Good morning and welcome to the Criteo Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. [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 Investor and Analyst Relations. Please go ahead.

Thank you, Kyle. Good morning everyone, and welcome to Criteo's second quarter 2020 earnings call. We hope you all safe and healthy wherever you are. With us today are CEO, Megan Clarken; and CFO, Dave Anderson. Please note that because of the ongoing restrictions, we're all joining this call from different locations today and as a result may face unwanted technical challenges. In the course of our call, management will make certain forward-looking statements. These forward-looking statements reflect clear judgment and analysis only as of today. And actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Importantly, at this time, the global COVID-19 pandemic is still having a significant impact on the global economy on the business of our clients as well as on Criteo's business and may further impact Criteo's financial condition, results of operations and cash flows in the future. There are significant uncertainties around the duration and extents of the pandemic. The dynamic nature of these circumstances may impact what we said on this call today, could still materially change at any time. For more information, please refer to the risk factors discussed in our earnings release as well as the most recent Form 10-K and Form 10-Q filed with the SEC. We do not undertake any obligations to update any forward-looking statements discussed today, except as required by law. In addition, during this call 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 are included 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 is my pleasure to now hand it over to Megan.

Thank you, Edward. Good morning everybody. It is a great pleasure to be with all of you for our third call together. Once again, I'm joining you from the safety of my house in upstate New York, and I hope everyone is staying safe as well. On our call today I'm going to cover five key topics. Number one, the current business context and our learnings from it. Number two, better than expected results in Q2. Number three, a brief recap of our strategy, including executing on our four strategic pillars. Number four, a progress on online identification. Number five our operational priorities going forward. Now, let's start with the current business context. In the unusual times, that we're living in, the world is changing fast and some really interesting trends are shaping up. Global retailer sales are shifting to ecommerce. Based on emarket and data, ecommerce is predicted to grow from 16% of total retail sales today to 23% in 2023, heavily influenced by COVID consumption trends. In the United States, the growth is partly driven by an increase in click and collect, allowing consumers to make immediate contact with purchases. This strong growth benefits many non-large platform retailers and direct to consumer brands, in particular in the mid-market. For example, according to a survey 81% of ecommerce purchases, who've tried new retailers during COVID expect to continue to use them in the future. And marketers are making moves to redirect the sizable amount of their trade budget to media and advertising injecting ad spend into the market and towards lower funnel campaigns, meaning targeting and retargeting. All of this clearly is very encouraging for our business on all fronts. Let's move to quarter two and our performance. Revenue ex-TAC of $180 million and adjusted EBITDA of $39 million,…

Thank you, Megan, and thank you very much for those very kind words. Good morning everyone. Let me echo what Megan said about everyone’s safety in this time and also appreciation for joining our call today. I'd like to start with our quarter two performance, and then I'm going to close with discussion of third quarter guidance. And give you also some perspective about how we're thinking about the outlook for the remainder of 2020. To start, Q2 performance was obviously a lot better than we originally expected with about two-thirds of our improvement compared to our April guide attributable to lower COVID impact, and one-third to better underlying performance including several positive one-time items. I'm going to explain that in just a few minutes. Revenue for the quarter was a $438 million, ex-TAC the revenue declined 18% at constant currency to $180 million. We estimate that the net negative impact of COVID on the revenue ex-TAC during the quarter was about $41 million or about 19 points of growth. So if we exclude this estimated net impact, revenue ex-TAC growth was slightly positive which was obviously encouraging. Another COVID headwind more than entirely impacted large clients using marketing solutions, in particular, travel, classifieds and of course, the brick and mortar retail where some clients temporarily paused or even reduced their campaigns during the quarter. Travel which stayed deeply affected contributed to over 50% of the net COVID headwind with remaining 45% to 50% of the impact evenly spread between classifieds and other verticals. While the impact on retail was overall close to zero. It was very contrasted between large clients and the mid-market, in fact, spending by the mid-market and direct-to-consumer brands remained resilient was actually supported by COVID. Retail Media also benefited from a COVID tailwind. We estimate…

Thanks Dave. In closing, we delivered solid performance in Q2, in highly unusual times. While the pandemic remains dynamic and the business context very volatile, retail continues to hold up well and to enjoy rising ecommerce sales. Midmarket remains strong, and Retail Media proves counter-cyclical in helping brands accelerate the shift of their trade marketing dollars on ecommerce sites. We have unique assets for direct response marketing and identity resolution to help marketers get the performance they need. Our financial position is strong and we’ll stay very disciplined in our capital allocation. The leadership team is on board and fully focused on building our full-stack DSP strategy for the future for future ecommerce to capture large opportunities across the consumer brand and commerce space. And with that, I’d now like to open up the floor now to questions.

And we will now begin the question and answer session. [Operator Instructions] And our first question today will come from Rocco Strauss with Arete. Please go head. Rocco Strauss your line is open.

Sorry, I was on mute. Hey, altogether. Megan, I think you touched on IDFAs, the changes coming with iOS 14. Is there a way to size the share of inventory to data transact on IDFAs in the quarter retargeting business as well as in the app install business within new solutions? And how quickly advertisers actually able to shift targeting towards other IDs? And secondly, with the hiring of top from OpenX, the ID initiatives to growing number of publish integration, it seems you are aiming more and more to cut out the SSPs and the exchanges fully from the equation, becoming your own SSP. I guess the question here is, is there some thinking of opening Criteo’s direct bidder to other third-party DSPs to enable campaigns on those third-party DSPs to be enhanced by Criteo’s ID grab? Thank you.

Thanks, Rocco. That was the hard one, good for you. Good to hear you. IDFAs, it is difficult to size just because it is not necessarily something that we're seeing the effects of before. It is a little new in terms of how fast pipeline has come up to speed with getting consents and everything that goes along with it. We've sized it enough to be able to make some assumptions around the hit ones that it causes up some terms of our revenue forecast for the rest of the year, where it impacts us. And Dave went through that before. Happy to have him share those numbers again if he has been handy. But again, what I was talking about earlier was our plan to work with the industry to actually get in front of this through some of the technology that we're building out in order to put in an ID system that will allow the consumers to be in control, and directly users that pass data across to us that we can use to continue to run our business. So, we do see we do see an impact for this year. Sizing it is complicated. We've focused on getting a solution in place to get profitable as soon as possible and something that we can utilize across the industry and help the ecosystem out. On the Todd Parson’s role coming into him joining our business. I'm thrilled with that. I don't know if you know Todd, but he's a terrific guy, extremely talented. We have a strategy in front of us that goes full stack DSP, there's some exciting nuances now that sits in the center of that because of the strong performance of retail and the growth of ecommerce. So, I haven't fully focused on that, with that clearly will become other opportunities to expand out that capacity to go into other areas. But in terms of SSPs and becoming SSPs and going, beyond what we have in terms of strategy on paper today, we don't have anything until he's looking at it and he can tell us which is the right direction to go. And we have a lot on our plate. And the number one priority for me is that the team remain extremely focused.

Thanks, Megan.

And our next question will from Dan Salmon with BMO Capital Markets. Please go ahead.

All right. Good morning, everyone. Thanks for the comment on IDFA. And trying to size it as you noted the complicated, Megan. And I think we'll probably not try to dig any more on sizing for it. But some of the color on the 4Q impact was helpful. I guess, what I'd like to dig instead you elaborated off the top on the Retail Media business, which understandable why retargeting has gotten most of the focus with your business is the largest piece of the business, but Retail Media is really coming on strong. And what I'd like to ask a little bit more about is, I think the role of the use of an outsourced ad tech back it is always made sense for small and midsized players who don't have the resources to build themselves. But I'd love to hear you just talk a little bit more about how the conversation works with larger retailers who may have some of their own resources, but also tap into your offering and how you maintain strong relationship there? Thanks.

Thanks, Dan. Thanks for the question. It is a really good one. As you know, we do have relationships with some of the larger retailers, some of them use ad tech to offer some of the solutions inside of their own tech stack. So pull up white-labeling for one of a better term, some of what we do. And as we go into the next round about strategy and open our offering up more, I suspect that there's going to be a lot more there that you will hear from us in terms of what we're doing with the larger retailers. One thing that excites me about what we're doing here is if you think about midmarket being, such a superstar during this time and retail, ecommerce being so strong is a step that there's a miss-looking at it now that in terms of people searching now to buy new products, where do they start this search. And the areas of retailer websites and other marketplaces has grown from 7% to during COVID 28%. And then you double that with a step we call the first step that we called out before in terms of 81% of consumers who have switched products will now stay with those products, post COVID. There's a whole marketplace here that’s appearing for the mid-market, the midmarket retailers, which is exciting. And so what I think we have, what I know we have here in terms of Retail Media plus a whole suite of the marketing solutions product as an offering that taps into both large retailers, but this growing mid-market range and mid-market retailers that are looking for an underlying platform like ours to be able to move advertising across from products to people to sites including retail site using privacy driven identity, everything that we have today. So putting that all into those blocks into place, what I see as being sort of a massive opportunity for us. And just to cycle go back to your question, I think the large retailers that already have a presence are going to utilize some of that as well.

That's great. If I could have one follow up. You spoke, of course, about the high-level strategy around identity and you come from Nielsen, where the whole idea of the single source the truth [ph] is the foundation has always been the foundation of the business, and Dave obviously spent some time there as well. My question to you is, do you think that there can be a single source of truth in digital? And if not, what do you think the most important differences are? And how an ecosystem works with multiple consensus identities versus the singular one? Thanks.

You guys this morning. All right. So I will put my Nielsen head on in the moment and respectfully answer the question. I think a single source of truth really means that somebody is a provider that has it. Like if everybody rallied around one provider that owned identity. Then you might get to a place where you have a single source of truth. And in the same way that Nielsen measurement is the single source of truth. Let’s say same television because everybody rallies around it and says, okay, this is what we're going to train on. To your point, we're in a world where everybody has identity. Everybody says they have the best identity graph. I truly think from my experience, when I look at Criteo’s identity graph, the best I've ever seen. And at the end of the day, it is about how you use it. First, that you get it by having relationship with the sell side and the buy side and ultimately with the consumer. And when you have relationships, you get trusted access to information to do a better job of knowing who the consumer is and targeting the consumer. And if you do a better job with that, then you may call it the single source of truth. The content doesn't really matter. It is about you provide the service, you get to the right people at the right time, on the right device, in the right place. And you don't annoy them because it is a contextual ad or contextual content that that you've served up to. And they appreciate getting it. So it is more about how you use it and the quality of the data that you have. Then this notion of single source of truth for identity. Because, I agree with you and I happen to think that what we're sitting on here is just is gold.

That's great. Thank you for elaborating on it and congrats on hiring Todd.

Yes.

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

Thank you for taking my question. Just one more on the iOS14 update. It sounds like, you want to create or Criteo wants to create a solution that gives the users control over tracking or I think that's what iOS14 is trying to do. But the idea is that I think a lot of people are going to opt out. So I guess could you maybe paint a picture of how you think the user engagement should be that I guess ostensibly would result in more opting in what that solution looks like in comparison to what Apple is doing?

Hi, Nick. We come from a place that we believe consumers should be in control. And so the operating systems are trying to and admirably trying to put privacy restrictions in place that protect themselves from sitting on information or the notion that they might be using consumers’ information in the wrong way. Consumers don't mind their information used if it is used for the right reasons and if it is used by a trusted partner. Our notion is give that right. So give that control back to the consumer so they can set up their own way in which they want to be treated, how their data is to be used, what they like and what they don't like. And so everything we're doing around the ID system, the evocable ID system, is to set up a structure in which consumers can have that control. And we believe that if you give consumers back that control and they feel comfortable about how their data is being used, and they see that they see that they can turn it off and on at any time or break it down and say you can use this but don't use this. They have control. We think that they will more likely be willing to opt in on a system like that, than just have one choice of opt in, opt out and trust that their experience is going to be a good one, which it won't. So long way of saying, we want to give control back to the consumer and anything we can do to build tech to do that, we'll do.

And our next question will come from Sarah Simon with Berenberg. Please go ahead.

Yes, hi. I have a couple of questions. First one on the client retention, Dave, you mentioned it went down. Can you talk about the causes of that? I mean, do you think that it is basically COVID and classified and travel guys to be not bending anymore. Do you think there's a more materially we need to be thinking about? The second one was a really small point. Can you just remind us again, what was the $4 million one off revenue that you were talking about? I didn't catch the explanation. And then, as we think about the 4,700 publishers you’ve directly integrated with. I mean, obviously that gives you first party data, it addresses a lot of the issues people have around Chrome and cookies. So what’s holding back that number? Presumably most publishers would want to integrate with you. So any thoughts on how you speed that process up or why you wouldn't want to would be helpful. Thanks.

Well maybe I could go quickly with the point about and I mentioned the 80% on the client retention. And Sarah, we think that is significantly related to COVID and it goes back to clients that were particularly brick and mortar retail clients that were significantly impacted by COVID. So, that number is something that I think is going to be, we'll have more color on that as we go forward, we'll obviously get more insights as we progress through the third quarter. But I think that's a significant issue there. Regarding the $4 million what I explained was the normalized revenue for the second quarter that recorded 180. And I said, if you look at that on normalized basis. We had some, if you will, technical items, since they're just really related to the revenue accounting, if you will, all related to better than you would expect performance in the second quarter that was $3 million. In the $4 million, it is really our best judgment, our best insight into what really was a tailwind for the Retail Media business that occurred in the second quarter, that really benefited exclusively the second quarter sort of the phenomena, flipside of some of the headwind that we experienced on the marketing solution side. The flip side of that was an estimated $4 million, if you will, good guy that we don't think is going to repeat into Q3. So that phenomena, together with the $3 million really represents our best judgment, taking 180 recorded, 189 Rev ex-T recorded and creating a more realistic view for both the actual performance as well as better for comparative purposes looking at Q2 and Q3. And Megan, do you want to take the third element?

The publishers, so you're referring to 4,700 publishers and getting first party data from them. Let me flip to the buy side, where we have over 20,000 advertisers and we get first party data from them. On the publisher side, the trick, as you know, is certainly we want more, we want as much as we can get. The trick is, how did they get it. So the way to get first party data of course is having a relationship with it that be a sign on subscription-based model promotional, something whereby you can get something on the back of consumer. And it is difficult for publishers to work out what their strategies are to actually get them. Some have done a fantastic job, others are still trying to get to a place where they can offer something to get something back. And we'll help as much as we possibly can. And I think we'll see if that will increase over time. But still, that is, regardless of the publisher side being slower than the sell side, that's an enormous amount of first party data that we that access to, which is a very good place for us to be.

Okay. So basically, is it fair to say that you try and do these integrations more with those publishers that have first party data than not? Or would you be trying to drive that integrations regardless? Because obviously there are the economic bidding taken into account as well?

Yes, we try to drive them regardless. And data just gets better as they evolve. That's correct.

Perfect, thanks.

Our next question will come from Andrew Boone with JMP Securities. Please go ahead.

Good morning. Thanks for taking the question. Megan, some other people in the industry believe that Google eventually not pull cookies. Can you talk about your personal opinion there and how you see that playing out just given the impact on publishers, the open ecosystem and COVID? And then secondly, you guys talked about contextual targeting in the deck as well as in the prepared remarks. Can you help us better understand your capabilities there? And any degradation in performance as compared to cookies? Thank you so much.

Number one, Google. And look, I hope that's right. We have a good relationship with Google. There have been a partner for some time. We respect what they do for the ecosystem. What Google is trying to do clearly is responds to the notion that they hold a lot of private information, and particularly as it relates to CCPA. I think, they want to make sure that they can do the right thing in terms of CCPA. And so they've got their blinkers on, they're going after that, and none of us can blame them. It is not about what they're doing. It is about how they're doing it. I suspect that for some time that COVID might slow them down. I still suspect that COVID might slow them down, not because they don't move fast is because the ecosystem needs time to catch up and all of us have had a bit of a jolt. What I will say is that it doesn't matter to us. Because this day is coming, whether it be third party cookies are past their due date. And so for us, it is prudent to not worry about that timeframe, but think about how we get access to the information that we need going forward. So, personal information will not go back. It will be about your relationship with the consumer and how you can get access to it in a way that is safe and private may feel comfortable and may feel good that you're using it for the benefit of their experience online. So, I'm sort of less focused about the timeframe around Google than I might have been before. I'm more focused on the traction that we've made to take yourselves up five pegs ahead of where we might have been with Google. But yes, that's the answer to that. And contextual targeting has been around for us for a long time. So, we've been doing it for quite a long time. It is never good as third party or first party or actual ID based one to one type targeting. But it is good for purpose in terms of giving something about the consumer that you're trying to get in front of. Because you can see them. You can see the relevance of your message to what you're picking up that they're looking at, I'm just explaining it in terrible layman's terms. But it is a great fallback for us. And probably because it is such an old concept, it is not our first port of call, it is just something that's absolutely there when and if we need it. And we do contextual targeting today. So it is nothing new for us and we're pretty good at it.

And this will conclude the question and answer session. I'd like to turn the conference back over to management for closing remarks.

Has the call dropped?

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