Good morning, and welcome to the Criteo Fourth Quarter and Fiscal Year 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After the prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Edouard Lassalle, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Criteo Fourth Quarter and Fiscal Year 2018 Earnings Call. With us today are Co-Founder and CEO, JB Rudelle; and CFO, Benoit Fouilland. 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. As always, such 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. Today, we will also 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 the earnings release published earlier today. Finally, 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 JB Rudelle, CEO of Criteo. JB?

Thank you, Ed, and good morning, everyone. Overall, I'm pleased with our Q4 results, showing encouraging improvement as compared to Q3 and marking an inflection point in our revenue ex- TAC trajectory. With our growth turning positive again, we feel good about the direction of Criteo. While this past year certainly presented its specific challenges, 2018 also demonstrated the recurring nature of our business. In my discussions with clients what I mostly commonly hear is, they view our technology solutions as core to their success. Thanks to a unique commerce audience data, best-in-class artificial intelligence technology and powerful software tools, our platform has become mission-critical in the planning and execution of our client marketing operation. Overall, this gives us further confidence in the resilience of our future cash flows. Over the course of 2018, you've heard us talk a lot about self-service. Leveraging the strong relationships we have built with our clients, our focus is indeed on creating as many accounts as possible through our new self-service platform. And actually when we talk about self-service, there are two complementary aspects. The first one is a platform that allows our mid-market sales team to both greatly reduce friction in the process of signing up new clients and significantly increase the productivity of our operation teams in managing existing accounts. In this respect, we plan to release a new fully automated onboarding module by the end of second quarter. This important step will allow us to significantly accelerate the sign-up and onboarding of small and medium clients, hopefully resulting in accelerated momentum in our mid-market net client addition in the second half of the year and beyond. The second and probably less obvious aspect around self-service is the powerful tools we are providing to all our clients across the board to configure…

Thank you, JB, and good morning, everyone. As usual, I will walk you through our performance for the quarter and the year and share our guidance for Q1 of fiscal 2019. Revenue was $670 million in Q4 and $2.3 billion for the full year 2018. Revenue ex-TAC the key metric we focus on to monitor the business increased 0.1% at constant currency to $272 million in Q4 and grew 2% at constant currency to $966 million in 2018. The Q4 growth was largely driven by a record holiday season in the U.S. and in Europe and was well-balanced between our existing and new clients despite continued headwinds. In term of currency impact, foreign exchange changes in Q4 cost us $5 million versus last year and about $2 million more than what we had anticipated in our last outlook. This translates into a revenue ex-TAC overachievement of $12 million above the high end of our guidance for Q4. Looking at the Q4 operating highlights, we improved same-client revenue ex-TAC which termed flat compared to a 5% decline in Q3. We grew the number of clients by 7%, roughly in line with expectations while maintaining retention at close to 90% for all our solutions combined. This brings the number of clients to about 19,500. We continue to expect an acceleration in net client addition starting in the second half of 2019 once the onboarding module of our self-service platform is fully rolled out at the end of Q2. Even a full year after their launch Criteo Customer Acquisition and Criteo Audience Match part of our full-funnel marketing solution grew strong triple-digit. Our op revenue ex-TAC continues to see strong traction growing 54% year-over-year. And we now access close to 3,500 large publishers through Criteo Direct Bidder compared with 2,600 in Q3 adding…

[Operator Instructions] And our first question will come from Doug Anmuth of JP Morgan. Please go ahead.

Hi, thanks for taking the questions. I have two. Just first on the new solutions, you talked about representing 13% of revenue I think revenue ex-TAC. Can you just talk about what's in there beyond the Criteo Retail Media business, and then how you think about the trajectory going forward? Do you still expect that to reach 30% of the business from the time you laid out -- three years from when you laid out that initial target? And then secondly, can you just comment on how you think about Chrome risk and any potential changes that Google may make around the browser going forward? Thanks.

Thank you, Doug. This is JB. So our new solution. So you're right, there is a confidence which is retail media. And the rest of it is I would say broadly speaking all our consideration solution. So the ability to help our clients go after the full-funnel opportunity especially the upper funnel. So in the mobile app world, this translates into mobile app installs. As you know we acquired Manage last year and we are doubling down on this app install opportunity which is a very big market. And we have a similar strategy in the web where our familiar product called CCA, Criteo Customer Acquisition is also getting very good traction. So when we combine all of this together including the retail media, this is where we are at 13%. So as we said, we have a goal and aspiration to get to a 30% in three years. And we feel good we're on track with that. We realize we have a long way to go. But as of today, those different product lines are showing very solid velocity. Second question, Chrome. So I know it's tempting to draw an analogy between Chrome and Safari. But Google and Apple are in very different situations. As you know Google is a leader in the ad-supported internet ecosystem, unlike Apple. Google controls more than 60% of the browser market and has an even more dominant position in the digital advertising market. As you know, also Google is under high level of scrutiny regarding their business practices, both in the U.S. and in Europe. Given all of this and although we cannot guarantee, of course, that we'll not replicate an exact ITP-like feeder. We believe it's highly unlikely that Google will take advantage of its control over Chrome to restrict the ability of other digital advertising players to compete in this market. As a matter of fact we believe that any change promoted by Google in the way data is collected and processed will, not only maintain, but hopefully improve the ability of all players in the ecosystem to compete in a fair way. And all in all, we'll be extremely vigilant, of course, to ensure this fairness is maintained.

Thank you, JB.

Our next question comes from Richard Kramer of Arete Research. Please go ahead.

Thanks very much. I guess I'd like first-off to understand or hear your thoughts on the rising TAC and the overall take rate heading back towards 40%. What's really driving that? Has it been a competitive decision or a newer product having a lower take rates, or is somehow inventory getting more scarce or expensive? Certainly, it was noticeable that the rise in TAC was most pronounced in Europe. And I guess as a second question, more broadly for the business, with the shift towards the multiproduct offering, are you going to be having a sales force that's selling different solutions, or you're moving more towards an account management structure across your sales force? It's been something you've talked about a lot in the past and it's been something that certainly has been a challenge for many other companies in the transitions. So I'd love to understand how you balance the sales between the CPC and outcome-driven sales force and the solution sales force. Thanks.

Benoit speaking. Let me take the first one and let JB answer the second one. On the first one, I would not call it a situation of the rising TAC. I mean, if you remember what I've said in prior calls, I mean, we are the -- our revenue ex-TAC margin, in fact, had reached some peak. We were more in the 42% or slightly above 42%, between 42% and 43%. And I had indicated that we had the intention to normalize the margin. And what we have seen in Q4 is just this normalization process. The peak was -- and that was discussed, the peak was primarily driven by the fact that we've been generating, especially, in the first three quarters of the year, 2018, slightly higher margins than anticipated on the app inventory and our intention is to normalize. So what you see now is a much more normalized level.

Okay. So, on the sales organization, regarding the multiproduct. Obviously, this is a very good question and it's not something where we're going to reinvent the wheel that, I guess, thousands of companies have been going through this transition. And we are implementing I would say what is the best practice in the industry with basically two sales team. One is the main one, the account strategists, which is the vast majority of our sales team and these map their clients. So an account strategist has a portfolio of clients and they have to sell the whole suite of products. And we are training them to be able to do this. So those account strategists are supported by sales experts that are specialized in specific new product lines. So what's going to happen in practice is, you are the client, we're pitching a new products, so the first time the account strategist is coming to with the sales experts. The second time, you're doing the same thing, listening to another pitch and how the sales expert is selling this. And the third time, you expect the account strategist to do it on its own. At some point people need to be trained. And if some people are not trainable to sell the whole product suite, we'll take the appropriate actions for this. So this is a very classic way to do this where you have sales specialists that are supporting and training and -- on specific accounts, the vast majority of our commercial force which are account-driven their clients.

Our next question comes from Brian Fitzgerald of Jefferies. Please go ahead.

Thanks guys. A couple of questions. You've still a lot of cash on the balance sheet $400 million. You're generating $100 million plus in free cash flow now. So anything that you're looking to use capital on to continue to diversify the revenue base? And then a quick question on the app install business. Good growth there 54%. Any notable dynamics to call out there with respect to handset shipments and app installs? Is there a disconnect you're seeing between less handset renewal rates? Do app developers have to work harder to get installs? And so they are advertising more. Any comment around that would be great.

Yes. I can take this first one on the capital allocation. Yes, you're right. We have significant flexibility in terms of cash on the balance sheet. Even after having executed our share repurchase program, we had more than $360 million of cash on the balance sheet. I think with respect to capital allocation, clearly, we have made a small shift in our capital allocation view in executing our share buyback with the announcement that we have canceled 50% of the shares. So meaning that, all the shares that have been purchased during the last share buyback are going to ultimately benefit -- from a shareholders' standpoint are going to benefit to the EPS on one hand for the canceled shares on the other hand with respect to shares that are going to be used to satisfy future equity obligations. That being said, we have still significant flexibility with cash on the balance sheet to be opportunistic on M&A. And our intention is to be obviously very disciplined in the way we look at M&A, look at high quality of assets, but still having the opportunity to seize opportunities in the market that could make sense to accelerate our growth.

So, regarding the app business. There is indeed a macro trend, we have slowing our renewal rates of hardware handsets. It doesn't really impact the app market on it at all. It just means that people are very well equipped and the usage in-app is still growing very nicely. And I would say, there is still this big trend of people spending, relatively speaking more and more time in-app versus in the browser. And I think this was a big wake-up call for a lot of our clients in the last 12 months. They realized that they need to invest a lot in apps more than before where for a long time they placed pretty much all the investments on the web with the exception of a few app players. And now you can see that especially our large accounts, they cannot afford to renew our apps. So if you renew apps, so you're just going to die. And it's very clear that the ones they have been investing the more in the apps are seeing the best growth. So this is, obviously, a very good tailwind for our mobile app business. As you know it's an era we like particularly because not only it's fast growing, but it's a cookie-less ecosystem, so very clean one. And we intend to keep investing there heavily in the upcoming years.

Great. Thanks, Benoit and thanks, JB.

Our next question comes from Matthew Thornton of SunTrust. Please go ahead.

Hey, good morning, everyone. Thanks for taking the question, and congrats on the result. You talked a little bit about the Chrome browser earlier. Maybe you could just walk us through your latest thinking just on how their module of Firefox data privacy settings are impacting the business if at all? Latest thoughts on just GDPR and ePrivacy, California Data Privacy. Again just some of the other headwinds or disruptions that could come about here? And then just secondly a couple of points of clarification. I think you alluded to the expectation that margins will rebound in 2020 and thereafter. I just want to make sure I heard that right. And then also I think you alluded to having your annual event here in the first quarter as opposed to historically in the second quarter. Again I just want to make sure I heard that right? Thanks everyone.

Thank you very much. Okay. This is a lot of questions, so we're going to try to address them one by one. So we've already addressed the especially Chrome question. So we’ll go into Firefox. So Firefox there is indeed potentially some change that Mozilla is going to be implementing at the end of Q1. We have factored those changes into our guidance both for Q1 and the full year. And just for information, I think we've already mentioned this last quarter, but just repeating this Firefox represents only 4% of our revenue ex-TAC and less than 1% in mobile. So it's a very small chunk of our business. And we're adapting and reinforcing our Identity solution to address this particular case. Regarding GDPR, so I think there is nothing really new there compared to what we said in the past quarters. We don't see this as anything potential for us. It's rather the opposite. I think GDPR has provided some more trust into the ecosystem for the end user and this is good thing. And globally the negative -- the small negative friction that we've seen was smaller than what we expected, less than 2% of our revenue ex-TAC. And overall I think it's a net positive by having a more sustainable and more trustful ecosystem as a whole. Obviously we keep on educating our partners to implement GDPR in the right way in the way, which is the guideline of the privacy agencies. And there are still a few outliers we tend to implement this in a way, which is not user-friendly, but more and more we see this converging into the right direction. Well you mentioned also ePrivacy. And there is not a really significant update in this area. I think it's still in the mix. So nothing I think that we think -- collectively unlikely that anything material is going to happen before the May election in Europe. And overall, we believe that companies that have been compliant with GDPR should be better prepared and well prepared for e-privacy that's going to more or less implement the GDPR spirit in the digital economy.

So maybe I'll cover the margin one.

The margin one? Benoit, yes, please.

Yes. So on the margin – from a margins profile standpoint and EBITDA margin profile standpoint you've seen that in 2019 we are going to increase our investment both on the sales and R&D side, where we expect our expenses to grow respectively approximately by 10%. And the reason why, we are investing in 2019 is because we are confident that we've reached an inflection point on that we will see an accelerated growth momentum throughout the year, and we want to make sure that we prepare in 2019 for further rebound in 2020, both on the top line. But also as a result of our early investment an incremental rebound in the EBITDA margin as well. With respect to the event yes, you're right we have changed slightly. We used to have a worldwide event as in one location every year in Q2. And we've changed the format of that event in this year. We decided to do a kickoff event at the beginning of the year. And to do it in a manner that is much more effective from a time perspective and the cost perspective because we run it through five hubs using technology to connect the hubs and that took place in Q1.

And great energy came out of it.

Yeah, great event.

Our next question comes from Lloyd Walmsley of Deutsche Bank. Please go ahead.

This is Seth on for Lloyd. Just two if I can. Are you – the first one is, are you trying any of the new fully automated on-boarding modules in any of the markets with existing clients? And if you just give us a sense of what you're seeing there? And then as a follow-up you mentioned the growing appetite for agencies to work with your self-serve tools just wondering, if you could flush that out a bit more and give us a sense for how that might impact the business? May be in terms of client growth or spend per client growth? Thank you.

So yeah, very good questions. We are indeed when we have new products we always do trials on the small scales before we roll them out on the large scales. And we're actually working – well the product team is working hand-in-hands with the field team to test on small clients our new products. Not only to look at bugs but also to make sure that the interface is user-friendly that people understand where to click what to do. And this is especially important for self-service functionalities. So we're indeed testing this and making sure when we start the rollout in Q2 everything is going to go as smoothly as possible. You mentioned agencies. So this is – very much part of this self-service platform. As you know agencies, they are looking at different ways to add value to their own clients. And for this they need technology tools. And this is what we're providing to them, which means that historically it's true that our business with agency has been fairly limited with the exception of certain countries like Japan and Korea, where we've been working with agencies for a very long time. But now we're seeing increasing traction of our technology platform with agencies especially in the U.S. where they recognize that now they can set up configure and monitor campaigns on their own. It makes the whole thing much more appealing for them and we're doing increasing business with agencies across the board.

Our next question comes from Andy Hargreaves of KeyBanc. Please go ahead.

Thanks. Just a question on the sales force, I think you mentioned that there was still some disruption even though net hires should improve. So wondering, if you could just comment on the churn side? And if the direction of churn at least is headed in the right direction and the sales force? And then separately on retail sort of two questions; one just, if you could give us some kind of context for the type of deals that are happening meaning size of the company maybe rough size of the deals and what the scope of those are? And then if we should anticipate any impact to the model over time from the shift to this asset sale at least in that portion?

I will cover the quota carrying.

You want to cover the quota carrying?

Yes I mean just rapidly on the sales force, if you look at the dynamics of the quota-carrying figures in fact they've slightly -- we reserved a trend in Q4 and they were slightly up compared to Q3. So what it reflect is, I think we are in a situation where we have now a stabilization of the attrition. And I think from a focus standpoint, we're very focused now on making sure that we restore the hiring cadence, so that we can have this quota-carrying headcount figure to increase during the course of the year.

So regarding our retail media, as I said today the focus and the traction is really on the head of the market, largest clients. So the majority is in the U.S., just given the size of the market this is where we have our biggest clients. We have also some in Europe and a few of them in APAC. So these are very large deals and each of them is a significant part of the business. So right now is -- we are implementing those deals. These are a bit different in terms of sales process. Typically, we answer to a request for information and for quotation. So these are longer-sized sales cycles. But we believe at the end, it's going to make our business model and our platform even more sticky with those clients because there is a lot of integration with them. And so, it's a new type of setting for us. It's really about -- it's about really setting technology rather than managed service what we used to do in the past. But what's really exciting is that, it's allowing us to really have strategic conversation directly with the CMOs and the CEOs of those companies and I have been meeting personally CEOs and board members of our largest retailer partners and this brings a completely different dynamic, while before we used to be managed by much more low-level people in our retail organizations.

Thanks.

Our next question comes from Heath Terry of Goldman Sachs. Please go ahead.

Great. Thank you. You mentioned earlier that Firefox was only about 4% of your revenue. Wondering if you can just -- I know you've said before Facebook's around 6%, wondering if you can just give us a sense to sort of which platforms are the biggest for you now and sort of the most important with all of the changes and sort of shifting user patterns that have happened. And then we realize it's obviously a very small part of your business, but if you could sort of update us on where the relationship with Facebook stands? And where it's now in terms of their importance to your business? And I know you've talked about Chrome, specifically, but maybe more broadly the relationship with Google and Apple as well?

Okay. So, let me try to cover all of this. So, first Facebook first to clarify, Facebook is more -- around 4% of our business than 6%. It used to be bigger than that. But as you know Facebook has been restricting access to their own inventory to technology partners like us. This is why -- and this is -- there has been a long-term trend of Facebook over the years and which, for us, the impact was that we are reducing our dependency on Facebook which is now a very small part of our mix. And we are redeploying the money spend from our clients to what we call the open internet, which is all the properties that are not the [indiscernible] that are supporting technology providers like us. And this is a very fragmented space. We are working with thousands and thousands of different publishers and I think we give the number of the one where we have direct access where it's above 3,000 of them and it's growing every quarter. So, we are really reinforcing our partnership and our access to this inventory on the open internet. Firefox, as I mentioned, this is more in the broader category. It's a very small part of our business and especially small in the mobile piece which is the one which is growing the fastest for us. Google is much more a partner for us in the respect and they are doing -- they have not exchange where we are one of the biggest buyers both in the U.S. and in Europe. And we have a very good relationship with Google. We are building a lot of things in common and helping each of us with our roadmaps. This is a leadership that's been going on for 10 years and we have a lot of things in common in terms of the way we see the market and way we see the future of ad tech.

Our next question comes from Nick Jones of Citi. Please go ahead.

Hi. Thanks for taking the question. I had a question on the -- your ID Graph. I've seen some interesting articles indicating advertisers and publishers might be wanting to consolidate the number of ID offerings they are using. Do you have any commentary on how that would -- that trend would impact Criteo? And how Criteo stacks up against the other ID offerings out there?

Sure absolutely. Very good point. So this is probably one of the area we are the most proud of and the most excited because it's one of the most remarkable achievement the ability to build a very robust ID Graph across the board. Just to remind about this the ID Graph is the ability to recognize the user across the board on multiple devices whenever it's a mobile phone, a PC, a laptop or a tablet. And you are right to point out that there are very few companies in the world capable of doing this. Actually it's really handful. And there is a very easy way to measure, if your graph is good or not good because there is also a lot of buzz in this market is the ability to own the CRM data from clients and the match rate that you are capable to offer. And the match rate we have is one of the best, if not the best in some countries even better than Facebook in Europe. And we've something we'll be very proud of. And the way we've been achieving this is by a core program which is involving more than 80% of our clients. Each of them is contributing to a very small fraction of the ID Graph, but altogether that will represent in terms of shopper, the most robust graph in the market. And this is definitely something which is a very key asset for us for our future deployment. And I was always mentioning, we are growing business with agencies. This is something they value a lot. It is very important for them to have the right ability to measure the performance of the campaign and having access to a robust user graph is extremely important.

Well thank you, JB. This now concludes our call. We thank everyone for attending today. The IR team will be available for any further questions you may have. Goodbye everyone and enjoy the rest of your day. Thank you.

Thank you.

Thank you.

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