Good day, and welcome to the Criteo Q1 2014 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Edouard Lassalle, Head of IR. Please go ahead, sir.

Thank you, Sarah. Good afternoon, and good morning to all of you on our conference call, and welcome to Criteo's financial results for the first quarter ended March 31, 2014. Joining us on the call today are JB Rudelle, Criteo's Co-Founder and CEO; and Benoit Fouilland, Chief Financial Officer. Please note that this call is being broadcast live on our Investor Relations website at ir.criteo.com. A replay of the call, along with the earnings release issued before the U.S. market opening today, will also be available on our Investor Relations website. Before we begin discussing our earnings, I'd like to remind you that some of our discussions today will contain forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion, anticipated market demand opportunities and other forward-looking statements. As always, these statements are subject to risks, uncertainties and assumptions. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Further information regarding the factors that could affect Criteo's financial results is included in the filings that the company makes with the Securities and Exchange Commission from time to time, including in the section entitled Risk Factors in Criteo's prospective filed with the SEC on March 21, 2014. Also, I'd like to remind you that during the course of this call, we will discuss non-IFRS measures of our performance. Reconciliations to the most directly comparable IFRS financial measures are provided in the tables in the earnings press release published earlier today. Unless otherwise stated, all comparisons made in the course of this call are against the same period in the prior year and include contribution from the acquisition of Tedemis, closed during the first quarter ended March 31, 2014. Now with this in mind, let me turn the call over to JB Rudelle, Criteo's Co-Founder and Chief Executive Officer. JB, the line is all yours.

Thank you, Edouard. I'm very pleased to share our first quarter results with you today. We closed a record quarter of profitable growth, but exceeding the high end of our guidance, both on revenue ex-TAC and adjusted EBITDA. In the first quarter, our revenue ex-TAC grew 76% year-over-year at constant currencies to EUR 62.7 million. Our adjusted EBITDA grew 224% year-over-year at constant currencies to EUR 14.5 million. We continue to strengthen our position as the disruptive global leader in digital performance advertising. Overall, our strong growth in the quarter was fueled by: one, the continuing broadening of our client base across our geos and market segments; two, increasing our revenue from existing clients by driving more sales from them; and three, the continued strong traction in mobile, growing to 15% of revenue ex-TAC in March from 10% in December 2013 and 2.5% last September. On our first growth driver, broadening our client base, we added approximately 500 new clients during the first quarter, excluding Tedemis accounts, ending the period with a record of 5,567 clients, representing a 46% year-over-year growth. As we continue to grow our client base, we see our business increasingly diversified and steadily less dependent on our top 20 clients. In markets where we have established a mid-market presence, our mid-market client base is showing strong growth, and we are particularly satisfied with this trend. In the quarter, we continued to maintain our strong client retention rate above 90%, reflecting the stickiness of our solutions. As you know, one of the key attributes of our cost-per-click model is its ability to work directly with clients. And in Q1, our proportion of direct client relationships remained very high, at approximately 80%. In parallel to clients, our direct relationships with publishers also continued to be a healthy growing…

Thank you, JB. I'm also delighted to report another solid quarter today. I will walk you through our quarterly financial performance in detail, including the contribution of Tedemis, as well as our guidance for the second quarter of fiscal year 2014. I will then open the call to your questions. We had a record first quarter of profitable growth, which exceeded our revenue ex-TAC and adjusted EBITDA expectations. Let me start with our revenue for the quarter, which increased 61% or 68% at constant currency to EUR 152.5 million compared with EUR 94.9 million in the first quarter 2013. As in previous quarters, our revenue performance reflects our continued focus on expanding our business across our geographies as we leverage our scale. In the Americas, our Q1 revenue grew 50%, or 62% at constant currency, to EUR 37.6 million. In EMEA, Q1 revenue increased 54%, or 54% at constant currencies, to EUR 83.9 million. In Asia-Pacific, our Q1 revenue increased 101% year-over-year, or 131% at constant currencies, to EUR 31 million. As we have repeated in the past, while we review -- we view revenue as a useful indicator of our actual client spend, we consider revenue ex-TAC, or revenue excluding the traffic acquisition costs paid to our publisher, as the key financial measure to evaluate and monitor our business performance. Our global revenue ex-TAC grew 68%, or 76% at constant currencies, to EUR 62.7 million in the first quarter compared with EUR 37.3 million in the first quarter 2013. Our revenue ex-TAC margin in the quarter was at 41.1%, consistent with recent quarters and increasing 1.8 percentage points over Q1 2013. Looking in our revenue ex-TAC performance from a geographic standpoint. In the Americas, Q1 revenue ex-TAC grew 54%, or 66% at constant currencies, to EUR 14.7 million. In…

[Operator Instructions] And we'll move now to our first question today from Richard Fetyko from ABR Investment Strategy.

First on the sales hiring. Just curious how many salespeople you plan to add this year versus last year. And then curious on the mid-market sales, particularly as a percentage of total revenues, where do we stand now perhaps versus last year.

So with respect to our total salespeople, as I said in the call, we have in sales and operation -- the total headcount in sales operation is 570 people at the end of the quarter. As part of that 570 people, you have roughly 260 people who are directly involved in sales. And we are planning to continue to invest in building that team in new geographies and in the mid-market throughout the year. Keeping in mind that we've added organically 115 newcomers into the headcount, excluding the impact of Tedemis, during the quarter. With respect to MMS, or mid-market sales, as we call it internally, we currently generate, globally, 25% approximately of our revenue ex-TAC from the mid-market. The level of growth that we are experiencing in mid-market, as we roll out this approach in the various geographies, is a level of growth, which is significantly higher than the growth of the total business at this stage as we are rolling out this new approach.

And can you give us just some sense of which markets and geographies you've rolled out and which ones sort of are ahead of the pack versus which ones are...

We started -- I can give you a sense there. We started to roll out successfully the mid-market sales approach in Europe first, out of London, where we're sitting today, covering all of the key European markets. And we've expanded that approach starting in 2012 in the U.S. And then we have been growing significantly the U.S. team by covering all of U.S. out of Boston. And we have more recently started, out of Tokyo, to implement also the same approach in Asia. So that's roughly the coverage we have today.

We'll now move our next question now from Doug Anmuth from JP Morgan.

I just wanted to ask 2 things. First, on Tedemis. If you could just talk about the opportunity more there, how you think about the characteristics of the e-mail business relative to display in terms of open budgets, the ability to work directly with clients. And are you talking about the same clients in most cases? And then, secondly, on mobile, good to see that it's up to 15%. But can you talk more about what you need to do to move this over from browser-based toward apps as you go through this year and into '15?

Sure, sure. So first on e-mail. E-mail, as you know, is a huge market by itself, and it has its own ecosystem. We decided to enter the e-mail because we can do it the Criteo way, meaning we can apply the same success factor that made us successful in display, which is primarily a disruptive business model, a cost-per-click model, where we buy the inventory, in this case, e-mail inventory on a CPM, and we charge clients only when there is a click in the e-mail. And the click rate in e-mails are very, very high, and first-click conversion rates are very strong also. So this is why we were really very excited by Tedemis because they really had fabricated [ph] exactly the Criteo model. Today, it's a much lower scale because it's purely in France. But we should be able to leverage existing relationships in all our countries to expand the model. Really, the idea is that we are not selling to new type of clients, we are adding products to up-sell existing client base. Regarding your second question on apps. So we have a fully functional product. And as we said, with clients that have already significant app traffic, it performs very, very well, in a very consistent way to other channels. There's one thing, which is, I would say, today limiting a little bit the expansion of our in-app business, is the maturity of our own clients regarding in-apps. A number of our clients either they don't have apps or their app is very new and they are still really in the ramp-up phase. So we're helping them to expand in this area. And it's going to take some time, and we have to grow at the same pace as our own clients. But we think -- we believe that investing ahead of the curve, having a fully functional solution even if some of our clients, they don't have to apps to use it, it's very important to position ourselves as a truly multichannel global solution.

We now move to our next question now from Ross Sandler of Deutsche Bank.

I had 3 questions. I guess I'll just go one at a time. I guess the first 2 would be financial. So the net revenue or revenue ex-TAC to gross net revenue margin in EMEA and Americas both increased year-on-year, and that's kind of contrary to what you guys expected from -- back in the IPO road show. So can you just talk about what's driving that? You've got a mix shift towards mobile, towards Facebook and towards middle markets. Which one of those, I guess, is driving up the revenue ex-TAC margin?

In fact, I mean, I would not characterize this as a major, I would say, event of the quarter because if you look, in fact, the 41.1% is very consistent with what we have experienced over the last 3 quarters. We have indicated, at the time of the IPO, that 39% to 41% was the range that we were pretty comfortable with. So we are within that range, so there is nothing major to highlight in that respect that would explain a change. In fact, I mean, we have been quite stable in terms of margin, if you compare to the prior quarters.

Okay, got it. And then on the Asia business, can you guys give us a little bit of color on what's driving the growth in mobile? Is it fairly broad-based across your core kind of retail and travel customers? Or are you also participating in some of the rapidly growing mobile gaming categories as well?

So your question is about mobile in APAC?

Yes. Where is the growth coming from? Is it just your core kind of incumbent verticals? Or is it some of these newer categories that have popped up?

I would say APAC, being probably the most recent region for us, there is still enormous growth in our core retail categories. And so probably, there was less focus of the team on new segments, new verticals and more focus on retail. There is especially strong growth in APAC on mobile. As you see now, Japan is -- above 25% of our business now is mobile. Japan is a very big business for us. So this really illustrates how big as a growth driver mobile can be for us.

That's helpful. And then last one is on the AdQuantic acquisition. So this is a small kind of talent-driven acquisition, but these guys are, from what I understand, a search bid management tool provider. So I guess, can you just talk about the strategic rationale? Is this about the data, potentially their customer list, their engineering prowess? Do you view search engine marketing as a potential new revenue area outside of display retargeting?

Well, what we see is that what they've developed for search is something which has potentially very broad applications. And the logic of their bidding is really additive to our own R&D. The guys are incredibly smart. And as we are also expanding our R&D team, we thought we could combine 2 things by accelerating R&D hiring [indiscernible] and at the same time, bringing a technology which is additive to our own. And there is still -- we think -- we believe there is still a lot of leverage and a lot of upside we can gain purely on the engine piece of our technology. And what they developed is very complementary. It's going to take you several months or several quarters, really, to integrate it into our platform. So you won't see the benefit overnight. But once more, as we're committed for the long term, we think that in 2015 we should start to see the benefits of this AdQuantic acquisition in our numbers.

We now move to our next question from Brian Pitz of Jefferies.

Just a couple of questions. First, a follow-on to mobile questions. How are you guys thinking about Facebook's new mobile FAN ad network? I know you said you've done a lot of business through FB Ex already. I'd love to get your sense on how that's going to work out. And then just a question on uncapped budgets. With over 70% of revenue ex-TAC from uncapped budgets, what is the, essentially, gating factor in terms of capping those budgets even deeper? And how has that number trended over time, if you could give us some context?

So let me take the one on Facebook. So as you know, all our Facebook business today is [indiscernible]. We haven't tapped into their mobile inventory yet. The technical setup is a bit more complex because it's in-apps, as you know Facebook when it comes to mobile and that mobile browser, so it adds a new layout of complexity. [indiscernible] when it comes to Facebook, it's specific. They have specific technical settings on their own. So we have our own marketing tool with our layout, so it would take a little more time to be live on the mobile piece of Facebook. But overall, we are really confident that Facebook is going to be a very strategic partner for us in the long run.

And just talking about the open budget. We are seeing the share of our revenue ex-TAC generated from open budget pretty stable, just above 70%, so it's a major portion of our revenue that is generated out of open budgets. And what we see here is clearly an opportunity, when we bring new products like e-mail, to tap into those budgets, as we are pushing this through our existing sales force, leveraging on our existing relationships in the core markets where we want to push e-mail this year, we are definitely going to leverage that critical capability we have to work on open budget and generate 70%-plus of our revenue from open budget.

Got it. And just really quick on the guidance. You're taking up revenue by quite a bit by maintaining EBITDA, obviously, investing more heavily in R&D and sales and op. Any other additional color you could give us in terms of investment specifics?

So, yes, as you noted, in fact, I mean, we are maintaining our EBITDA guidance despite, obviously, the impact of the acquisition. But also, you've noted that we are incurring still significant incremental headwind from FX. So the area of investment that had been highlighted very much by JB is that we are going to invest into R&D, continue to accelerate our investments in R&D. And, obviously, AdQuantic is one illustration of that. But beyond the impact of the acquisition, we are going to continue to invest in R&D to make sure that we support this accelerated growth. And also, we are making significant infrastructure investments, particularly in facilities, where we are growing our facilities in several locations, in our largest location in Paris and in London, in particular. And we are also going to continue to increase our investments in certain operation in the MMS, mid-market sales, that we just talked about, as well as, obviously, supporting as a rollout in the new geographies.

[Operator Instructions] We'll now move to our next question from Ralph Schackart of William Blair.

If you look at revenue ex-TAC Americas, it followed the seasonal pattern we would have expected. However, Europe was very strong, at 20-plus percent growth sequentially. The first question is, why the big growth differences? And then, as a follow-up, maybe just on Europe in particular. You've had 4 quarters of accelerating growth. Any color or context in terms of why you're seeing such strong growth there? And maybe you could talk about some products you've released in Europe and if those products will eventually be brought to other regions.

So, yes, I mean, U.S. has been accelerating this quarter. So this is something we are really satisfied and is clearly a big focus for us. And what is really nice is it's coming from a combination of growth in client spend, MMS, which is, as Benoit mentioned, a big investment for us, especially in Boston. And there is also a lot of new clients coming in. So this is obviously very, very important for us. When it comes to Europe, I mean, I think there are combination of different things. We are -- we have a strong position in Europe, where there is a strong dynamic, where -- with the visibility we have now as a public company, there are a lot of new doors opening. And we have a lot of very strong wins in Germany and in the U.K., with new clients that before were close to us and now they are opening the door because we are recognized as a much more, probably, established company. And in Europe, those tend to be perhaps a bit more conservative and working with a more established company is something that might be important for more traditional players than in other regions. One other reason why, with our increasing visibility in Europe, there is this kind of a snowball effect, which is driving the whole business up. Now we see that the combination of this, with all that's mentioned regarding our new product suite, creates a very strong momentum. There is further momentum in -- specifically, to Q1 for Europe, which is linked to the -- there's a lot of sales, especially in France and the U.K., which creates also a boost in those regions in Q1.

We now move to our next question which comes from Deb Schwartz of Goldman Sachs.

Two questions. The first one is, I wonder if you could just give us a little bit more color on what you're seeing on revenue per advertiser. Given the fact that you've been adding a lot of mid-market clients, if you can kind of talk through what you're seeing from some of your larger, more established clients. And then, secondly, any major publisher deals that you've signed in the quarter? And if you could give us a sense of what your inventory mix is from direct publishers versus RTB would be helpful.

Yes. So maybe first on the dynamics with respect to the -- particularly the business from our largest -- our larger clients, that we continue to see an increased contribution of our larger clients. So our large clients are continuing to increase their spend as we bring more opportunities to them, bringing more product to them, and that validates the strength of our model. So if you look at our overall revenue ex-TAC per client, we have a very nice evolution there, which is driven by the large customers -- the large clients. And as we are adding, obviously, small clients, there is a dilutive effect that you see on the lower profits of the client because they come, obviously, at a lower spend but at a lower cost of service, obviously. With respect to -- can you repeat your second question?

Yes. So it was a question on whether or not there were any major publisher deals worth calling out in the quarter. And then if you could give us a sense of what your inventory mix is between RTB and direct?

Just to clarify, I mean, we buy everything in real time, so when you say RTB, real-time buying. The distinction we make is between what we call public exchangers, which is the inventory available for anyone that's plugging into the many exchanges of the market, from the one where we have a direct privileged relationship with publishers that are most often either first link or better access to inventory than -- or sometimes, it can be even [indiscernible]. So it's fairly balanced, those 2 sources of traffic, and we've been growing the 2 in a fairly balanced way.

On the -- what I would add is we have this direct relationship through our comp platforms, so our direct platforms, for the publisher marketplace. So from small publishers, we've added a significant number of publisher on that platform, close to 600 that we've added during the quarter. So continuing to develop that platform. And we see a mix between exchange versus direct relationship, which is close to the 60-40, which is a slight evolution compared to prior quarters, but very similar in terms of percent.

It's quite remarkable that building on our working platform, which -- our publisher marketplace, we have more than 7,000 publishers on this marketplace. And all aggregated, this is bigger than most exchanges on the market. So the specific asset of ours, which is really truly unique, is really at the global scale where very few players have been achieving this. And for some of them, it's their unique business. For us, it's just a fraction of our business, but it's very important in terms of absolute size. Thank you very much. I think we are getting to the end of this call. Thank you very much for all of you and especially the ones that -- for which it is very early in the morning.

I'm looking forward to update your next quarter.

Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.