Good morning, and welcome to Criteo's Third Quarter 2022 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Melanie Dambre, Director of Investor Relations. Please go ahead, ma'am.

Good morning, everyone, and welcome to Criteo's Third 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. You will find our prepared remarks and transcript on our IR website after 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'll also discuss non-GAAP measures of our performance. 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 quarter are against the same period in the prior year. With that, let me now hand it over to Megan.

Thanks, Melanie, and good morning, everyone. Thank you all for joining us today. We are intentionally keeping today's prepared remarks relatively brief as we look forward to sharing more with you at our upcoming Investor Day on Monday. We also look forward to meeting with many of you in person over the coming weeks. Our Investor Day will be the opportunity for us to discuss the substantial progress we've made on our transformation journey to reposition Criteo as a pure-play -- from a pure-play retargeting business to a platform play focused on commerce media, a platform that is self-service and not reliant on third-party signals. We'll show you how our Commerce Media Platform is coming to life, how we plan to unlock its growth potential with our integrated go-to-market strategy and why we believe we'll win in Retail Media, and more broadly, in Commerce Media. We'll also discuss our midterm financial outlook and our plans to drive profitable growth and long-term shareholder value. Turning to our third quarter highlights. We reached several important milestones this quarter, including the closing of our IPONWEB acquisition and the soft launch of Commerce Max, our self-service and first of its kind demand-side platform, or DSP. Starting with IPONWEB. It's only been 3 months since we closed the strategic acquisition, and we're pleased with the progress of our integration and IPONWEB's business performance. Our teams are coming together, and we're very energized by the unique opportunities to shape the future of Commerce Media together. IPONWEB enhances our scale and brings our complementary capabilities on both the demand and the supply side to accelerate the execution of our Commerce Media Platform strategy. The recent launch of Commerce Max demonstrates the progress of our integration. Commerce Max combines the power of our Retail Media tech and IPONWEB's…

Thank you, Megan, and good morning, everyone. Starting with our financial highlights for Q3 2022, Revenue was $447 million, and contribution ex-TAC was $213 million. Reported contribution ex-TAC reflects significant financial exchange headwinds. The weakening of currencies against the U.S. dollar resulted in a year-over-year $28 million unfavorable ForEx impact. At constant currency, Q3 contribution ex-TAC grew 14% on top of a tough comp with 14% growth in Q3 2021. This includes organic growth of 5% and growth from IPONWEB of 9%. Our organic growth was driven by Retail Media, up 32% and Commerce Audiences, which we previously referred to as audience targeting, up 29% as part of Marketing Solutions, up 1%. The growth of Retail Media and Commerce Audiences, combined with the addition of IPONWEB accelerated the shift of our top line mix with non-retargeting solutions representing 41% of contribution ex-TAC in our third quarter, up from 33% in Q2 and up from 28% a year ago. Client retention remained high at close to 90%. Turning to our business segments in Retail Media, revenue was $41 million and contribution ex-TAC was 32% at constant currency to $37 million. As a reminder, we had 65% growth in Q3 last year, including our Mabaya acquisition for online marketplaces. Our growth this quarter was primarily driven by our U.S. client base and CPG, our largest and fastest-growing vertical. This was partially offset by lower online traffic on certain retailer sites and softness in France. Growth from existing clients remained strong with same-retailer contribution ex-TAC retention at 133%. We are excited about our new retailer wins, which we expect to fuel our growth in 2023 and beyond. In Marketing Solutions revenue was $387 million, and contribution ex-TAC was up 1% at constant currency to 180 -- sorry, $158 million with growth in Commerce…

[Operator Instructions] Our first question comes from Matt Thornton with Truist Securities.

Maybe two if I could. First, maybe you could just help us understand what you're seeing out there just from a linearity standpoint as we exit 3Q and kind of through October. I'm just kind of curious what informs your 4Q outlook. Any color there would be helpful. And then just secondly, around Retail Media. Out of all the different revenue buckets, a little bit more of a decel there. I'm just curious if that's just pure year-over-year comp or if there's anything you're seeing changing there from a competitive and/or other standpoint? Any color on those two would be great.

Yes. So thank you for the question. In terms of Q4, I mean, what we're seeing, and we saw this in Q3 and I would say or we're seeing this from all retailers is there's more targeted and more moderate spend. And what we do see is, of course, there's an orientation towards performance marketing. But with the pullback in consumer spending, there's less brand dollars. And I would say there's just more cautious focus on budget. So we expected a pullback and we saw a pullback from Q3 spend and a more focused spend in Q4 for holiday season. Last year, we saw a early spend for holiday spending and that we haven't seen this year. And consistent with external measurements that expect the holiday season to be muted versus last year, we're seeing the same trend. So that's the reason for our caution. It's less spend from our customers overall, and that's largely due to less spend by consumers and less online traffic.

Yes, I'll add a little bit of color to it. Just to sort of reiterate what Sarah said, one of the sort of signals that we saw was from Prime Day. And usually, what we see and what we saw last year was when different shopping days come up, there's a halo effect and so retailers more broadly than Amazon use that opportunity to do their own discounting on that day, and they see sales based on -- good sales based on their -- based on the fact that Amazon had a Prime Day. We didn't see that this year, which was really interesting. It was telling in terms of consumer spend. It's not that retailers didn't try. But what we're looking forward to is seeing Cyber Monday and Black Friday coming up to see whether or not there's a shift there -- to see whether or not there's a lift there compared to the halo effect that we didn't see from Amazon Prime Day. So we're just being cautious because we have a lot of data at our fingertips. We see trends, we see signs and we want to make sure that we are taking those into account when we look at our performance or potential performance going forward. On the Retail Media front, look there's really solid growth there. It's a very, very solid story and Commerce Media is the big place to be right now. If you're a retailer, if you're an advertiser, you want to swing towards somewhere where you're going to see those results. And so again, while we remain cautious because we see a slower ramp-up in terms of the time it takes retailers to come on board, just the caution that they're applying to their strategies. There is no doubt in our mind that Commerce Media is the winner as you compare it to the other advertising platforms in terms of search and social. So we're extremely optimistic still in our strategy around Commerce Media. We're just making sure that we're prudent and cautious given what we see in the marketplace around consumer spend and retailers' reaction to that.

Yes. Sorry, just to add one piece of color on the consumer spend, more of it is on more essential goods. So less on apparel, toys and hobbies. And those are obviously the huge areas for us, but also for Q4 spend overall. And then retail, as a sector year-on-year, has decreased as a sector. We've seen that -- we'll clearly see that with other earnings coming out. And so that -- so we've applied that within our assumptions in terms of the spend that we expect to see for Q4.

The next question comes from Sarah Simon with Berenberg.

I've got two questions. First one is on Q4 outlook again. I mean you're talking about being cautious and so on. So are you assuming in your guidance that things deteriorate from the current level of trading that you see now? That was the first question. And the second one is the expanded debt facility, should we read anything into that? I mean, clearly, it's a tough environment, probably more companies are going to fall over. Are you feeling like you might want to step up the pace in terms of M&A? Or is it just they offered you more money so you've taken it, and we shouldn't read anything more into it than that.

I'll take the second question first. We started to renegotiate our credit facility earlier this year. Actually, I would say before the financial markets became more shaky. We had a high level of interest from global partners including new partners in the Americas that wanted to be part of this facility. And so we increased the facility largely as a way to ensure that we had the right level of flexibility going forward. We are incredibly robust on our balance sheet, our cash flow generation, needs for day-to-day operations. We do have an M&A pipeline that we continue to focus on. And most of those would be tuck-ins, as we've always said, for key capabilities that will help us to accelerate. But no issue at all in terms of our balance sheet, our cash generation and our operational leverage from our own operations. For Q4, yes, we have seen that the level of spend is more cautious. So we have, in Q4, moved the numbers down, I would say, week over week. That does not mean that we don't have fantastic high five moments within that. But when we look overall, we're seeing softness in key categories. So retail, apparel, huge areas for us, but we don't see as much spend. And we're seeing country-by-country, Americas large retail, Asia Pac, France being, I would say, lower -- light with some big highlights in terms of return back to growth for some of our other markets, including the U.K. U.K. is more resilient than we've seen over the last few months. So we'll see what happens there. So that's our caution. I would say it's in line with everyone else's caution. So I don't see anything that's different when I read the transcripts of others in terms of what we're seeing ourselves. The benefit we have is, we're closest to the point of sale in terms of performance advertising. And so we do see and expect to see that there will be continued performance advertising for Q4 going into a holiday season that may be shorter and less exciting than the last 2 years given that we're out of COVID and people are less on their desktops and phones than they were 1 year or 2 years ago.

Yes. Okay. But would you say that in your guidance, you are assuming that things get worse from here? Or are you basing it on kind of what you've seen in October and assuming that, that trend is consistent.

Yes, I would say we're not seeing the early pickup of holiday spend that we saw in the last 2 years. So last year, we went from Cyber 20 -- we went from Cyber 6 in the traditional pre-COVID model to Cyber 20 in '21 -- sorry, in '20 to Cyber 30 last year, and we're not seeing that right now. Of course, we're not in the peak holiday season, but we haven't seen the early spend that we benefited from last year. And we are seeing year-on-year budgets are down, whereas last year, they were massively up. So that's the trend that we're seeing. Yes. I wouldn't say it's cautious, I think it's reality.

The next question comes from Richard Kramer with Arete Research.

Megan, since you mentioned Prime Day, can you talk a little bit about Amazon both as a competitor to Criteo, but also as sort of the poster child or example of how some of your large retail clients might be looking to build a material advertising businesses on their own and how you might be helping them with that? And I guess one other question, given your comments, Sarah and Megan, about the timing of spend resuming being so uncertain and cautiousness, can you talk about what you're doing to bring new logos on board this year sort of to position yourself now for the growth that you might like to see in 2023?

Yes. Great. Thanks, Richard. Was very encouraging, I think, from our standpoint to hear Amazon advertising is still performing, really solid results that they posted yesterday. They are the poster child for retail media. They attract a lot of brands. They're part of sort of a brand strategy spend on their sites. And they do it very, very well. They've been doing it for a long time reasonably. So we've always said, I think, that we see ourselves as the Amazon advertising of the open Internet, and that's the way we think about our business. And the reason why this is important is that brands cannot just confine themselves, confine might be a strong word, but -- to Amazon because Amazon is a competing retailer and they need to be able to advertise -- sell their own advertising on their own site and also extend off across the open Internet. So they need a platform that enables them to do that, which means that it's not necessarily that we're going to disrupt their advertising on Amazon, but to be more complementary so that they can light up their own advertising business and expand that to their brands out and across the open Internet. They wouldn't necessarily rely on Amazon to do that. Amazon's reach is not the same as Criteo's reach, particularly when it comes to how many consumers we can reach across the open Internet and how well we know those consumers and know whether those consumers are on their buyer journey, they're shoppers, and therefore, they're a very valuable consumer to reach. So we have a, I would guess, a complementary but extremely strong offering as compared to Amazon advertising. But to your point, they're a poster child and we're there as the complementary alternate backup or supplementary supplier to Amazon. Our retailers are leaning into the space incredibly heavily right now because it is a new opportunity for them. They see the results that Amazon have enjoyed. They see the growth of Walmart and Walmart Connect. And they see the serviceable addressable market that is available to them if they just line up their own capability, and that's where they turn to Criteo to help them to do that. We're seeing just solid quarter-after-quarter performance here of our Retail Media business. The logos that we've brought on board in terms of not just retailers but brands and the strength of our relationship with agencies is just continuing to prove to us that we're exactly where we need to be, and we'll continue down this route. More to come on Monday, Richard. I'm looking forward to seeing you there. On the second piece, I'll get Sarah to speak to.

Yes. I mean just in terms of -- we've had some win backs. We can't announce the names, but I would say massive retailers in the U.S. that have come back to Criteo due to our performance. So we've seen not only new logo wins and MediaMarktSaturn was one of those. That was a new logo. We have some other new logos that we have just won that we will be announcing soon, in Europe as well as in the U.S. And we have win backs. Our brands have also -- we've increased the number of brands and more to come on Monday when we share some of those growth metrics. But in terms of same-retailer Contribution ex-TAC, I mean, our retention is a 133% in Q3. That's an average of 137% over the last 4 quarters. And what we see for 2023 is not only the contribution from existing retailers, which is, for the most part, we benefited from this year in terms of our growth, but also new contributions from those signed retailers coming on board. Most retailers have a Q4 code freeze. So typically, we tend to see more of that uplift going into the new year, and that's what we expect early 2023 as well.

The next question comes from Mark Kelley with Stifel.

Great. You just talked about MediaMarkt for just 1 second. Can you just remind us when that kicks in? Is that the '23 time line that you outlined? And I guess when can we expect some of that site to be material? And then you talked about synergies and your ability to gain some operating leverage perhaps beyond 2023. Can you give us a sense where those synergies might be had? I think IPONWEB, I think the employee base was relatively small already. So any thoughts there would be great.

Yes, we -- in terms of timing, that's a partnership between us and MediaMarkt. So we do expect those revenues to come -- start coming in, in 2023. However, we don't -- we haven't given guidance for 2023, I don't want to be too precise on when we expect to see that revenue coming in. In terms of the synergies, we have a clear plan with the integration of IPONWEB that we're already working through with ourselves and the IPONWEB team. We do see 2 things: one is the revenue synergies that we expected from integration of their platforms with ours, and a lot more to come on that on Monday in terms of our new offerings, which is the Commerce Media platform and our joint capabilities driving that. In terms of our own cost base, we have, as you know, for a long time, enjoyed a high margin retargeting managed service business. And as we transition more to self-service, clearly, there are efficiency plays that come with that. Also, we have already invested in those solutions selling skill set in 2022. And so we anticipate enjoying the benefit of that on our top line growth. And also as they look at their organizations to ensure that they're fit for purpose, focused on growth and focused on high ROI clients. We have segmented our clients to enterprise clients and growth clients and we have made some changes in our organization to ensure that we're fully aligned to our customers, to their needs at a CMO level so that we ensure we drive the Commerce Media Platform story at the right level to ensure that we're selling a platform as opposed to in the past, individual product plays. Overall, we anticipate that for 2023, we'll continue to invest not only in the high ROI growth investments, particularly in Asia Pac and in Retail Media, but also that we'll start to see where the infrastructure that we need to drive that change will be invested in. So data centers is an area of focus for us. We have taken out a lot of spend over the last couple of years, about $20 million on our data centers and the renewals that we're doing next year, some of which will be CapEx, some will be OpEx. And there's infrastructure around how we ensure that we can bill and collect and account for all our new platforms, along with IPONWEB, sell some of the integration of new capability to upgrade our, I would say, internal infrastructure on systems. We're looking to be world-class. So it's an exciting place to be.

Our next question comes from Doug Anmuth with JPMorgan.

This is Katy on for Doug. So first, I just wanted to dig into privacy. It looks like it's going to be a $5 million or $10 million headwind, worse than anticipated this year. So can you just walk through what's driving that higher, and how you're thinking about some of those incremental headwinds into 2023. I think you previously mentioned not expecting a big year-over-year impact. So just curious if that's still the case. And then secondly, just looking at Google's privacy standoff. Some recent reports have suggested that the FLEDGE product has received some mixed reviews, so just curious if there's anything you can share in terms of your feedback from testing the FLEDGE product.

Well, on the second question on the FLEDGE, that's a topic will address on Monday. So I'll move that question to Monday, where we'll have Todd presenting. In terms of the privacy impact, we have seen a higher increase related to explicit consent. So that was very small for us at the beginning of Q1, Q2. And we had anticipate -- was about $4 million of the incremental headwind in Q3, and we're anticipating that to be about $3 million in Q4. In terms of the 2023 privacy incremental impact, we are not seeing any large incremental impact. So we don't anticipate anything that's incremental to our 2022 expectations. Overall, we went from $55 million to about $60 million, and most of that will be in Q3.

The next question comes from Tim Nollen with Macquarie.

I've got a question, which I'm guessing you'll probably also be addressing on Monday. So just answer as you see fit, please. But it's about your off-site Retail business, which you mentioned at the top of the call and you've spoken about before. And I'm just curious if you could enlighten us a bit more as to what you're doing in off-site, how you differ from others? And I guess where you see the competition in that field.

Yes. Thanks for the question, Tim. It will be addressed on Monday. But let me give you a couple of some top line notes on it. Off-site for us is, well for our clients, is their ability to partner with their brands or offer their brands advertising of the retailer sites because the retailers realize that if they just stick to the traffic that comes to their sites, they'll never get enough reach for those brands. And so they extend that advertising out across the open Internet. And so Commerce Max for us has been our ability to light up the DSP that the retailers can use to manage this for their brands. Our ability to reach, and we reach today about 725 million daily active users, of which we have unique insights into whether they're Commerce Audiences, meaning are they audiences that are on their buyer journey, are they audiences that are shopping as opposed to audiences that might just be communicating with each other on social platforms or researching something that has nothing to do with a purchase intent. So we're really very focused on Commerce Audiences, and we have capabilities through the data sets that we have access to, to be able to really narrow in on these very valuable audiences. They come to life for the retailer and the brand through the DSP, through Commerce Max. So it's a very unique proposition that we offer. There is nobody really doing solid off-site capability right now for retailers. So this is very new for retailers. And there is certainly a big differentiator for us in our ability to do closed-loop reporting. In other words, being able to report for them the effectiveness of their on-site sponsored ads with the display ads, with their search, plus their off-sites, their expansion to off-site ads for the retailer in near real-time management capability. And that you don't see anywhere. So I don't want to be a spoiler here because there's more to come on this on Monday. But there's a lot of reasons why you would point or you would come to Criteo for retail media off-site versus anybody else.

[Operator Instructions] Our next question comes from Mark Zgutowicz with The Benchmark Company.

Thank you. So we've heard a few prominent DSPs talk more about their relationships with retail media networks. And I'm curious if you can discuss what may remain sort of your relative advantage here and perhaps how Commerce Max may enable you to corner this market a bit more. I know you just talked about closed-loop as certainly a relative advantage, but also curious about what your go-to-market now is with Commerce Max in place?

Yes. Look, retail media -- being a retail media provider is more than what a lot of people think that it is. And we've been doing this for a long time. We acquired a company called HookLogic, and we've been focused on this for 6 years now, which is probably longer than anybody else. Plus from a global perspective, we have people on the ground in those markets who know, that have local relationships in those markets. And so we have this, a footprint of people who know retail media backwards. So that's the starting point. The second is to do retail media is to integrate with the retailers. It's not just about lighting up a DSP that the retailers can use. You have to have deep integration into the retailer's data sets from their catalog data through to the SKU data, to their loyalty card data, to their CRM data, it just goes on and on because you have to do a job for the retailer, which is light up the right promotion at the right time, is the product actually available, is it in stock, is it in stock in that geo location. Is the -- how can we continue to stay engaged with the consumer by giving them a recommendation for something else that they might like, all of these things and disciplines that come with being able to do retail media. And there's only a couple of players out there that can actually do that. So that's sort of the -- that's the ground roots for us, is that don't underestimate what it means to be a player in this space. And the first mover advantage for us is the deep integrations that we already have with over 160 retailers around the world, some of the biggest names on the planet. From there, it's extending out the services. Like I just talked about, is about retailers now need to be able to extend beyond their own walls to offer advertising to the brands to take them off-site, to get them in front of more consumers who are actually on their buyer journey, and that's what Commerce Max is all about. So again, I don't want to be a spoiler for Monday. I'm looking forward to the team taking you through what that looks like. It's really very cool and exciting and I look forward to seeing you there, Mark.

This concludes the question-and-answer session. I would now like to turn the conference back over to Melanie Dambre for any closing comments.

Thank you, Megan and Sarah. This now concludes our call for today. We look forward to seeing many of you at our Investor Day in New York on Monday, and we will also webcast the event live. Have a great day, everyone.

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