Good morning, and welcome to Criteo Q4 and Fiscal Year 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions, although media members will be on a listen-only mode. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Edouard Lassalle. Please go ahead.

Thank you, Keith. Good morning, everyone, and welcome to Criteo’s Q4 and fiscal 2016 earnings call. Eric Eichmann; CEO and Benoit Fouilland CFO are with us today. During this call, management will make Forward-Looking Statements. These may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion plans, anticipated market demand or opportunities and other forward-looking statements. These statements are subject to various 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. We do not undertake any obligation to update any forward-looking statements contained herein, except as required by law. In addition, reported results should not be considered as an indication of future performance. Also we will discuss non-GAAP measures of our performance. Definition of such metrics and the reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release issued earlier today. Last, unless otherwise stated, all growth comparisons made in the course of this call are against the same period in the prior year. With that, I will now turn the call over to our Chief Executive Officer, Eric Eichmann.

Thank you, Edouard; and good morning, everyone. I am pleased with the successful execution against our plans in 2016 and the significant progress we made towards our vision. We continue to innovate and expand our core business, we made significant advances to becoming a multi-product company and we opened exciting new avenues for growth. Before diving into 2016, let me talk about the trends that are shaping performance marketing. Increasingly marketers demand relevant advertising that is held accountable to performance metrics and provide seamless experiences to consumers. Three trends are driving this demand. First, the rapid growth in data rich ad buying providing more opportunities to drive performance. Second, the disjointed online shopping consumer experiences across-devices creating strong demand for seamless and integrated marketing. And third, the continued digitization of offline activities, thanks to the ubiquity of mobile devices opening new opportunities for performance advertising. In 2016, we bolstered our position in performance marketing for commerce and brands, while keeping a strong focus on relevant, accountability and seamless experiences. We used our scale to grow a large user graph, helping e-commerce companies optimize the consumer journey across-devices. We launched Criteo Predictive Search a disruptive product bringing precise, predictive optimization to drive sales on Google Shopping a critical and growing e-commerce marketing channel. And we expanded our business with Criteo Sponsored Products from HookLogic to bring performance marketing to brands on e-commerce site. These three products further differentiate the Criteo in the marketplace and with our core offering provide a broad portfolio of performance solutions. Our scale and state-of-the-art technology bring retailers capabilities that allows them to compete on equal terms with the largest e-commerce players. These new and future performance products for brand and retailers address a growing set of marketing needs and strengthened our overall ecosystem. 2016, was another…

Thank you, Eric, and good morning everyone. Just like Eric, I’m very pleased with our success. In 2016, we continued to deliver rapid growth, expanding profitability and increasing free cash flow while investing in innovation. We believe this attractive combination remains unique in our space. I will walk you through the quarterly and fiscal year performance and share our guidance for Q1 and full-year 2017. Q4 Revenue was $567 million, up 43% at constant currency. For fiscal 2016, revenue grew 36% at constant currency to $1.8 billion. Revenue ex-TAC, the key metric we use to monitor our business performance, grew 41% at constant currency in Q4 to $225 million. Excluding Criteo Sponsored Products, Revenue ex-TAC grew 33% at constant currency to $213 million. This sequential acceleration was driven by our largest quarterly addition of clients to date as well as the continued growth of existing live clients. Revenue ex-TAC our equivalent to same-store sales. Revenue ex-TAC margin in the quarter was 40%, or 41% excluding Criteo Sponsored Products, in line with expectations. For fiscal 2016, Revenue ex-TAC grew 37% at constant currency to $730 million, and 34% at constant currency excluding Criteo Sponsored Products to $718 million. Revenue ex-TAC margin for fiscal 2016 was 41%, both including and excluding Criteo Sponsored Products. Compared with guidance assumptions, changes in ForEx had a negative impact of approximately $3 million on reported Revenue ex-TAC excluding Criteo Sponsored Products in Q4, mostly driven by the stronger Japanese yen. However, compared with prior year periods and excluding Criteo Sponsored Products, changes in ForEx had virtually no impact on Revenue ex-TAC growth, in both Q4 and the fiscal year. Shifting to expenses. Other cost of revenue, comprised of hosting and data costs, grew 37% to $24 million in Q4, mainly driven by increased hosting capacity across…

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Douglas Anmuth with JPMorgan.

Great, thanks for taking the question. I have a couple, first just wanted to ask about the Predictive Search rollout, if you guys could talk in a little bit more detail about how it’s going so far, what are some of your early learnings and then also how are you thinking about the margin profile going forward there? And then secondly, just from the 2017 guidance, can you help us understand a little bit, how Search is being built in there as well as sponsored products? Thanks.

Great, thank you, Doug. This is Eric, I’ll take the first one and give the second one to Benoit. On Predictive Search, at context we have launched the product late last year and we are really starting to put it into the market. There is a couple of things around search that are important to understand, one is, it is an established market, we are coming in with a disruptive products, our expectation in the test that we have run have us sort of running performance uplift of up to 49%. So the value is there, what I think is a bit harder in Search is to improve the value, because there are no clear A, B or head-to-head testing mechanism. So that’s taking a little bit more time and because it is an established market, I think we are going after people using a solution already. Having said that ,we are very bullish on our ability to introduce these products, though the expectation is that the roll out will not be as fast, because the head-to-head b protocols are not yet in place. We are working to put some of those, we believe that Google will ultimately also provide some mechanism to do that. The margin in Search as you know we have been sort of indicating that we are going to have a 10% to 20% margin, when you take costs into account in Search the way we price search is really as a percentage of revenue. So it varies depending on the advertiser. That's also disruptive, because the market has half or a third of the margin; however, none of the marketplace offer anything in terms of performance that we drive. Our expectation is that, we are trying to price this from a value perspective and we deliver significant declines and we take some portion of that as value for ourselves to continue to invest in the product. We continue to be bullish, but for 2017, I think the expectation is that it’s not significant or a material element of our guidance. With that, I don’t know if you want to add anything.

So just a quickly on the driver for the 2017 guidance, from a retrospect prospective we expect to add a significant number of new clients in particular in the mid-market and in the underpenetrated Tier-one market including in the U.S. We also expect to continue innovation and the core platform on access to broader inventory is going to yield results and continue to drive growth of the same client revenue ex-TAC. With respect to Criteo Sponsored Products, it will contribute to the growth in line with a perspective that we have shared with the market at the time of the acquisition, middle single-digit at least to our core business that’s what we expect for the year. With respect to Criteo Predictive Search as Eric just said, we expect that the contribution would be quite minimal for the year, it would be around, I mean just less than 2% of the overall retrospect to the year with a ramp up during the course of the year.

I mean most important to us is that we see real momentum as we go into the year as what to generate in significant revenue this year, so.

Got it. Okay that’s helpful. Thank you guys.

Thank you. And the next question comes from Mark Kelley with Citigroup.

Hi guys, thanks for taking the question. I just want to follow-up on the last one on the Search margins. I know 10%, 20% margin is how you bill your clients, but doesn’t as closer to P&L as only net revenue and no gross revenue? That’s the first one. And second one is, on the adjusted EBITDA guide for Q1, it's kind of a bit of a step down and then you are guiding rest of the year as either flat to up a little. So just curious if there is anything maybe one-time in nature that impacts Q1 and then we should view that kind of reverses as we go throughout the year? Thanks.

Yes. So with respect to the Search, you are right, I mean we are accounting for the net revenue. So in term of the margin that is presented in our financial statements is going to have a slightly positive impact on the margin. But because the contribution is not going to be very material in the year in 2017, we don’t expect to have material impact on margin, as a result of Search ramp up in 2017. With respect to the Q1 guidance, there are few items to keep in mind, when you look at the adjusted EBITDA for Q1, the first aspect is obviously the FX headwinds, there is a very significant FX headwind and we think the full impact of the FX headwind in Q1, because you have the full differential affright that you are taking in Q1. That has approximately $4 million negative impact compared to the Q4, in Q4 guidance rate. So that’s one aspect. The second aspect is a full quarter impact of the Criteo Sponsored Products expense base, so it's approximately 200 employees. And we are going to continue hiring in the core business, in particular in mid-market, but also it is important to [indiscernible] new products in Search, I mean in Criteo Sponsored Products. With respect to exceptional items, yes there are a few exceptional item in Q1 around $2 million of exceptional item that’s really primary [Indiscernible].

That’s really helpful. Thanks a lot.

Thank you. And the next question comes from Richard Kramer with Arete Research.

Hi, thanks very much. A couple of questions please. First of all, Eric, could you give us a bit more insight into both the growth acceleration in the Americas that we saw in Q4, how much of that was product mix shift to sponsored products and a few other things or currencies or mid-market segments. And then I think the second really big question, especially with respect to guidance for top-line going into the first quarter is that we saw average revenue per client actually turn positives in fourth quarter, despite this growth in mid-markets and adding more clients. Can you give us a bit more sense on how penetrated this mid-market segment is and we really can’t get to your guidance without seeing a very large decline in average revenue per client and maybe talk us through the dynamics of that and one other maybe further follow-up if I may afterwards?

Sure. Thank you, Richard. Let me take your first question regarding Q4 for the Americas. A couple of aspects that were important there, one is the fact that we have very strong holiday season and as you know that’s quite seasonal and so that was a big driver for us. I think the second thing is obviously, the CSP business or the Criteo Sponsored Products formerly HookLogic business, started integrating that around November 10, and so we caught the best part of the year from that business. They have a strong seasonality of about 40% of 50% of their business happening in Q4 and so you are seeing reflection and because most of their business or almost all of their business is in the Americas that was all represented in the Americas. And then I would say that the last thing that I would add is we also are getting the benefits of - I don’t know if you remember it, but a couple of quarters ago, we talked about some sort of the concerns that we had around the management team in the Americas and we have sort of that situation around and we are seeing the benefit of having a stronger team and signing stronger or bigger clients in the Americas. So all of those things are sort of combining to see a very good Q4 in the Americas. So that was great. In terms of the guidance in Q1, I think there is a number of things that are different this year than what we had last year and they are worth noting, because I think it will help understand the dynamics in Q1, we are feeling quite good about Q1, I think there is no worries anywhere in terms of Q1, but there is a number…

Yes, what I wanted to build on is with respect to your question Richard specifically on the revenue ex-TAC that clients, so I think you right and we see very positive momentum in Q4 which was very much driven by the underlying existing client growth as you noted is accelerated to 20%, and there are several factors that have ultimately produced such results in Q4 especially the impact of the cross-device drop, the impact of the in-app activity growing in-app activity has contributed to this. With respect to the year, our assumption for the year is slight decline of per client, as a result primarily of the growing mix of mid-market. So mid-market is still very much underpenetrated, if you look at the global opportunity. And it's a good area of growth for us in which we continue to invest. So we have built in our plans as slight decline. With respect to the combined average revenue per clients, while seeing still good dynamics in each of the two categories of clients.

I would add one last thing on this, if you look at the guidance for Q1 and then compare that or put it in context of the guidance for the year. The guidance for the year from a growth perspective had higher sort of top range of the guidance, because we expect some of these new business in particular Criteo Sponsored Products to grow faster and to continue. And you will have some of those dynamics as we introduce new products that will represent a small part of revenues, but as they get deployed represent bigger and bigger and product revenues.

Okay. And one more quick one if I may. I mean there is a lot of discussion about measurement and attribution and can you give us any thoughts about the incrementality of the sales that you are generating via retargeting versus the purchases that might happen anyway, are you getting closer to being able to measure that for clients and is that something you will be able to share with us during the course of 2017?

Yes, attribution is an exciting and rich area, discussion has been for the last 10 years and will continue to be. As I have sort of stated in prior calls, the best attribution mechanism is to really do a head-to-head of sort of having user exposed and users not exposed to your campaign. One of the complication lately and that’s why incrementality testing are not as sort of reliable as you would expect, and in the past we said we have people at cross-devices and so if you can't identify the same person into devices and they might have been influenced on a one device by an add and they purchase on the other. It creates a lot of noise with these incrementality tests. So we have done incrementality tests, some of the clients asked for it and it’s been an area where we feel quite good, you remember that our engine looks at post click 30 days and generating a click is actually quite hard. So it’s a very clear signal of engagement, which we still believe is good. But I think one of the biggest problems with incrementality today, which is a great measurement is the ability to see users at cross-devices and as along that problem is not faced, I think it’s not as reliable in areas. In particular since more than 40% of e-commerce sales are happening at cross-devices. If I can add one thing on attribution, one of the very exciting things that we are working on that is part of the offering that we bring with Criteo Sponsored Products from a HookLogic, is the ability for brands to place ads and see sale from third-party retail site on a real time basis and that ability doesn’t exists offline, it’s an ability the brands would love in particular since they spend about half of their money today on promotional activities to drive their sales without really a good feedback mechanism. That’s one of the thing that HookLogic bring or Criteo Sponsored Products brings for us and as we have spend on network of retailers these ability to be able to place ads and see whether sales are resulting from those ad is unmatched and unparalleled and we believe that that will drive a lot of brand dollars, online promotional dollar online. And so that’s if you think about attribution there is a bigger problems like for example for the brand being just being able to see the sales not even considering how you attribute sales just seeing the sales is a huge step forward. So a lot to be discussed, attribution I think will continue to evolve over time, but very exciting area for us.

Okay. Thanks.

Thank you. And the next question comes from [Lloyd] (Ph) [Indiscernible] with Deutsche Bank.

Thanks. So I’m wondering if you can just give us an update on how conversations around Criteo Sponsored Products has gone with your existing partners and kind of give us an update on how you feel about this relative to when you announced the transaction. And a second one if I can more broadly, you do have a large set of new products this year, both in the core business and outlaid new products. Can you maybe just give us a sense for where you see the greatest scope for potential upside from these new products. It sounds like CSP is the biggest one, but looking across the other ones, where do you see the most scope for upside? Thanks.

Sure, that’s a great question. So we are very bullish about Criteo Sponsored Products, I think sort of the tenants or some of the drivers for us doing the acquisition are still true and I think we are even more excited about the potential to combine the technologies of Criteo Sponsored Products with core sort of Criteo Technology. And so as we do that we will be able to do two particular things this year, let’s say three particular things, one is the ability to sort of create scale and internationalize their platform, that’s going to be important as we span into Europe, we obviously have a global organization that’s helping do the deployment and that’s going to be very helpful for us to lock-in market for Criteo Sponsored Products outside of the U.S. and so that’s one area. The second area is using the optimization technology that we have at Criteo to drive more performance of the ads that are placed on retailer sites by brands and so that’s also part of what we are trying to do this year. And the third area is just using some of the commonly structure that we have developed over the years, I mean particular things like our universal graph can make a big difference. You have just heard how much it helps sort of drive in-app purchases in Q4 and also uplift as you apply this to the Criteo Sponsored Products business, it would also help drive uplift and be more efficient in the spending that we do. We do have other assets that we are developing that will help like a universal catalog that will allow us to identify products across retailers and that will help with attribution across all retailers under Criteo Network, but also with recommendation. So I…

Thanks guys.

Thank you. And the next question comes from Brian Nowak with Morgan Staley.

Thanks for taking my questions, I have two. The first one, the margin guidance for the first quarter and for the full-year, the incremental margin were little bit lower than expected. Can you just talk through the two or three biggest sources of incremental OpEx spend this year and how you think about evaluating payback or ROI in the areas of investments for the company? And then secondly, I guess going a little bit back to Lloyd and even Doug's question, can you just help us understand in the guidance, how do you think about core Americas growth ex-Search, ex-Sponsored Products revenue, ex-TAC this year, just so we can kind of you get an idea for how fast do you expect the core business to growth throughout the year? Thanks.

Okay. So with respect to the margin guidance for the year, in fact our margin guidance for the year is pretty much in line with what we have shared with the market producing with respect to the impact of our investment in HookLogic, as well as the impact of the launch of Search. Obviously these are two large areas of investment for the year and that’s the reason why you see a margin and EBITDA margin for the year income of progression, which is a much more modest than what we have experienced in 2016. Obviously, we had expressed at the time of the HookLogic acquisition that we were exciting HookLogic to be a slightly negative to the EBITDA in the first year, so this is what is reflected in our guidance for the year and we would expect in the following year to see HookLogic or now Criteo Sponsored Products to contribute to adjusted EBITDA, not yet to contribute to positive to the margin into the following year to stop them contributing following. So this is pretty much in line with what we told you in the context of HookLogic. With respect to Search there is a significant investments that we are planning with respect to Search in our guidance for the year, as we want to ensure that we have the right capacity, sales capacity in the various region to support the growth of Search. So that’s with respect to the full-year. Now with respect to Q1, there are specific items in Q1 as we discussed previously, with respect in particular to the full-year of the 200 employees of Criteo Sponsored Products, as well as the FX headwind in Q1. Now more broadly on how do we think about the Americas growth, I mean the driver for growth in the Americas with respect to our core business would remain number one mid-market, we have a large mid-market opportunity in the Americas and we are committed to continue to address that opportunities in 2017, so that’s going to be a one of the critical growth driver. The second growth driver would be of course to continue to penetrate also the large accounts, leveraging now our combined capabilities with Criteo Sponsored Products on the strengthening of ourselves still in the U.S. in particular is going to contribute also to the success in the large accounts. And certainly, I would mention the existing clients, live clients growth which obviously given all of the innovation hopefully that we are for the year, we expect also to be a strong driver of growth in the Americas [indiscernible].

Thanks, just a follow-up you mentioned increased sales capacity for Search in the spending, how much of an investment are you seeing to make another headcount or dollars whatever you want to talk to it just in the Search sales force this year?

So I mean the way to think about in terms of impact is single-digit medium impact on adjusted EBITDA for the year, the Search investment that we are making in primarily in Search capacity.

Okay. Thank you so much.

Thank you. And the next question comes from Heath Terry of Goldman Sachs.

Great. Thank you. We saw the average revenue per user increase for the first time in a while, wondering how much of that was driven by the addition of HookLogic versus the core product, and whether you would have us expect that average revenue per customer continues to improve per year, particularly given the fact that you also added more customers thank you had been added in the quarter but for this quarter?

Yes. So maybe let me make one quick comment on Q4, we saw reacceleration of revenue per client, which was great for existing client and we said now for a while that a lot of these come from innovation and supply and that’s not a linear path. It happens at different points and one of the sort of proof points of that statement is for example the user graph, which took a while to build and got to a point now where it's really delivering results and so we saw 6% uplift. Coming from that, we also had the kinetic design sort of platform that went out there and started operating and started optimizing and so all of those things drove better sort of revenue per client. Going forward and I think Benoit mentioned this, this is always the hardest thing for us to look in our business. There is a number of initiatives around sort of improving the core business that we are excited about. At the beginning of every year we always have a good portfolio of initiative and we feel strongly the specifics of what those initiatives are going to result in are hard to forecast. But I would say we feel quite positive, the one thing that’s hurting us this year is the mix effect of smaller client coming in and in intermit becoming a bigger part of it, but overall, we feel quite good about the innovation pipeline that we have.

So just to reiterate, I believe I covered just earlier on the call as well is the fact that full-year. We have assumed a slight decline of revenue per clients, as a result primarily of the mix of increasing share of new market clients in our overall portfolio. So that’s what is assumed in our guidance for the year. Obviously we also assume we have very strong dynamic in each of the two categories of clients, but as a combine average we assume that it will decrease during the year.

Great.

Thank you very much, this concludes the call for today. If you have any further question, the IR team will be very happy to address them. We wish you a very nice day. Thank you everyone.

Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.