6.1 million, or 91.4%, compared to the three months ended September 30, 2015, mainly as a result of a limited impact of foreign exchange reevaluations and related hedging, together with the recognition of the fees related to the revolving credit facility entered into in September 2015. The $6.7 million financial expense for the three months ended September 30, 2015 included a significant negative impact of foreign exchange reevaluations and related hedging, mainly related to intra-group positions between Criteo S.A. and its Brazilian subsidiary, and to the remaining proceeds from our initial public offering.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Financial income (expense)	$	(5,276	)	$	(1,982	)	(62.4)%
% of revenue	(0.6		)%	(0.2		)%

Financial income (expense) for the nine months ended September 30, 2016 increased by $3.3 million, or 62.4%, compared to the nine months ended September 30, 2015. The $2.0 million financial expense for the nine months ended September 30, 2016 was mainly a result of the recognition of the negative impact of foreign exchange reevaluations and related hedging negative foreign exchange recorded during the first quarter, together with the fees related to the revolving credit facility entered into in September 2015. The $5.3 million financial expense for the nine months ended September 30, 2015 included a significant negative impact of foreign exchange reevaluations and related hedging, mainly related to intra-group positions between Criteo S.A. and its Brazilian subsidiary, and to the remaining proceeds from our initial public offering. At the end of September 2016, the main positions bearing a foreign currency risk are centralized at the Parent company level and hedged using foreign currency swaps and forward purchases or sales of foreign currencies.

Provision for Income Taxes

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Provision for income taxes	$	(5,388	)	$	(7,574	)	40.6%
% of revenue	(1.6		)%	(1.8		)%
Effective tax rate	48.2		%	34.0		%

For the quarter ended September 30, 2015 and 2016, we utilized an effective tax rate of 48.2% and 34.0%, respectively, to calculate the provision for income taxes. The effective tax rate for the quarter ended September 30, 2016 decreased compared to the same period in 2015, primarily due to changes in the geographic mix with respect to contribution to our income before taxes and a higher recognition of deferred tax assets mainly related to Criteo Corp.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Provision for income taxes	$	(13,896	)	$	(19,968	)	43.7%
% of revenue	(1.5		)%	(1.6		)%
Effective tax rate	37.3		%	30.0		%

For the nine months ended September 30, 2015 and 2016, we utilized an effective tax rate of 37.3% and 30.0% respectively, to calculate the provision for income taxes. The effective tax rate for the nine months ended September 30, 2016 decreased compared to the same period in 2015, primarily due to changes in the geographic mix with respect to contribution to our income before taxes and a higher recognition of deferred tax assets mainly related to Criteo Corp.

Net Income

Three months ended September 30, 2016 compared to the three months ended September 30, 2015



	Three Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Net income	$	5,793		$	14,724		154.2%
% of revenue	1.7		%	3.5		%

Net income for the three months ended September 30, 2016 increased $8.9 million, or 154.2% compared to the three months ended September 30, 2015. This increase was the result of the factors discussed above, in particular, a $5.0 million increase in income from operations and a $6.1 million increase in financial income (expense), partially offset by a $2.2 million increase in provision for income taxes compared to 2015.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015



	Nine Months Ended						% change
	September 30, 2015			September 30, 2016			2016 vs 2015
	(in thousands, except percentages)
Net income	$	23,339		$	46,589		99.6%
% of revenue	2.5		%	3.8		%

Net income for the nine months ended September 30, 2016 increased $23.3 million, or 99.6%, compared to the nine months ended September 30, 2015. This increase was the result of the factors discussed above, in particular, a $26.0 million increase in income from operations and a $3.3 million increase in financial income (expense), partially offset by a $6.1 million increase in provision for income taxes compared to 2015.

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								Nine Months Ended
		September 30,								September 30,
	Region	2015			2016			Year over Year Change		2015			2016			Year over Year Change
Revenue:
	Americas	$	124,024		$	160,739		30	%	$	335,520		$	464,435		38	%
	EMEA	137,185			157,921			15	%	396,200			471,226			19	%
	Asia-Pacific	71,465			105,207			47	%	194,432			296,660			53	%
	Total	332,674			423,867			27	%	926,152			1,232,321			33	%

Traffic acquisition costs:
	Americas	(75,684		)	(97,239		)	28	%	(203,781		)	(284,728		)	40	%
	EMEA	(79,710		)	(87,092		)	9	%	(231,023		)	(265,097		)	15	%
	Asia-Pacific	(43,576		)	(62,979		)	45	%	(117,293		)	(177,209		)	51	%
	Total	(198,970		)	(247,310		)	24	%	(552,097		)	(727,034		)	32	%

Revenue ex-TAC⁽¹⁾:
	Americas	48,340			63,500			31	%	131,739			179,707			36	%
	EMEA	57,475			70,829			23	%	165,177			206,129			25	%
	Asia-Pacific	27,889			42,228			51	%	77,139			119,451			55	%
	Total	$	133,704		$	176,557		32	%	$	374,055		$	505,287		35	%

⁽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 2015 average exchange rates for the relevant period to 2016 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								Nine Months Ended
	September 30,								September 30,
	2015			2016			YoY Change		2015			2016			YoY Change
	(amounts in thousands, except percentages)
Revenue as reported	$	332,674		$	423,867		27	%	$	926,152		$	1,232,321		33	%
Conversion impact U.S. dollar/other currencies				(7,986		)						(4,186		)
Revenue at constant currency	$	332,674		$	415,881		25	%	$	926,152		$	1,228,135		33	%

Traffic acquisition costs as reported	$	(198,970	)	$	(247,310	)	24	%	$	(552,097	)	$	(727,034	)	32	%
Conversion impact U.S. dollar/other currencies				$	4,997							$	3,210
Traffic Acquisition Costs at constant currency	$	(198,970	)	$	(242,313	)	22	%	$	(552,097	)	$	(723,824	)	31	%

Revenue ex-TAC as reported	$	133,704		$	176,557		32	%	$	374,055		$	505,287		35	%
Conversion impact U.S. dollar/other currencies				$	(2,989	)						$	(976	)
Revenue ex-TAC at constant currency	$	133,704		$	173,568		30	%	$	374,055		$	504,311		35	%
Revenue ex-TAC/Revenue as reported	40		%	42		%			40		%	41		%

Other cost of revenue as reported	$	(17,206	)	$	(22,332	)	30	%	$	(44,418	)	$	(60,950	)	37	%
Conversion impact U.S. dollar/other currencies				251								266
Other cost of revenue at constant currency	$	(17,206	)	$	(22,081	)	28	%	$	(44,418	)	$	(60,684	)	37	%

Adjusted EBITDA as reported	$	34,487		$	53,532		55	%	$	89,961		$	141,578		57	%
Conversion impact U.S. dollar/other currencies				(1,296		)						(1,409		)
Adjusted EBITDA at constant currency	$	34,487		$	52,236		51	%	$	89,961		$	140,169		56	%

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and cash generated from operating activities. We also benefited to a much lesser extent from the proceeds of the exercise of share options and warrants and expect to continue to do so in the future, as such securities are exercised by holders. We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future and intend to retain all available funds and any future earnings to fund our growth. As discussed in Note 8 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 and money market funds that are currently providing only a minimal return. Our cash and cash equivalents at September 30, 2016 were held for working capital and general corporate purposes, which could include acquisitions, and amounted to $ 407.2 million as of September 30, 2016. The $53.6 million increase in cash and cash equivalents compared with December 31, 2015 primarily resulted from $81.8 million in cash from operating activities and $15.4 million positive cash flow from financing activities over the period, which was partially offset by the $59.3 million used for investing activities, including $54.4 million in capital expenditures and $5.1 million for the Monsieur Drive acquisition partially offset by a $0.2 million inflow relating to changes in refunds of bank deposits or lease deposits related to old premises. In addition, the increase in cash includes a $15.7 million positive 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 and money market funds that are currently providing only a minimal return.

Operating and Capital Expenditure Requirements

For the nine months ended September 30, 2015 and 2016, our capital expenditures were $55.3 million and $54.4 million, respectively, primarily related to the acquisition of data center and server equipment as well as furnishing and leasehold improvements of new offices. 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 nine-month period ended September 30, 2015 and 2016:



	Nine Months Ended
	September 30, 2015			September 30, 2016
	(in thousands)
Cash from operating activities	$	70,446		$	81,812
Cash used in investing activities	$	(82,118	)	$	(59,277	)
Cash from financing activities	$	6,062		$	15,368

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

For the nine months ended September 30, 2016, net cash provided by operating activities was $81.8 million and consisted of net income of $46.6 million and $96.2 million in adjustments for certain operating items, partially offset by $22.9 million of changes in working capital requirements and $38.2 million of income taxes paid during the first nine months of 2016. Adjustments for certain operating items primarily consisted of depreciation and amortization expense of $45.6 million, equity awards compensation expense of $30.0 million and $27.6 million of accrued income taxes, partially offset by $7.5 million of changes in deferred tax assets. The $22.9 million decrease in cash resulting from changes in working capital primarily consisted of a $3.9 million decrease in accounts payable resulting from the standardization of the timing of invoice payments, $4.5 million increase in accounts receivable mainly driven by growth in our activity during the period and a $18.6 million increase in other current assets including prepaid expenses and value-added tax ("VAT") receivables resulting from an increase in our revenue and, to a lesser extent, an increase in office rental advance payments. This was partially offset by a $4.2 million increase in accrued expenses such as payroll and payroll related expenses, resulting from an increase in the number of our employees, and VAT payables, driven primarily by an increase in traffic acquisition costs.

For the nine months ended September 30, 2015, net cash provided by operating activities was $70.4 million and consisted of net income of $23.3 million and $62.7 million in adjustments for certain operating items, partially offset by $2.3 million of changes in working capital and $13.2 million of income taxes paid during the first nine months of 2015. Adjustments for certain operating items primarily consisted of depreciation and amortization expense of $32.4 million, equity awards compensation expense of $16.2 million and $17.0 million of accrued income taxes. The $2.3 million decrease in cash resulting from changes in working capital primarily consisted of a decrease in operating cash flow due to a $27.4 million increase in accounts receivable primarily driven by increased revenue during the period as we continue to expand our operations and an increase in the average days outstanding of our accounts receivable and a $24.7 million increase in other current assets, primarily the result of an increase in our revenue and, to a lesser extent, an increase in office rental advance payments. This was partially offset by an increase of $39.5 million in accounts payable and an increase in other accrued liabilities such as payroll and payroll related expenses of $10.2 million, resulting from an increase in the number of our employees, and VAT payables, driven primarily by an increase in traffic acquisition costs.

Investing Activities

Our investing activities to date have consisted primarily of purchases of property and equipment and acquisitions.

For the nine months ended September 30, 2016, net cash used in investing activities was $59.3 million and consisted of $54.4 million for purchases of property and equipment and $5.1 million related to the Monsieur Drive acquisition, partially offset by a $0.2 million refund of bank deposits or lease deposits related to old premises.

For the nine months ended September 30, 2015, net cash used in investing activities was $82.1 million and consisted of $55.3 million for purchases of property and equipment, $20.5 million related to the DataPop acquisition and $6.3 million in bank deposits or lease deposits related to new premises.

Financing Activities

For the nine months ended September 30, 2016, net cash provided by financing activities was $15.4 million resulting from $17.2 million of share option exercises and $3.8 million of draws on revolving credit facilities, partially offset by $5.6 million for repayment of loans and other financial liabilities.

For the nine months ended September 30, 2015, net cash provided by financing activities was $6.1 million resulting from $10.0 million of share option exercises and $3.2 million of draws on revolving credit facilities, which was partially offset by $6.1 million for repayment of loans and $1.0 million of changes in other financial liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

There have been no material changes to our exposure to market risk during the first nine months of 2016. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosure About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2015.

Credit Risk

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, 2015		September 30, 2016
	(in thousands)
Cash and cash equivalents	$	353,537	$	407,158
Trade receivables, net of allowances	261,581		268,097
Other current assets	16,030		20,288
Non-current financial assets	17,184		17,453
Total	$	648,332	$	712,996

As of December 31, 2015 and September 30, 2016, no customer accounted for 10% or more of trade receivables.

We perform ongoing credit evaluations of our customers and do not require collateral. We maintain an allowance for estimated credit losses. During the twelve-month period ended December 31, 2015 and the nine-month period ended September 30, 2016, our net change in allowance for doubtful accounts was $2.3 million and $5.0 million, respectively.

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.

For each period presented, the aging of trade receivables and allowances for potential losses is as follows:



	December 31, 2015									September 30, 2016
	Gross value		%		Allowance			%		Gross value		%		Allowance			%
	(in thousands)				(in thousands)					(in thousands)				(in thousands)

Not yet due	$	193,603	72.2	%	$	—		—	%	$	234,774	84.1	%	$	—		—	%
0 - 30 days	53,803		20.1	%	—			—	%	7,634		2.7	%	—			—	%
31 - 60 days	8,287		3.1	%	—			—	%	11,655		4.2	%	(115		)	1.0	%
61 - 90 days	2,574		1.0	%	(2		)	—	%	7,620		2.7	%	(796		)	7.1	%
> 90 days	9,578		3.6	%	(6,262		)	100.0	%	17,661		6.3	%	(10,336		)	91.9	%
Total	$	267,845	100.0	%	$	(6,264	)	100.0	%	$	279,344	100.0	%	$	(11,247	)	100.0	%

Cash and Cash Equivalents

Our cash and cash equivalents are invested primarily in demand deposit accounts and money market funds that are currently providing only a minimal return.

Market Risk

Foreign Currency Risk

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 Consolidated Statements of Income including non-controlling interests as follows:



	Nine Months Ended
	September 30, 2015					September 30, 2016
	($ in thousands of dollars)
GBP/USD	+10%		-10%			+10%			-10%
Net income impact	$	24	$	(24	)	$	(138	)	$	138



	Nine Months Ended
	September 30, 2015					September 30, 2016
	($ in thousands of dollars)
BRL/USD	+10%			-10%		+10%		-10%
Net income impact	$	(985	)	$	985	$	429	$	(429	)



	Nine Months Ended
	September 30, 2015					September 30, 2016
	($ in thousands of dollars)
JPY/USD	+10%		-10%			+10%		-10%
Net income impact	$	334	$	(334	)	$	722	$	(722	)



	Nine Months Ended
	September 30, 2015					September 30, 2016
	($ in thousands of dollars)
EUR/USD	+10%		-10%			+10%		-10%
Net income impact	$	3,989	$	(3,989	)	$	4,397	$	(4,397	)

Counter Party Risk

As of September 30, 2016, we show a positive net cash position. Since 2012, we have utilized a cash pooling arrangement, reinforcing cash management centralization. Investment and financing decisions are carried out by our internal treasury function. We only deal with counterparties with high credit ratings. In addition, under our Investment and Risk Management Policy, investments performed by Criteo with a single counterparty shall not exceed 25% of the total invested portfolio no matter the rating of such counterparty.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on their evaluation as of September 30, 2016, our management, including our Chief Executive Officer and 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 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.

Limitation on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Criteo have been detected. These inherent limitations include the realities that judgments in 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.

On June 13, 2016, we filed a complaint in the Central District of California for damages and injunctive relief against SteelHouse, Inc. (“SteelHouse”), alleging Federal False and/or Misleading Advertising, Fraud, Intentional Interference with Prospective Economic Advantage, Libel, Trade Libel, Unfair Competition under California Business & Professions Code § 17200, and False Advertising under California Business & Professions Code § 17500. In the complaint, we allege that SteelHouse perpetrated a counterfeit click fraud scheme in its business operations, and engaged in false and misleading advertising related to such conduct. On July 1, 2016, we filed a motion for preliminary injunction to enjoin such conduct. On July 25, 2016, SteelHouse filed its Answer and Counterclaims, alleging Federal False and/or Misleading Advertising, False Advertising under California Business & Professions Code § 17500, Unfair Competition under California Business & Professions Code § 17200, Intentional Interference with Contract, and Intentional Interference with Prospective Economic Relations against us. In its counterclaims, SteelHouse alleges that we manufactured click count numbers and interfered with SteelHouse's actual and prospective business relationships. The parties continued the motion practice for this proceeding through the third quarter of 2016. On October 31, 2016, the Company reached a settlement with SteelHouse to resolve all outstanding claims and counterclaims between them. This proceeding did not have a material adverse effect on our business, financial condition, results of operations or cash flows.

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 “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015. 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 ADSs 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, 2015.

Item 6. Exhibits.

Exhibit Index



		Incorporated by Reference
Exhibit	Description	Schedule/ Form	File Number	Exhibit	File Date
3.1#	By-laws (status) (English translation) (corrected version)
31.1#	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
101.INS	XBRL Instance 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

# 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/ Benoit Fouilland
Date: November 7, 2016	Name:	Benoit Fouilland
	Title:	Chief Financial Officer
		(Principal financial officer and duly authorized signatory)