Good morning and welcome to Criteo's Fourth Quarter and Fiscal Year 2020 Earnings 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, Senior Vice President of Market Relations and Capital Markets. Please go ahead.

Thanks, Jason. Good morning everyone and welcome to Criteo's fourth quarter and fiscal year 2020 earnings call. We hope you’re all keeping safe and well. Joining me on the call today are CEO Megan Clarken; Chief Product Officer, Todd Parsons; and CFO, Sarah Glickman. For everyone’s convenience, you’ll find our investor deck on our website. Before we get started, I’d like to remind everyone that our remarks today will include forward-looking statements. These statements reflect Criteo’s 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. For more information, please refer to the risk factors discussed in our earnings release, as well as our most recent Form 10-K and Form 10-Q filed with the SEC. We do not undertake any obligation to update any forward-looking statements discussed today, except as required by law. We'll also discuss non-GAAP measures of our performance on the call. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published 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 hand it over to Megan.

Thanks, Ed, and good morning, everyone. And thank you for joining us today. I hope everybody is staying safe and well. Closing on this past year, you’ll all agree that 2020 was an unprecedented year by any standard. Yet, despite an extraordinary backdrop, I couldn’t be prouder of how much we’ve achieved as a company through my first year of leading the company’s transformation. We kept our people safe through an efficient work-from-home model. We increased our focus on e-commerce across our entire business. We helped our clients achieve their marketing and monetization objectives, by providing the campaign performance and strong ROI we’re known for, time and time again. And we accelerated Criteo’s transformation plan to return the company to sustainable growth. Executing with grit and conviction, we delivered 97% of our original top-line guidance set before the pandemic and 100% of our original profitability target. I’m hugely grateful and encouraged by our amazing team for their strong and focused performance. And I want to thank all of our associates for their passion, dedication and discipline they’ve applied to transform ourselves into the NEW Criteo that we are today. Together with Todd and Sarah, we’ll discuss four key topics on our call today: First, the multiple changes we’ve made across Criteo to set us up for sustainable growth; Second, how our Commerce Media Platform strategy positions us for success; Third, what our product areas of focus are for 2021; And fourth, how our solid execution allowed us to overperform in 2020 and what this means for our 2021 growth momentum, organization and capital allocation as we continue to transform ourselves. Starting with a quick look back at 2020. Not only did we achieve a lot, we also made multiple structural changes that set Criteo up for profitable growth ahead. We’ve…

Thank you, Megan, and hello everyone from San Francisco. On our Q3 call, I touched on the importance of several Criteo assets I’d like to reinforce, our direct access to vast amounts of first-party identity and commerce data, the AI we apply to make predictions about consumer needs that drive commerce outcomes, and the vast reach of our direct retailer and publisher network. As Megan said, our combination of assets makes Criteo completely unique amongst independent ad tech companies. They constitute the raw material we use to continually deliver superior marketing outcomes at scale while navigating challenges posed by changing browser features, Operating System policies and data privacy regulation. Since our last call, our delivery of new product has come into sharp focus, and we’ve made tangible progress with what we’re building. I’m going to walk you through some of our product investments in more detail. But before doing so, I want to share the two objectives that drive our 2021 product plan. First, returning Criteo to sustainable growth. And second, future proofing our business for the benefit of marketers, publishers and the consumers they collectively serve. Using these objectives as our compass, we’ve built our product roadmap around 6 key initiatives. Three of these focus on returning Criteo to sustainable growth. First, we’re expanding our performance audience offerings to address the full consumer journey, from discovery to purchase. During the Q3 call, I shared our vision of building a completely differentiated contextual marketing solution. We’re shipping the MVP of that product in late Q1, and have secured notable brands for our testing. What makes our approach to contextual truly different is that we’re using first-party data to add a commerce signature to the content consumers are reading and watching across the Open Internet. This enables us to go beyond…

Thanks, Todd. It’s an exciting time for Criteo. Good morning, everyone. I will discuss how our solid execution across our strategic pillars drove our overperformance in Q4 and in 2020. And I’ll share our financial outlook for 2021. Let me start with the headline numbers. Revenue grew 1% in Q4 to $661 million and was $2.1 billion in 2020, 8% down for the year. As you can see, we beat guidance for revenue ex-TAC and adjusted EBITDA, largely due an extended Cyber-30 for our U.S. and European e-commerce customers. On a non-GAAP basis, revenue ex-TAC was $253 million in Q4 and $825 million for 2020, or $25 million above our expectation. Revenue ex-TAC was 6% down at constant currency versus Q4 2019 and down 13% for the year. Q4 adjusted EBITDA of $103 million drove a 41% margin, and translated into $251 million for the year. This resulted in an adjusted diluted EPS of $2.17 in 2020. Free cash flow of $120 million represented a 48% conversion of adjusted EBITDA in 2020, the highest level since 2014. Revenue ex-TAC decline represented a 10 percentage point improvement versus Q3. We estimate the negative impact of COVID was $26 million in Q4, or about 10 points of year-over-year impact, with 95% of this impact from lower spend in Travel and Classifieds. In fiscal 2020, we estimate the overall COVID impact on revenue ex-TAC at $106 million, or 11 points year-over-year. 60% of this impact was in Travel, 35% in Classifieds and 5% related to Retail, including large U.S. bankruptcies and the curtailment of spend by a large Korea-based marketplace. Excluding the estimated COVID impact from these vertical customers, our revenue grew 10% in Q4 and 3% in the year. Revenue ex-TAC grew 3% in Q4 and only declined about 1% in 2020.…

Thank you, Sarah. In closing, I’ll say a few words about what makes me confident that we’ll succeed through our transformation into a Commerce Media Platform and return to sustainable growth. And this is because we have all the right things now moving in the right direction, massive e-commerce tailwinds and increased TAM, superior Commerce Media assets and capabilities for marketing and monetization that no one else has on the Open Internet, including global reach and 21,000 advertisers across 100 plus markets, extensive commerce data and a unique, highly differentiated first-party media network. We have a solid product roadmap to return to growth and future-proof the business; new product offerings emerging that already support our strategy, growing at around 50% and expected to represent close to 30% of our business in 2021; a strong balance sheet supporting our investment plans to further transform our business; and our commitment to thoughtful, steady execution and delivery against our strategic plan. We’re transforming into a new Criteo and our strategy of creating the world’s leading Commerce Media Platform positions us for success and sustainable growth. We have a compelling commerce-focused opportunity ahead of us to create long-term value for our shareholders. We’ll be happy to provide more details on our strategy and execution roadmap during our Investor Day coming up in late spring. So please stay tuned. With that, I’d now like to open up the floor up for your questions.

[Operator Instructions]. The first question is from Sarah Simon from Berenberg. Please go ahead.

I've actually got three questions if I may. First one, Sarah, you gave an assumption about the COVID and the impact through '21. When are you thinking Travel starts to come back in terms of spending and are you seeing any sign of that yet? Second one kind of general question. Can you talk about the difference between your Retail Media product and Amazon? I think a lot of people still don't really understand what it is that you're doing. And maybe Amazon is a good benchmark to start with. And then the third one, in terms of CTV, I'm assuming it's very small in the mix of revenues today. Do you think that is a product that you'll be using for more for retargeting or more for upper funnel products? Thanks.

Sarah, take the first one and then I'll take the second and third.

Yes. Hello, Sarah. Yes, so Travel, we're seeing that we're about 75% to 80% down year-on-year still. We have, I would say, a more aggressive assumption throughout the year and obviously all of us are hoping to start taking some trips. And so, we're still seeing it's pretty muted and challenging, but we're ready for when it comes back.

Let me take the second one and thank you for asking it, Sarah. It's important I think to lay out the differences between the two. Let's see. We've been clear of our ambition about to become the Amazon advertising on the Open Internet. So, let me use that as a framework to explain. The e-commerce landscape, as you know is massive and it's predicted to grow at about nearly $7 trillion by 2023. So, it certainly got room for both of us there. It's an extremely healthy place for us to be sitting at sides and specifically with the assets that we’ve got. We’re focused on the Open Internet. And remember, Amazon is very focused on Amazon platform; and secondly, to get their advertising out to the Open Internet. And the Open Internet takes up about 38% of that total gross merchant price value that I talked about before. So inside of that $6.8 trillion or $7 trillion, 38% of that is actually the total of the Open Internet, and that's the area that we play. We have huge e-commerce scale. So when it comes to being able to stand up against an Amazon advertising in that space, we process about $900 billion a year in online sales, which is bigger than Amazon. It's apples-to-apples comparison, but it's a bigger load than what Amazon processes. So we have the scale to be able to stand up there. Now the big differentiator for us, I think, is around the Open Internet -- our Open Internet focus and what we're doing around our first-party network, which Todd talked through before, which gives us some clear advantage. In Amazon's case, they know who their consumer is, if they're a registered Amazon user and they logged in, once they get out of that domain…

The next question is from Matthew Thornton from Truist. Please go ahead.

I also have three, and I'll drive me quick here. I guess just first, maybe for Megan or Todd. If we think about the Retail Media business, is there any way to help us think about how it stands right now, maybe kind of SSP revenue versus DSP revenue, self-serve versus full serve or managed serve. And again, when we think about the self-serve unit economics of that product, is there any reason that they're dissimilar to what we'd see from other publicly traded types of DSPs and SSPs? Why don't I start with that one, and then I'll come back with my second question?

Todd, are you good to take that one?

Yes. I can take this one. So I mean, I think, first of all, the emergence of that business and kind of the change in the profile of retailers from being just a place to buy things as opposed to a place to discover and learn -- and in fact, a media outlet means that we are doing much more in terms of being an SSP, if you will, to those partners. At the same time, we are servicing many of them with our DSP offering -- with our demand offering. And what we're seeing is that fuller basket is being driven -- is driving -- pardon me, a lot more interest in demand from those parties. So the fact that we can bring customers in, and we can provide monetization at the same time is something that signals, I think, a very important difference in our marketplace. And so as you've heard me talk about before, we are adding quite a bit to the native media monetization products of Retail Media. And we've got a very healthy pipeline there. We're also looking at ways for our partners to monetize their data through audiences and audience -- first-party audience information that goes with that. So I would just say we're not traditional as an SSP. We're actually doing things that are much deeper, retailer stack than providing an advertising or media solution, and we're very data-focused. So those two are coming together in a powerful way. In terms of access control surfaces, we have had self-service capabilities on both sides of our business. You can expect, as we go forward, that those things will come together, that those control surfaces will merge because in many ways that's where the market is going and what is needed. So this kind of somewhat artificial separation between supply and demand is harder to keep clean when you have the changing forces in the market that I described. So Retail Media is going to be 100% self-service soon, just to be more specific in terms of its deployment. We are pushing hard to get many more of the customers that are coming on. You heard Sarah say that we cleared 900 new accounts just in this last period. And you can't do that without being pretty decent at self-service, right? So those two are big investments, and they are going to be merging over time. Hopefully, that helps.

That's very helpful. And then just the two other ones. First one is probably for either Todd or Megan and maybe the last one is for Megan. Obviously, Google touted their Flock solution for cohort advertising recently and talked about the effectiveness there. Curious if that, in any way, changes how you think your core kind of retargeting business will look on the other side of those Chrome changes, if you can talk to how important or not important, perhaps that is? And then just final question, maybe for Megan. When you think about the two sides of the business, the Retail Media business, if you look at some of the valuations out there around ad tech that have certainly re-rated recently and then kind of the core retargeting business, when you think about valuation and where you sit right now, I guess, how do you think about Criteo as a potential M&A target, how do you fend off M&A? I guess just how are you thinking about that in the broader landscape? Any help there would be great.

Let me take this. Yes. I'm sorry about that, Megan. So the Flock thing, I'll just be quick on this one. We've been working with Google since the beginning of the -- of what I call the bird proposals. And now we're at a place where, as I mentioned before, we're all about empiricism and testing. So the 95% number that came out a couple of weeks ago, that's pretty impressive but it's not testing that we've done. And it's not external to Google. So we're all very hungry to continue to invest in our partnership and see how Flock plays out, how cohort advertising plays out as we implement. And as I mentioned, during the prepared remarks that you were very invested in that. At the same time, you asked about retargeting. We are just incredibly focused in terms of preserving that opportunity for the company by bridging first-party data between all of our stakeholders. And we're going to continue to, in parallel with what we're doing with Google on Flock, invest very, very heavily there. And then finally, I mentioned non-cookie solutions, and of course, getting contextual to market as fast as we have in a different way, something that is unique and very commerce focused is the first of a good lineup there. So we've got the non-cookie solutions. We've got the preservation of cookie of retargeting solutions, and then we've got the Flock solutions. I'd say our customers are well covered.

Yes, Matt, let me take the last one in terms of how we feel about M&A. We're -- as you can hopefully tell, just laser-focused on our strategy and executing against our strategy. And certainly, my job has been to come in and to run a transformation across the business to return to sustainable growth. And that's what I'm focused on. Clearly, we're going in the right direction here. We feel good about where we're at, and we'll continue to execute that across that thoughtfully and to plan and deliver what we say we're going to deliver. If you think about M&A in terms of what we look for to help us execute against our plan, we have, I think Sarah said as an active pipeline around opportunities that drive product synergies for us or tech synergies for us that enable us to perhaps speed things up, deliver things quicker and to build things that maybe we don't have the expertise to do. And so as I said before, we have -- we run an active pipeline to look for those opportunities every day. And we're very thoughtful in our approach, and we make sure that if we were to move forward with something, it would be something that delivered against our strategy and provided shareholder value.

The next question is from Doug Anmuth from JPMorgan. Please go ahead.

I guess there are two. I just wanted to ask on net new clients reached the highest level since I think 3Q of '17. Can you just talk about some of the drivers of those client net adds? And then would you characterize them as more kind of resurrected clients or totally new to the Criteo platform? And then second, just on the $60 million privacy impact in 2021 and then the $6 million in 1Q, is that all related to Apple and IDFA? Or can you help us break that out across other items as well?

Sarah, do you want to take that out? I think both of them are in your...

Yes, yes. Yes, absolutely. Yes. I mean, most of these are new clients. So we see, especially with the Open Internet, a lot of new players coming in, and they need our services. So most of it's on the new sales side. And of course, we're continuing to focus on existing customers as well. And I think I said in the remarks, about 70% of them are for retargeting. So some are moving up the pipeline to targeting as well. So super excited about that metric. I think the second question you asked was on the privacy. And in terms of privacy, I can't actually -- I'm sorry, I'm -- I think it's about two-thirds on the browsers and about one-third would be on the explicit consents. So that's a way I would look at it.

Okay. Thank you. That's helpful.

And sorry, just one last thing. We have -- we continue to hone in on that assumption. So that is lower than we were anticipating a few months back, and we'll continue to update on that quarter after quarter. But that's our latest view on the restrictions and the identity.

Well, we're just about to close, I'm sorry, so we can take that last question quickly.

The next question is from Mark Zgutowicz from Rosenblatt Securities. Please go ahead.

You mentioned that you're watching for specifics as it relates to iOS. Just curious what those specifics are, sort of what -- as Apple's play out was not yet clear, what is clear and sort of how that plays into UID2.0. They've clearly made it clear that hashed e-mails cannot be used as an end around to IDFA. So I'm just curious what's clear, not clear, specific to that as well.

Mark, thanks for the question. I'm going to throw it to Todd. You good with this one, Todd?

Yes, sure. So there's not anything, I think, new that we would report that you don't already know. We still, on an overall basis, really believe that providing consumers more control over their data is a good thing for the ecosystem. And what we're worried about here is how it impacts smaller businesses, our app building partners and so on and so forth. So we’re -- and we're very focused instead of kind of avoidance and prediction, helping our clients get ready to adapt to the change. So -- and there are a couple of things there. One is making sure that we're able to use our first-party data, like you mentioned, to find users in other addressable areas. We see -- because of the vastness of our network, we see many, many, many users, many places. So the unfortunate thing is it will be harder for apps to monetize those users that we might otherwise place an advertisement. We're rolling out our SDK much more broadly with publishers. That will help us in the app environment. And we have some work going to map web properties context, which generally is richer than app context to that environment. So at least we can get some dollars flowing the upper funnel, maybe mid-funnel dollars flowing into those app environments where we care about publishers' success. So I think that's probably a good summation. We're already on that track and obviously waiting for things to flow through and for us to observe consumer behavior on opt in. And -- but we're prepared for it, and we're doing the three things I just mentioned.

Thanks, Todd. And apologies for interrupting. Thanks, everyone, for joining the call today. This actually concludes the call. Thanks, everyone, and your IR team is available for any follow-ups. We wish you a good end of day. Thanks.

Thanks so much. Bye now.

Thank you.

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