Good morning and welcome to Criteo’s Fourth Quarter and Fiscal Year 2019 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Edouard Lassalle, VP of Head of Market Relations. Mr. Lassalle, please go ahead.

Thanks, Anita. Good morning everyone and welcome to Criteo’s Q4 and fiscal year 2019 earnings call. With us today are CEO, Megan Clarken; and CFO, Benoit Fouilland. During the 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. 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 discussed today, except as required by law. In addition, reported results should not be considered as an indication of future performance. More information about our risks and other factors that could affect our results is regularly filed with the SEC and is available on our IR website. Today, we’ll also discuss non-GAAP measures of our performance. Definitions of such metrics and the reconciliations to the most directly comparable GAAP financial measures were provided in the earnings release published on our website earlier today. Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. With that, it’s my pleasure to now introduce and hand it over to Megan.

Thank you, Edouard, and good morning, everyone. It’s a pleasure to be with you all. On our call today, I’ll cover five key topics. First, what I’ve learned during my first days at Criteo; second, the challenges that we face as a company; third, the plans and new strategic priorities the team are executing on to address our challenges and make the most of our opportunities; fourth, the highlights of our Q4 performance; and lastly, our outlook for 2020. Before I get to this, I’d like to briefly introduce myself. As some of you may know, before starting at Criteo, I led a major transformation at Nielsen, which shifted the company from a legacy TV/Audio measurement company to a major measurement provider of digital and cross-platform ratings. And I’m really proud of this work. Way prior to this, I started my career as a track and field athlete at the young age of 10 and progressed to an elite status. Now the reason I’m telling you this is that my experiences make me what I am today. You’ll find me a person of conviction, of grit and focus, not afraid of challenges and determined to beat them. I get things done. I’m empathic to your experiences with us and I want nothing but to be honest, transparent and to deliver results. So what attracted me to join Criteo was the high-quality assets, including the global scale, continuous innovation and extremely talented and passionate people, and I’m deeply honored to lead the company into the next chapter of its development at such a pivotal point. And during my first 80 days, I’ve listened to and learned a lot from our employees and customers. I immersed myself into our products and technology, into our value proposition and into how we meet the…

Thank you, Megan and good morning, everyone. I will walk you through our performance for Q4 and 2019, and share our guidance for both Q1 and fiscal year 2020. Revenue was $653 million in Q4 and $2.26 billion for 2019. Revenue ex-TAC, our key metric to monitor the business, declined 1% at constant currency to $266 million in Q4, and grew 0.3% at constant currency in 2019, a touch above our guidance to $947 million. Our Q4 performance, better than expected, was driven by a growing business with new clients in the mid-market, offset by a slight decline in our existing client business, despite a strong holiday season across regions and continued adoption of our new solutions among clients. Currency changes in Q4 cost us over $2 million versus prior year and provided a tailwind of about $1 million compared to our guidance assumptions. This translated into a $4 million overachievement above the high-end of our Revenue ex-TAC guidance for Q4. Q4 Revenue ex-TAC margin improved 20 basis points to 41%, in line with our expectations. Looking now at some of our operating highlights for Q4: Our business grew 7% globally during the so-called Cyber six days around Black Friday. Our new solutions grew 44% to 16% of our total business, including our Consideration solutions growing more than 5x on web and in the 50’s on app. Retail Media grew in the low 20’s with continued strong triple-digit growth of our transactional-SaaS model. On a full-year basis, this means our new solutions altogether grew 54% to 12% of the business. Our retargeting product continued to decline slightly, in the upper-mid single digit range, in particular with large customers. While impacted by the retargeting softness, our same-client Revenue ex-TAC declined 3% at constant currency but improved slightly compared to the minus…

The first question today comes from Dan Salmon with BMO Capital Markets. Please go ahead.

Good morning, everyone. Thanks for taking the questions. Megan, I had a couple of high-level ones for you, as you might expect. Firstly, as you come into the ad tech sector here, there’s a long time debate over whether or not these companies represent software companies or not. And I think it’s fairly clear that you build software. The question is always around the revenue model. And that your prior company at Nielsen was one of the few companies in the ecosystem that created products that people were willing to pay for every day on a subscription basis. And so obviously, that was a very different business. But I’m just curious about what you feel you can bring with your experience in understanding that to Criteo? And what type of revenue models you can help boost here around transactional SaaS, for example? And do you think the revenue model for the core retargeting business needs to change? And then just a follow-up is, as I’m sure you know that the company obviously works largely directly with marketers traditionally. I’d just love to hear a little bit more about what you think the role of agencies or just maybe not so much the big guys that we always think of, but a broader reselling community and whether or not that’s important to you as you step forth with Criteo.

Firstly, hi Dan, it’s good to hear from you. Thanks for the questions. In terms of the ad tech environment and the pricing models, you’re right. I come from a company that has both contracted pricing to fixed rates and also CPM pricing in many cases, on the digital side. Clients want transparency, and they want stability, and we want the same. So I think that there is an opportunity to review those things at Criteo and make sure that it isn’t a black box. It is an environment where we can have both of those pricing models. Again, it will take time and it’ll take research into how that works and if that works. But everything that we do should be based on transparency to the client, flexibility to the client, sustainable business models and a way to make sure that we have some predictability around revenue, and they have predictability around spend. So we’re open to analyzing a number of different points there. In terms of marketers, I think the agencies are incredibly important. They have been for some time and maintain their position as being the broker between the buyer and the seller. And Criteo in the past has not focused very heavily on agencies. My intention is to change that. I think we should have a relationship with agencies. We should be developing solutions for agencies to make their jobs easier at the lower funnel. We should be providing data into agencies to inform them of what’s going on. We should be shaping their strategies. And for all those reasons, I think getting close to the agencies is really important. I think they need our help, and we’re prepared to go in that direction. So it’s an important part of the full funnel operation going forward and the extension of our business out beyond retailers into other verticals, including agencies. I hope that’s helpful.

That’s very helpful. Thank you.

The next question comes from Matthew Thornton with SunTrust. Please go ahead.

Hi. This is Anthony on for Matt. Good morning, thanks for taking the question. On the ID graph, what percentage of that is non cookie based? And of that, what percentage would you say is owned versus licensed from your partners? And then second, if we may. Are you seeing any early impact from the California Consumer Privacy Act? Thanks.

So let me start off IP graph. As I said before, 95% of it is not cookie based. And it is data that is LCUs. And that we use with the ecosystem that we service as a whole. So we have access to that clearly for targeting purposes. And more importantly, to service the entire upper funnel proposition and to move us further away from cookie exposure. The idea, of course, is to connect that with the first-party data and to bring in other potential partners as well that can increase the size of that IP graph. And one of the current partners, as you’ll know, is LiveRamp, and we’ll have all intention to bring in more. And that is a massive, massive source of non cookie based data that we’ll use to make sure that we stay away from being trapped into a cookie environment.

So just maybe, this is Benoit, just to add precisely on the portion of the graphs that doesn’t rely solely on cookies is 95%. So 95% of the ID graph doesn’t rely solely on cookies.

That’s helpful. Thanks.

So maybe just on CCPA, I can take it. So maybe just on CCPA, what – as you know, through the implementation on from 1 of January user need now to agree on the usage of their personal data by third-party partners. So what we’ve done is we’ve adapted our service to the needs of our clients, and we see two types of clients. Clients that are happy to implement and opt out capabilities on their service and clients who do not want to go through the route of the opt out capabilities and for which we have modified our agreement with them to work as a pure service provider for them. So we are flexible in the way we adapt and what we see is a smooth transition through the client base at this point.

The next question comes from Doug Anmuth with JPMorgan. Please go ahead.

Thanks for taking the questions. First, I just wanted to ask about the first-party data, Megan, that you talked about. Just trying to understand better the trend that you’re seeing on the first-party data, how your retention is with those partners in your ecosystem and how do you maintain that. And then just on the seven points, Benoit, that you talked about through 2020. Is that more specifically related to the Google changes? Or is it a collection of other things in there as well? Thanks.

Yes, let me start with the first party, Doug, and thanks for the question. We have a privileged position with our clients, both from the publisher and the advertiser side, and bear in mind, the size of the advertising base is about 20,000. The size of the publisher base is about 4,500 and growing. And we have a privileged position that they need us, so we become part of their workflow. So they build us into the way in that they go about understanding their client base and the way in which they target. So we get data back directly from them. And clearly, that’s data that’s flowing through all the time. And I guess that’s part of the solution. 100% of that first-party data is with our clients. So again, they want us to understand their clients. They pass that data through to us so that we can provide the service that they’re looking for.

Okay. Maybe just regarding the seven points of headwinds that we’ve baked into our guidance. I mean, the reason why we took a realistic view is primarily to address two topics, the first one is the ad targeting restriction. And the second one is relating to regulation. So without getting into the full breakdown, with respect to ad targeting restriction, it is primarily through the implementation of further restrictions that have been announced effective this year in browser, so namely Firefox on the Microsoft. And with respect to the regulation, we took a view that there would be a stricter GDPR implementation that could have a material impact to the business as up to the 7%.

Thank you.

Next question comes from Sarah Simon with Berenberg. Please go ahead.

Yes, most of my questions have been answered, but I just had a question on the margin. Because Benoit when you talked your way through your 2020 outlook for costs, non-GAAP costs as a percentage of revenue ex-TAC, I think you said all three categories would be down. But your guide, which would imply a growing margin, but you’re implying or you’re guiding for a slight decline in the margin on a full year basis. So have I misheard one of these categories in terms of decline versus increase as a percentage of Revenue ex-TAC?

Sarah, thank you. Thank you for the question. So no, in fact, if you combine our guide for the top line. Where we’ve guided to approximately 10% decline for the year, despite contracting our cost base, our cost base is expected to contract on all categories. But despite this contracting of the cost base, we are guiding for a slight decrease in margins, 30% margin in terms of GAAP compared to the margin of the year, whereas last year, we delivered 32% margin. So it’s a combination of a decline on the top line and contraction on our cost base, which is a slightly lower rate than the decline on the top line. But of course, we will monitor very closely our cost base.

Okay. So you’re expecting some of these costs – but you’re expecting some of these costs, therefore, to grow as a percentage of Revenue ex-TAC?

Yes. As a result of this, you are going to see some of these costs slightly increasing as a percentage of Revenue ex-TAC. And that would be primarily – I think that would be primarily – I think that would be primarily within the sales and operation. Because product on R&D is going to be benefiting from the rightsizing of the location now that we’ve closed the Palo Alto center, and we are going to deliver efficiency on the G&A side. So that will be primarily in sales and operations that you will not see – you will see a small deleverage as a percentage of Revenue ex-TAC.

Okay. Got you. Thanks.

The next question comes from Andy Hargreaves with KeyBanc. Please go ahead.

Thanks. Megan, just wondering if you can give us sort of your perspective on the qualitative factors that are driving some hesitancy, I guess, around retargeting. There’s obviously been platform issues, but it does seem like there’s been sort of an attitude change. And I’m just wondering if you could talk through that a little bit? And then Benoit, I just wanted to ask two questions around through cash and balance sheet. One, do you have a number for what you expect the restructuring, the cash restructuring costs to be in 2020? And then can you just walk us through sort of priorities for the balance sheet? And any thoughts on sort of conserving cash until Google’s plans are more clear.

Andy, are you talking about the large clients, in particular.

No. I guess I’m talking about the – well I’m talking about there’s been client losses, there’s been declines not associated with platform changes. What is just the competition? Is it just hesitancy around the individual targeting for perception purposes? What’s driving all that?

We’re not necessarily seeing that. Firstly, the mid-markets are growing well. We’ve got double-digit growth for our mid-market in Q4 and for the second half of 2019. We see softness in the logic clients. And the things that we’re seeing is that they are moving their budgets around between upper funnel, mid funnel and lower funnel. And I guess, that’s to be expected as they change tactics that try and make the most of the different opportunities across those funnels. And we tend to see trends in that. They’re also after a full funnel solution and one that’s unbundled and one that offers software-as-a-service. Because they want flexibility and transparency to be able to make the right choices as they move their ad spend between the different layers of the funnel. So there are ebbs and flows. Our priorities around this to build out that full stack, as I said before, to allow them to move their spend around between the funnels and use a single provider to do that with a single set of data to really focus in on showing them the power of the global footprint that we have so that they can measure and look for trends across the market to continue to grow out mid-market client base, to be more client centric, to be more flexible and to make sure that they’re comfortable that the solutions that we use are privacy safe and are safe from the restrictions of third-party cookies. So that’s what we see. We see larger clients experimenting across the funnel and across platforms.

That’s helpful. Thanks.

Okay. So with respect to restructuring in 2020, we’ve not given any indication on restructuring for 2020. Of course, we would dynamically manage our cost base as and if required during the course of the year, but we do not, as of now, have a guidance with respect to cash restructuring in 2020. And I think, Andy, your last – I think I’ve lost your last question with respect to, was it around the use of…

The priorities for the cash and any thought on just conserving it given sort of ongoing – sort of uncertainty around Google?

So I think with respect to capital allocation, as you know, we’ve always had a balance on quite prudent capital allocation. So in the context of the strategic agenda that we have to drive, we will most probably keep a large portion of the cash with respect to driving potential strategic game changers during the course of the year, which is part of our strategic pillars for the year.

Thank you.

The next question comes from Lloyd Walmsley with Deutsche Bank. Please go ahead.

Thanks. Maybe one for Benoit and one for Megan. Benoit, any impact in the U.S. from just the shorter holiday period between Thanksgiving and Christmas? And then Megan, just kind of big picture. You guys have a very long road ahead of you diversifying the revenue mix, public markets appear to be fairly skeptical. So I guess, why go through this as an independent public company and not look at strategic alternatives?

Okay. So with respect to the peak season, as we’ve confirmed in our prepared remarks, we had a strong peak season in Q4 across both Europe and the U.S. And in the U.S., we’ve seen a good dynamic peak season. So no particular impact of the calendar here. With respect to – I think one of the points I would just add on the peak season is the strength of the peak season are most probably an impact with respect to the spending that we’ve seen in January because some of the larger retailers who have end of the year date in end of January have maxed out their spending in – during the peak season, which had probably an impact on the slow start that we’ve seen in Q1.

With regards to the question around the challenges of company in the public markets. The focus that I have is to just to get my head down and turn the business around. So that requires to redirect and to motivate the team is to put the plan in place, prioritize and then focus on execution and that’s what I’m going to do. I’m not going to – the Board has not asked me to go into anything other than that. It’s just simply to turn the business around. And I truly believe that this can be done through the strategic plan that we put in place, the energy of the organization, the assets that we have and staying laser-focused on executing through 2020 and driving for results. Thanks for the question.

Thank you.

The next question comes from Nick Jones with Citi. Please go ahead.

Hi. Thanks for taking my question. Just one on M&A, how do you feel about the pipeline of potential acquisition targets to help bolster your technology? Any color there would be helpful.

Yes. So let me call it, sort of partners and potential M&A. We have a lot to do, and we can either build things, buy things or partner for things. And so as we build out the requirements in order to achieve what we need to achieve, we identify the gaps. And in filling those gaps, again, we can build, buy or partner. We have a long list of opportunities in terms of partnerships. And there’s obviously always a line of sight into potential M&A to be able to, again help us execute against the plan. But it is to fill the needs in order to build out and execute the strategy. We think there’s a lot of opportunity there, but we’ll move with caution, and we’ll make sure that anything that we do is incremental to our business and is – are the right choices in terms of executing against the plan.

All right. Thank you, Megan. This now concludes the call for today. The IR team is available for any follow-up with any of you. We thank everyone for attending the call, and wish you all a good end of day. Thank you.

Thank you.

Thank you.

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.