Good morning and welcome to Criteo's Second Quarter 2022 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 Melanie Dambre, Director Investor Relations. Please go ahead.

Good morning everyone and welcome to Criteo's second quarter 2022 earnings call. Joining us on the call today, Chief Executive Officer, Megan Clarken and Chief Financial Officer, Sarah Glickman are going to share some prepared remarks. Todd Parsons, our Chief Product Officer will join us for the Q&A session. As usual, you will see our investor presentation on our Investor Relations website now as well as our prepared remarks and transcript of the call. Before we get started, I would like to remind you that our remarks will include forward-looking statements which reflect Criteo's judgments assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information please refer to the risk factors discussed in our earnings release as well as our most recent forms 10-K and 10-Q filed with the SEC. We will also discuss non-GAAP measure of our performance. Definitions and reconciliation to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all growth horizons made during the quarter against the same period in the prior year. With that let me hand it over to Megan.

Thanks Melanie and good morning everyone. Thank you all for joining us. Today, marks an important milestone for our transformation journey as we continue to work towards the realization of our Commerce Media Platform vision. I am very pleased to announce that we're successfully restructured and completed our acquisition of IPONWEB, which we believe will accelerate our plans to shape the future of commerce media on the open internet. Over the last few months, we've diligently evaluated the impact of the geopolitical environment on of IPONWEB and reviewed its business continuity plans to ensure the short term and long term stability of its business. We're very encouraged that of IPONWEB has seen minimal disruption to its top line performance while actively transitioning resources outside of Russia. Our close collaboration during these challenging times shows the strong fit between our companies and reinforces our confidence in what we can accomplish together. Importantly, we successfully renegotiated the deal to reduce the acquisition price with an earn out for demonstrated performance and we restructured the transaction to exclude of IPONWEB's Russian subsidiary. This is a very exciting time for our company and we are thrilled to welcome doc Dr. Boris Mouzykantskii and the IPONWEB team to Criteo. Dr. Boris joins us as Chief Architect and will work closely with the rest of our leadership team toward a successful integration and will contribute to the product, technical and business architecture of Criteo going forward. I'd like to remind you how the strategic acquisition is expected to accelerate our performance play, putting us further into a market-leading position as the intersection of retail media and performance marketing on the open internet becomes the next wave of digital advertising. Clearly, we are no longer a point solution business like most others in AdTech. First IPONWEB brings…

Thank you, Megan and good morning, everyone. Starting with our financial highlights for Q2 2022, revenue was $495 million and contribution AdTech was $215 million. Reported contribution. AdTech reflects the weakening of the Euro and yen against the US dollar resulting in a year-over-year $21 million unfavorable forex impact. At constant currency, Q2 contribution AdTech grew 7% on top of a tough comp with 18% growth in Q2 2021. Our growth was driven by retail media up 42% and audience targeting up 33% as part of marketing solutions up 2%. We continue to shift our top line mix with retail media and audience targeting representing 33% of contribution AdTech in our second quarter, up from 29% in Q1 and up from 25% a year ago. Client retention remained high at close to 90%. Turning to our business segments, in retail media, revenue was $55 million and contribution AdTech was up 42% at constant currency to $37 million. Growth was primarily driven by our US customer base and continued traction in CPG, our largest and fastest growing vertical. Our partnerships with agencies including GroupM are pacing well, and we onboarded 200 new brands in Q2. As a reminder, we also locked the acquisition of Mabaya, which we completed in May of last year to expand our retail media solutions for online marketplaces. In Marketing Solutions, revenue was $440 million and contribution AdTech was up 2% at constant currency to $178 million with solid growth in audience targeting partially offset by lower retargeting. The 3% decline in retargeting reflects the suspension of our Russia operations and a $16 million impact from the loss of signals, including iOS. Our underlying growth and retargeting was primarily driven by growth in travel, solid performance in EMEA, notably led by Germany, emerging markets and a rebound…

[Operator instructions] Today's first question comes from Richard Kramer at Arete Research. Please go ahead.

Thank you very much. Hey folks. My first question Megan, can you give us a little taste or foresight of what you think the outcome of your discussions with Meta might be? It strikes me that you would be able to tap into a very large pool of potential additional inventory for retargeting when the business is clearly under pressure right now. So can you talk through the stages of that and how that might progress? And then I guess equally with IPONWEB coming on board, you're going to get a lot more SSP capacity and publishers on board. Can you talk about the longer term opportunity to improve margins as you sort of build out the end to end or full stack offering? And could this over time, given IPONWEB's ability to do the contract programming, you mentioned reduce Criteo's overall R&D to sales burden. Thanks.

Yeah. Hi Richard. Good to hear you. Let me take the first one. And as you know, Todd's with us in the room. So in terms of sort of a longer term product view of SSP, the SSP capability, I'll pass it across to him. And he may be able to finish my sentence or my sentences on Meta as well. On the Meta front, it's been a long time since we've been out of that platform and so it's exciting to us to now to be able to rejoin with Meta, I guess, as partners to be able to offer our services across their assets. The stages here though, are we have to reimplement the tech that we have had there in the past, which already exists, but we have to renew the relationship with the tech folk on their side. We need to dust off that tech and we need to see whether or not there's anything else that we can add to that. And that's going to take us a little bit of time. It's hard to say exactly how long that's going to be, but it's certainly not sort of heavy lifting in terms of t-shirt size. It's just being able to get in there, but its early days and so establishing the relationship and the right people and then doing the scoping work is sort of immediately ahead of us. And again, we don't -- again, it's been a while since we've been on that environment. So the size of the opportunity will unfold. It's not for us at this stage at this early stage to make predictions around that, but certainly as we get on that, and we see the uptake of their assets as a supply source to us and what that return brings to I guess them and us, we'll be able to give you a little bit more color and to the actual size of that opportunity. Do you want to talk about the SSP?

Definitely. good to hear from you, Richard. So just to finish on the Facebook question, pardon me, the Meta question, it is a global partnership that we're looking to restart just to give you a sense of scale, which would ostensibly bring us community targeting across the two billion Facebook users and the 600 million Instagram users in the way that Megan described. I know that Facebook would like to do a lot more with us in terms of how we might use the relationship to reach their audiences, to bring commerce experiences into Facebook. So the upside could go from a product perspective quite beyond what we were doing before, but as Megan mentioned, we're just getting into the nitty-gritty details of restarting that relationship with a focus on what we've done successfully before while exploring those bigger opportunities. Just a little bit to add to Meta, on the SSP thing. I think you know, as well as anyone maybe on the call, but that the media grid you know, SSP was very central to our investment thesis and getting together with IPO web. And we are certainly going to take advantage of cross-selling opportunities around media grid going forward and combining the opportunities we have with our direct bidding partners into that product regime. So it's a way for us to take what we have, that's established on both sides of the company that I should say both now, one company, but both sides of the team, the teams pull them together and begin selling pretty early on here. And again, just we're right at closing here, so we'll get busy with that, so that maybe next call we'll have something material to discuss.

Thank you. Our next question today comes from Sarah Simon at Berenberg. Please go ahead.

I'm now trying to read my notes. So a question first of all was on similar audiences. I think you referred to it at some point in the prepared remarks when you were talking about testing in Chrome if I'm not wrong, but I wonder if we could have a bit of an update on the testing you've seen there and anything more. And then as far as the delay to cookie duplication is concerned, are you seeing marketers and other partners slow down the shift away from cookies given the delayed to the timetable? Or do you think people have now kind of hit the ground running and now it's just, we're going to do this and sort of who cares about the timeline? Thanks.

Okay. All right. Hi, Sarah. Now, just to address your question specifically about testing with Google, we are able to test -- we're testing three ways right now. The attribution API, the topics API, which is running across all of our advertisers and publishers. So we're collecting a lot of topics through that and obviously fledge, which, you know, is, is most interesting to us, at least from a core business perspective because it's retargeting oriented. What I would say is while we can do testing end to end the volumes of those tests are still relatively low. As Google opens up more opportunities for us to, to get to Chrome populations, then obviously we can expand and move from there. On top of that the you mentioned similar audiences, obviously we're doing a tremendous amount of testing on similar audiences in non-Chrome environments. We talked about iOS testing and hundreds of those being complete on the last call still showing very positive results. So it's important to note that whether it's the privacy sandbox with Chrome, our existing solutions for build for building cohorts that those are just a couple of approaches that we're taking to address cookie deprecation and that will continue with our strategy unchanged despite the fact that Google has given the ecosystem more time and us as a partner to work with them, to see whether the privacy sandbox solutions will work for consumer privacy. And also add to the business value of marketers and publishers that we serve so that we, we don't see any slowdowns the final part of your question I think that the exposure people have had in the ecosystem to iOS has been enough to, to have everyone add attention and and, and moving forward. So we're, I would say we're less worried about slow down than maybe we would've been in the past.

Yeah, Sarah it's Megan. I think it's important to note that the use of cookies is sort of saturated through our client base. They use it for all sorts of things. And so it's very difficult for us to, to have them stop doing it, unless we can show them either a drop dead date when they can't use it anymore, or a reason to move. And while Google continues to move the date, that first part, the drop dead date is, is sort of out of our reach. But the test that we're doing is part of the strategy of the test that we're doing is to actually show them the results of using the different formats, the different tactics that we have to find audiences on environments that that today don't have signals where they are blind. And as we move them across to use these tactics for those environments, then they get some tastes, then they get some experience and exactly what we can do once Google does actually flick the switch. So it's all part of our plan to accelerate away from the any, any kind of reliance for our clients on third party cookies across Chrome.

And our next question today comes from Matthew Thornton at Truist. Please go ahead.

Hey, good morning, everyone. Maybe, two, if I could just coming back to Meta, can you, can you give us the puts and takes of what's changed since you were last buying on that platform? Obviously their user base has gotten a lot larger, but, I just can't recall. I think the prior agreement you were, you were, was global. I think you were buying on Facebook as well as Instagram, but I guess, are there any other puts and takes now versus maybe, what the opportunity was back in 2018 and before and then just second question maybe for Sarah on the buyback. Can you remind us, I know you, I think you said $151 million remaining in the authorization. Can that increase post the acquisition of IPONWEB? I'm trying to recall kind of what the dynamics could, could be there. Any color would be great. Thanks everyone.

Let me take the -- how you doing Matt? Let me quickly address the Meta question. What has changed, outside of user numbers on, on Facebook's side or, and on Instagram side, is cardio has changed CRI was doing mostly user targeting and optimizing our bidding on you know, for, for, for user based interactions in the past chapter of our relationship. And of course, we look forward to doing that where we're joining marketer first party data with, with, with Meta first party data, as this opens back up, what's different about CRI is that we are now a full funnel solution for marketers in such a way that us being able to take acquisition capabilities in meta and utilize them as part of our partnership is an important consideration of the upside. So when you have, some three billion people to work with the idea of being able to do, much better acquisition customer acquisition, in addition to all of the retention that we've been doing in the past is very appealing. Let me give you two examples to be specific. Facebook offers collaborative audiences and also a feature I've worked with in the past called value based lookalikes. It's very similar to our own web similar audiences. Those are two places that we're looking to validate in, in our partnership as quickly as we can to add to any kind of, of retention tactics we would do in Facebook using them as a partner. So the look for the partnership to expand if we're able to do so to meet our new strategy.

And just to add onto the share buyback. So yes, we have a current authorization remaining of $151 million. And given that we've now closed IPONWEB that gives us a lot more capacity to be able to, to buy back. We actually had stopped buying back just prior to the AGM in June. So we anticipate restarting and doing that in the typical, I would say balanced approach between now and towards the end of the year. And that will be our program. And then as, and when we see that, it makes sense for us to increase that authorization, that would be a board of director authorization we would be seeking.

Thank you. And our next question today comes from Mark Kelley at Stifel. Please go ahead.

Great. Thank you very much. Good morning, everyone. Sarah, I'm sorry to make you repeat yourself, but on the IPONWEB contribution AdTech number, it looks like based on your guidance, it's like $120 million annualized run rate. Can you remind us the growth rate again that you -- that they put up last year? I think it was in the low 20%. I just want to make sure that's right.

It was 20% in 2021. So yes, it was 20% in '21.

Okay, perfect. Thank you. And then my second question is probably splitting hairs, but it looks like you're, you're potentially seeing slightly less of an impact from apple and the privacy changes. You kind of wrapped a range around the incremental headwinds now again, splitting hairs, but, maybe could you talk about, is it getting a little bit better? Is it kind of align from what you were expecting? That would be great. Thank you.

Yeah. So, we had anticipated overall privacy headwinds to be around $20 million and our experience was around $16 million and most of that was iOS. And so the privacy headwinds as a total for the year is still within the same range. There are some new privacy restrictions that have come in. So that's what we're expecting more for the Q3, Q4 timeframe.

And our next question today comes from Doug Anmuth with JPMorgan. Please go ahead.

Yeah. Hi, this is Katie on for Doug. Thanks for taking the questions. Just wanted to ask a little bit more about the retail media business. You've obviously had a presence in omnichannel and marketplaces. So could you just talk a little bit more about opportunities with other marketplaces or less traditional platforms on the back of the Deliveroo deal? And then secondly, just on the macro backdrop is there anything you can share on advertiser behavior and macro trend through the course of 2Q from April versus June and now into July? And then just as we look ahead, you previously talked about ambitions to accelerate growth next year. So how you think about that now, given the volatile macro backdrop. Thanks,

Right. Hi there, I'll take the beginning piece here in terms of retail media for other types of client base. I think last time we talked about Flipkart and Flipkart is actually pretty exciting for us. We've had our first campaigns launched on Flipkart since we spoke last. We've lit up and they lit up, I guess, with us something called it's actually a product performance ads, which helps them to offer our services to they call 'em merchants or whatever they call an on flip card. So it truly is a marketplace where we're helping them with their full funnel offsite capability. And then now to add to it Deliveroo and of course we have a good relationship with Shopify and we'll continue to look for opportunities as more and more marketplace providers or other clients or opportunities for us like Deliveroo come onto the scene. Our ability on the retail media front to expand out the products that we offer there into as we go into more capabilities around sponsored ads, offsite, extending out our ability to target audiences and retarget audiences through acquisition and retention of audiences, all of the pieces that we're building on top of our retail media platform. And now bringing in the capabilities of IPO web just continued to expand what we can do with clients in retail media. We anticipate that it'll bring all sorts of clients that aren't traditional retailers to us as they look to expand their potential into media and being able to offer advertising on their platform. So it's an exciting proposition for us. And one that I know I've got the team sort of laser focused on looking for other clients or potential clients that look like clients that we have so that we can service the broader industry and bring what we do to more clients that are out there. Sarah, do you want to talk macro?

Yeah, so overall in macro, we are seeing, and I think everyone's experiencing a slight worsening month or month back, even six weeks ago, there was much less discussion of recession, less talk about large customers issuing some profit warnings. We're seeing some impact of strategic, large customers putting back on spend as well as in our growth business as well, some smaller customers you know, spending slightly less dollars than they would've done it in the past. And I would say July was slightly worse than June and June was slightly worse than May. We're not seeing, a landslide downwards, hence why we still have yeah, great view for Q3 and the rest of the year, but certainly more difficult to get to the budgets and more requests and as you would expect for performance, which is good for us as well as a focus on converting to sales. So all in all where we're focused on this, we talk to our clients all the time. We feel we're in a very good position in a great economy as well in, as in a softer economy to deliver for our customers. But bottom line, there is clearly, less dollars overall and that impacts us as well as everybody else.

[Operator instructions] Our next question comes from Tim Nollen at Macquarie. Please go ahead.

Hi everyone. Thanks for taking the question. I'd like to follow up on the topic of brand versus performance marketing. And if you could maybe elaborate a bit please on sort of where Criteo's position now versus the old Criteo, which may have been more performance specific with retargeting. Maybe just help fill in the blanks a bit on what you're doing now with the upper funnel work and how that brings in more brand advertisers and what sort of budgets these come from on the advertiser side. Just how does this play out if we go into a deeper down?

Yeah. Nice to hear from you, Tim. Look, we're make no mistake our expertise and our legacy is the wrong word, but our heritage is in performance. I mean, we, we see 40 billion in annual commerce outcomes run through our pipes. That's a very big number and that's clearly a number that that we are very proud of and particularly during this time, because during this time it is all about performance. It is all about doing two things, customer acquisition, which is our targeting capability which can be anywhere in the funnel top of the funnel in the brand space or middle of the funnel and retention the bottom of the funnel and making sure that those customers can come back again for our clients. As we as we extend out the notion here is that we're about offering a closed loop capability measurement capability for our clients, so that if you imagine a retailer has an offline store, has a digital store has sponsored ads in a digital store, has display ads in a digital store and then wants to go outside to extend their reach out to the open internet, to both acquire new consumers or retain new consumers. So remind them that they came to the store last week and all of this be run through a single platform with a DSP and SSP capabilities to manage it and offer closed loop measurement. That is, that is what the commerce media platform is all about. And we are so we're there, we're offering that for our clients today, and that's our extensions, that's our that's our strategy and that's whereon web continues to help us. We do all this by the way and I said it earlier on, and my remarks in a transparent way, in a non-competing way, we don't own -- we're not a media company. We don't own media. We're not a retailer. We don't own a retail store. We're not an agency. And so all of this is what exactly is exactly what we're going after. If I bring that back to this economy having clients that are trying to make it in this economy who want to pivot, who want flexibility to go to performance from brand, from brand advertising to performance or back again, the platform enables that to do that. So the acquisition or full stack DSP, the platform that we are building out enables them to quickly pivot from one to the other to offer flexibility. So you've just kind of nailed it with that question. Thank you. That's what we're here to do.

[Operator instructions] And ladies and gentlemen, that concludes the question-and-answer session. I'd like to turn the conference back over to Melanie Dambre for any closing remarks.

Thank you, Megan and Sarah. This now concludes our call for today. Thanks everyone for joining. The IR team is available for any additional request. We wish you all a great day. Thank you.

This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect your lines and have a wonderful day.