Good morning. Welcome to Criteo First 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, Vice President of Head of Investor and Analyst Relations. Please go ahead.

Thank you, Kate. Good morning everyone, and welcome to Criteo's Q1, 2020 earnings call. We hope you all safe and healthy wherever you are. With us today are CEO, Megan Clarken; and CFO, Benoit Fouilland. Please note that because of lockdown restrictions, we're all joining this call from different locations today and as a result may face some technical challenges. In the course of our call, management will make certain forward-looking statements. These forward-looking statements reflect clear judgement and analysis only as of today. And actual results may differ materially from current expectations based on a number of factors affecting Criteo's. Importantly, at this time, the global COVID-19 pandemic is 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. There are significant uncertainties about the duration and extent of the pandemic impact. The dynamic nature of the circumstances may impact what we said on this call today, could 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 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's my pleasure to now introduce and hand it over to Megan.

Thank you, Edouard, and good morning, everybody. It's a pleasure to be with you all for our second call together. I'm joining you from the safety of my home in Upstate New York. And I hope everyone is staying in safe as well. On our call today, I'll cover four key topics. Firstly, how we're adapting to the circumstances of the COVID-19 outbreak. Second our current assumptions for the business implications of COVID-19 for the rest of 2020. Third, our progress on our four strategic pillars which I outlined in our last call. Fourth, the latest development on our online identification plans in particular around Chrome. And fifth, our strategic and operational priorities for the rest of the year. Let me start by saying that in my first full quarter as CEO, I've been confronted with a very different set of challenges from the ones that I expected when I joined. Still, we tackle the challenges as they come. I'm very proud of our team's agility. I'd like to thank each and every Criteo for their outstanding contributions throughout the early stages of the crisis and to the state. As I indicated during our last earnings call, I'm a firm believer in transparent communication and an open dialogue with all stakeholders. It's therefore my intention to be as clear and helpful as possible today and providing you with the visibility you need on our business during these unusually fluid and challenging times. To my first point, we adapted early and quickly to the circumstances of the COVID outbreak. The safety of our employees has been our immediate and number one priority. We closed all of our offices around the globe before local authorities requirements. Our policy is safety first always. At the same time, we focused on business continuity to…

Yes. Thank you, Megan and good morning, everyone from Brittany in France. Let's start our – let's start with our Q1 performance. I'll then focus on our cost containment program on liquidity position and close with our guidance for Q2 and provide details about how we think about the outlook for the remainder of 2020. Q1 was a solid quarter amidst a challenging environment. Revenue was $503 million. Revenue ex-TAC, our key metric to monitor the business, declined 11% at constant currency to $206 million or $207 million using the ForEx assumption for our updated guidance provided on April 1. COVID-19 impacted revenue ex-TAC by about $10 million or more than four points of year-over-year growth as some clients decided to temporarily pause or reduce their campaign to results. About 80% of the COVID impact was with large clients as spending in the mid-market remained resilient. The travel vertical which was deeply affected by COVID-19 contributed to 40% of the impact and the remaining 60% were evenly spread between Retail, Classified and other verticals. Currency changes in Q1 contributed to a $4 million headwind compared to Q1 last year. And provided a $1 million headwind compared to our guidance assumptions. Q1 revenue ex-TAC margin was 41% in line with the prior quarter on our expectations. Looking at some of our operating highlights. Our new solutions grew 49% to 13% of our total business, increasing four points compared to Q1 last year and now represent close to 20% of our business in the Americas. The solid growth of Retail Media was a significant driver of this performance. We launched our commerce audiences and similar audiences solution for web globally. With this solution advertisers are now able to search and create audiences in self-service based on product categories, on price ranges, brands,…

Thank you very much for that, Benoit. I really appreciate it. Before wishing Benoit all the best in his future new endeavors, I want to thank him for the extremely valuable business partnership he's provided the executive team and myself since we started working together. I also want to emphasize that we're focused on hiring the right successor and we'll proactively manage the CFO transition with Benoit and his strong leadership team in the interim. In closing, we delivered a strong performance in Q1, amidst the unprecedented business context. Our Retail clients held up well. Our mid-market business is healthy and resilient. Our Retail Media solutions proved counter-cyclical and in helping brands and retailers leverage the rise in e-commerce. The entire company is all hands on deck to successfully navigate these uncertain times, while helping marketers best rebound through best-in-class direct response marketing. And we have unique assets and a robust financial position to come out strong -- healthy and strong. We continue to expand our portfolio and to leverage Criteo's core strength to best position us for the future. And with that, we'd now like to open up the floor for questions. Thank you.

[Operator Instructions]

Kate, this is Edouard speaking. Given the length of the prepared remarks, we'll likely push the call to nine minutes and 10 minutes -- to slightly by 10 minutes.

That is fine. Our first question is from Nick Jones from Citi. Go ahead.

Hi, thank you for taking my questions. Just one kind of follow-up on the comments about growth in the mid-market new solutions. I guess, first, what are you hearing from your mid-market clients, a lot of the headlines are indicating the small and medium-sized businesses are feeling a lot of the pressure under COVID, so I guess, what are you seeing as you go into 2Q in the mid-market and then what are your clients' appetite for new solutions kind of going into 2Q after having a pretty solid 1Q on the new solutions segment? Thanks.

Let me start with this one and Benoit, if you want to weigh in, feel free.

Yes.

Certainly, our mid-market clients, we're seeing -- that's a healthy segment for us. And I think it's because that for our mid-market clients, it's slightly more geared toward Retail. And ecommerce and Retail are actually fearing better than most, I guess, as much as you can fear in these circumstances. So, what we see from them is opportunity. We are looking globally at the ability to expand out our services to a wider range of mid-market clients. Today, we're sort of around what we would call the torso, if you like. So, we want to take that out to the smaller players as well. And let me keep reminding that circling around Retail, there -- it's 70% of our business. So, in this environment, it is actually performing as pretty strong for us. We're listening very closely to them looking for ways in which we can assist them, and one of the things that we have launched is the Criteo Partners program, reseller program, which Benoit might have spoken to briefly before, where we can have resellers take our targeting services up to even smaller clients and educate how to utilize targeting themselves. We provide training and everything that goes with that. But now it's a good time for ecommerce, now, it's a good time for performance-based marketing, and now it's a really good time for mid-market retailers. So, it's a bit of a shining light for us.

Yes. What I would just maybe add is also our mid-market clients; Retail clients are more pure ecommerce players than our large Retail clients, who also have large brick-and-mortars. And while the large retailers with the brick-and-mortars operation have been suffering more, what we see is that the smaller retailers, pure ecommerce have been benefiting from increased traffic on ecommerce on the one hand. And the second -- the second aspect I would highlight also is, is the fact that we believe that mid-market enjoyed also a greater and cheaper access to media supply in the current environment that has also contributed to the performance. And what we see beginning of Q2 is mid-market continuing to be strong and resilient.

Great. Thank you.

Our next question is from Lloyd Walmsley from Deutsche Bank. Go ahead.

Hey, this is Craig on for Lloyd. So, I'm just trying to get my arms around the 2Q guide a little bit better. Is there any way you can tell us what -- at what rate the business exited the second half of March, and then how does that compare to the April growth rate, and I guess, why exactly are we assuming it necessarily gets worse in May and June? And then just on the travel point, I think you mentioned, it's down 95% and you expect it to rebound slowly over the course of the year, but can you give us a sense of maybe where that percentage is now and like maybe just try to better understand the cadence of the rebound throughout the year? Thanks.

Yes, maybe Megan, if you want to -- take that one. So, if we look at the trends that we've been observing obviously quite dynamically and we continue to observe on a daily basis, what we've seen is April trended globally around 25% year-on-year, with some stabilization in EMEA and APAC, but at the same time, we anticipate that we've not reach -- we've not reached the bottom yet in the U.S. And I think if you look at the – how we believe the rest of Q2 will emerge. We believe that the U.S. is going to continue to deteriorate and will reach only its lowest points towards the very end of Q2. And that – the primary I would say set of assumptions that we take – we took behind our Q2 guidance. With respect to the evolution for the rest of the year I mean, obviously I've provided details as to the various assumptions that we took overall for the rest of the year. We are assuming that we would be still in decline in the 20s in the mid-20s for Q3 and in Q4 getting a slow recovery towards the mid-teens with variance between verticals, where we would see a more rapid recovery in retail while we expect that classified as well as travel would take longer to recover.

Our next question is from Dan Salmon from BMO Capital. Go ahead.

All right. Good morning, everyone. Thanks for taking the question. I had two, I guess one for Megan, one for Benoit and somewhat related. Megan, my question for you is that I would imagine prior to interviewing and considering this position and certainly once you became fully engaged with it, you have likely been thinking about some big longer-term plans, you've shared some thoughts on your game-changers already. What my high-level question is, is in light of the pandemic, how would you characterize, how much you need to reel in versus say plow ahead on some of those initiatives, I'm sure that's something that you and JB have been discussing at a high-level about how to approach the repositioning of the company in a time like this, and I'd love to hear just your high-level comments on the balance between those more? And then Benoit from your position as the CFO, you gave us a lot of detail on revenue and expense management. I guess, what my question is, it's a bit of a broad one for you as well. When we look at the guidance for flat to slightly up EBITDA, how much do you see your ability to essentially manage the free cash flow and help like I said, provide the backstop for whatever continued investment, Megan was looking for in the company during a very trying time? I hope that makes sense. Thank you.

Thank you, Dan. It always makes sense. Hope you're staying well. Let me jump in here. Yes. So walking into this role was one thing looking at it through fresh eyes in a COVID environment is definitely something else, and it's prudent of my job to make sure that we're hitting the right direction. We went down a pretty clear path of moving into full-stack DSP, which is what our clients have been wanting from us and what we think has been missing in the market, and we continue to focus on that as our path forward. But if you step back a little bit and think about the new norm and how advertisers are investing, I guess, that gives you a chance to just reflect on the assets that have and the behaviors that we see. And I think this opens up questions to me around the strength of our retargeting business. I happen to think it's going to be stronger coming out of this, the notion of performance-based marketing, the notion of large clients having to drain stock from shelves and going more promotional, the changes in the TV environment. And all of these things point toward doubling down actually on making sure our retargeting businesses everything that should be to service both large clients and mid-market clients. What that actually looks like need – needs more focus, but it still is in line with the investments that we're making. And then the thing that's really exciting to me is long-term, so what does the world look like when we come out of this, there's areas that I think we should focus more on which we haven't perhaps thought of in terms of our strategy around personalization, and I'm just pushing this Chrome stuff and the third-party cookie stuff to one side and doing it completely differently. Do we have the assets and strength and market relationships to do that, yeah. What about performance? As I just said, performance marketing, doubling down on that. Do we have the asset strength and market relationships to do that, yes, eCommerce, enabling eCommerce through Retail Media and others, do we have the assets – so all of these things, I think it's time to just look at them and say, well, this is sort of a – this is going to be different. We have powerful assets. We have the ability to grab market share in areas that are right for it when we come through into the new norm. Will it change the strategy? Not likely. It will probably just change the speed in which we focus on different parts of that strategy. And that we assess every single day, but right now, we have a new lens to look through and make no mistake, that's exactly what we're doing. It's a good question. Thanks, Dan.

So Dan, just to follow up on the way we manage with a longer-term view of free cash flow on expenses. As you've seen, I mean, we've been – we took immediate measures and the sizable measures in order to protect our profitability and protect our cash flow. And I think that with this crisis, it's – it requires us to further accelerate and double down in our operational excellence, so that not only we protect our profitability and our cash flow generation, but we ensure that the company is best positioned as we will go out of this crisis to allocate our resources on the strategic game-changers, be it organically through partnership and emerge as a stronger company after that crisis having double down and our focus on operational excellence and the cost control.

If I can just sneak in one follow-up. Google recently announced some changes to their Google Shopping platform, and Megan you mentioned the new Retail Media product that you expect later this quarter. How do you see that competitive environment changing for a new important key product and part of that game changing plan for you?

Yeah, I think one of the underlying ideals of Criteo, what we fight for is the open Internet and enabling retailers, enabling brands, enabling anybody around eCommerce and shopping to be able to utilize platforms off of the big walled garden. Now I say that with respect to the walled gardens, but there's going to be -- there's going to be something else as well. And so again, competition is our friend. Competition will enable us to really understand what it takes to service those that don't necessarily want to use shopping platforms that the walled gardens have. And so it is -- it's a positive sign for us. There's positive reinforcement for our investment in that area. We're clearly doing -- clearly going after the right things.

Great. Thank you, both.

Our next question is from Tim Nollen from Macquarie. Go ahead.

Hi, thanks very much. Two things as well from me, please. One, interesting to see the strong growth in the new products, the app install business and things and that makes sense. My question is, how willing are clients to engage in these newer things, it's, I suppose somewhat experimental for them and this is not necessarily a time for experimenting. So I'm just curious sort of -- it's nice to see that traction, if you could just speak a little bit more to where that can go and how willing clients are to be engaged in these new things, app install and Retail Media and so forth? My second question is for Megan as well coming from Nielsen and seeing this interesting announcement about the partnership with Nielsen on DAR. I wonder if you could just explain just a touch more kind of what that does for you, what did you – how does that help Criteo's business going forward? Thanks.

Yeah, good questions. Thanks, Tim. So in terms of new things, marketers have new problems, and so it's less about a sort of discretionary, let's double in some new toys. It's more about how do I get the – what do I need, what tools do I need, what platforms do I need to get the right message out to the right person at the right time and particularly, given this environment, how can I do that most effectively? And so app install is a perfect example of that, whereby that there is a channel for brand owners for advertisers to get to consumers and – on the phone right in front of people, who are spending more time on the phone than they ever have. And so it makes a ton of sense for them to move toward things that are going to help them with their business rather than just be something that they experiment. So that's the sort of trend we've seen in terms of app install. And I think the same applies to Retail Media as well as to – how do I utilize a network to be able to create a shopping environment, and that's just as a response to a need. And so we're proud that we can service those needs and we'll continue to talk to clients and look at the marketplace for new opportunities for us. On the Nielsen side, well, look, I love this one. Nielsen, our -- yeah, our currency provider -- third-party independent measurement provider, it's important for us to make sure that our clients have transparency, and so what it is that we provide them beyond performance, but also that they know that they got to the right person and that's what Nielsen does. It's just layer on an extra piece of third-party validation that there – the work that we've done as – that they've got what they paid for, put it that way. And both in terms of ad writing, ad writings is a powerful one because it's able to measure a advertiser's reach, if you like, across platforms. It's able to compare what we do for them in a digital environment to their campaigns as they run across TV, that's an incredibly powerful thing. And also -- and digital brand effect that shows what the uptick of the brands, the brand equity well or do I remember the brand, does it change my decisions there to purchase et cetera. So, these sorts of metrics that we don't necessarily provide, but we think a fundamental add-ons to performance to actually sell a product. So, I love this one clearly for obvious reasons and I do hope that and feel good about a deeper and wider relationship with Nielsen.

Excellent. Thanks a lot.

Thanks.

Our next question is from Andrew Boone from JMP Securities. Go ahead.

Hi, thanks for taking my question. On mid-market and new clients, are there any trends to the client adds that you're seeing, is this brick-and-mortar companies finally coming online or is it more new business formation? And then how sustainable is that as you think about these trends into 2H 2020? Secondly on publishers, are -- does COVID make a more direct relationship more attractive, and how does that change, how you guys think about cookies going forward? Thanks.

I'll take it, unless you want to take the first one, Benoit, I can do that.

Yeah, Go ahead. Go ahead.

Okay. So your question I think was about the trends that we're seeing in new clients around mid-market. The -- I think your -- there is a real push toward eCommerce. And as I said before, the -- our mid-market clients are heavy retail and they are heavy eCommerce. What we're seeing I think is the reaction to the environment that we find ourselves in at the moment is that there is brick-and-mortar is struggling. And so brick-and-mortar needs to move into eCommerce and needs to move in fast. And so when you -- we see clients coming from that side not just large clients, they're mostly mid-market clients I should say, it's mostly mid-market clients. But also more and more mid-market clients do realize that brick-and-mortar is unhelpful to them right now and that they have to increase their eCommerce profile. And because of that we're seeing an increase in mid-market clients coming to us for performance-based advertising. So look I think it's -- I think it's not just a sign of these time and where we are right now, but it is a sign of the new role going forward, because unless you think that we'll come out of this and everyone will go back to the way they were before, then I got to think that eCommerce presence will sustain faster. And so we feel good about the move of mid-market clients to us in terms of driving targeted direct response advertising. Your second question, I apologize, can you just -- it was to do with Chrome, but what was the first part of that, so that I get it right.

Yeah, as I think about publishers and CPMs down broadly across digital advertising, are you finding that publishers are leaning into a more direct relationship with Criteo and that's helping move away from kind of third-party cookies to a first-party access?

We are seeing more publishers coming on board, which is -- which is always very healthy. Our network of relationships between publishers and the buy-side and the sell side is getting stronger. I would like to think that if there is a relationship between that and Chrome, it's one where publishers understand that they need to have a direct relationship or more of a direct trusted relationship with their consumers, so with their audiences, that they do need to also have that to be able to have that link between them and advertisers, and then they see that we provide a backbone, spine, if you like that sits in the center that can link those two places. I do think that advertising the -- the Internet is about one to one advertising, but prospectively be one to one advertising, you have to have a relationship with the consumer and you have to have one that get you the information that you can link yourself into a network. And so I think publishers are protecting themselves by staying relevant in an open Internet environment by being able to continue to get the right message to the right person at the right time in a contextual way, and to make sure that they can free themselves up from an environment where the browser dictates what consumers can and can't do. It's a -- it's a really healthy sign for the industry and I would expect we'll see more of that.

Well, thank you, Megan. Thank you, Benoit. This now concludes our call for today. The IR team is available for any additional question or follow-ups you may need. So, I'd like to thank everyone for attending the call. Wish you a good end of day and hope you all stay safe and healthy. Thank you.

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