Good morning, and welcome to Criteo's Fourth Quarter and Fiscal Year 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, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Criteo's fourth quarter and fiscal year 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 find our investor presentation on our Investor Relations website, as well as our prepared remarks and transcript 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 call 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. It's been a few months now since we saw many of you at our Investor Day. The event gave us the opportunity to unpack our business, share more about the growth opportunity in front of us, and demonstrate how we've de-risked our business from a third-party cookie deprecation challenges facing the industry. I want to thank everyone who attended. And for those who weren't able to attend point you towards the webcast materials available on the Investors Section of our website. At our Investor Day, we explained the Commerce Media opportunity that we're focused on. Commerce Media is the fastest growing media channel today and an opportunity that Criteo is poised to capture. Today, we're recognized as a clear leader in Commerce Media and we believe we're in a unique position to lead this next wave of digital advertising. Criteo is the Commerce Media Platform for the open internet and the obvious choice to complement Amazon for brands looking to advertise to consumers at the digital point of sale across multiple Retail Media Networks. As we explained during our Investor Day event, retailers have been early adopters of Commerce Media and they refer to this as Retail Media. They are setting the scene. With their logged-in first-party data, their quality shopper audiences, along with our ability to provide real time closed-loop measurement, brands are moving ad budgets rapidly in their direction and Retail Media is expected to capture one in five digital ad dollars by next year. The first mover advantage we’ve built around Retail Media, the Retail network that it creates and the scale of valuable Commerce Audiences we can deliver to brands and agencies form the foundation of our strategy. Meaning to reach Commerce Audiences across the open internet is only possible…

Thank you, Megan, and good morning, everyone. We continue to execute in a choppy environment, but we have a consistent track record of profitable growth and high free cash flow conversion coupled with a strong balance sheet and no debt. Starting with our financial highlights for 2022. Revenue was $2 billion and Contribution ex-TAC grew by 10% at constant currency to $928 million. As anticipated, this include $60 million of incremental signal loss impacts. This performance was despite significant headwinds from FX and the wind down of operations in Russia. In Retail Media, revenue was $202 million and Contribution ex-TAC was $161 million, up 33% year-over-year, as we continue to rapidly expand with our retailers. In Marketing Solutions, revenue was $1.8 billion and Contribution ex-TAC was $715 million with Commerce Audiences up 26% at constant currency offsetting lower Retargeting. We delivered an Adjusted EBITDA margin of 29%, including planned growth investments and the dilution from our Iponweb acquisition. We also delivered record free cash flow of $200 million and an adjusted EPS of $2.76, including five months of contribution from Iponweb. Turning to our fourth quarter performance. Revenue was $564 million and Contribution ex-TAC was $283 million. This includes a year-over-year headwind from weaker foreign currencies of $21 million. At constant currency, Q4 Contribution ex-TAC grew by 10.4%, on top of strong performance with 11% growth in Q4 2021. This includes organic Contribution ex-TAC down to minus 2% and the contribution from Iponweb. Our organic performance was driven by Marketing Solutions down 7% year-over-year, with lower Retargeting, down 13%, and Commerce Audiences, up 22%. This was partially offset by robust growth in Retail Media, up 23%. As expected, we continue to see a top-line shift away from legacy Retargeting. Retail Media, Commerce Audiences and Iponweb combined represented 47% of Contribution…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ygal Arounian of Citi. Please go ahead.

Hey. Good morning, everyone. Thanks for taking the questions. I guess, a couple of Retail Media questions. Maybe first, just -- I'm looking at the guidance for the year where 2022 ended up, and the guidance for the year around 30% growth and looking at you’re -- the targets you set at the Investor Day, which are a little bit higher, 45% to 50% and understanding there's some FX this year and some macro challenges, but the office bridge (ph), how we get there and some improvements that get us through 30% of the targets that you set at the Investor Day? And then the second, maybe going into a little bit more detail, would love to understand maybe the Lowe’s news this quarter was a good example of some in-house that happens at Loew’s with that announcement. You sound like you want some business from a competitor that they were working with as well. Can you just help understand the puts and takes kind of what happened there? What those trends mean? Why Criteo took share kind of in that situation and to help tie that into the growth that you're expecting from Retail Media? Thanks.

Yeah. Sorry. Good morning. I can take the first question. So we are very confident in our ambition that we set forth in the Investor Day that included $1.4 billion in Contribution ex-TAC and tripling the Retail Media business. For us, that long term opportunity for Criteo remains intact and the $110 billion firm, which includes $42 billion for Retail Media alone still remains intact. What we've done is, we've laid the foundation for the future. We have phenomenal wins and we continue to gain share in an area where the secular trend is to transition and move. Advertising dollars including trade advertising dollars over to Retail Media. So the guidance that we've given in 2023 is based on what we're seeing right now, which is some lower traffic overall, more conservative budgets, but we anticipate that that will be temporary in terms of the continuing advertising recession, if you will, in 2023 and that will continue to progress to more spend coming through the Commerce Max DSP as it comes to general availability in the summer. So that's the way that we've modeled our 2023 expectations and we continue to win new logos, we continue to drive much more business including new formats through our Retail Media business and we anticipate that we'll continue to be absolutely on track for our 2025 long term target.

Hi, Ygal. I'll take the second piece, which is around the Lowe’s relationship. We're thrilled to have secure the Lowe’s contract and in fact be part of their future and the fact that they dropped out other partners to work with us in testament to the work that we do with them, the performance that we generate for them, the technology that we provide. They have increased internally their team that manage the selling, the sales to their brands. You can imagine I have a sales force already. And they've increased that to account for the growth themselves anticipate from Retail Media. And that we should expect from any large retailers that as Retail Media gets bigger for them or Criteo provides the technology, and a portion of the sales. They have an internal sales team and they have other capabilities that they'll continue to grow to be able to meet the growth of their overall Retail Media business. In terms of the actual pieces that we provide to Lowe’s. I'll have Todd just take you through a couple of highlights here.

Yes. Thanks, Megan. I think what's important to emphasize here is that as these larger retail partners that we have are building entire businesses. We're helping them two ways. Obviously, what Meghan said, is really important. We're able to help them drive demand not just be a technology partner. From a pure technology perspective, we start with sponsored products, which is of course at the core our Retail Media solution. But we've done a ton of innovation that goes beyond that that helps Lowe's and other large partners see monetization growing for years. What we're doing with off-site is a really good example of that. And we're also doing a lot of product innovation with on-site formats and connecting the dots between these three areas in such a way that large retail partners can get performance from their networks. I think everybody on the call knows that our company is a performance company through and through from the start. So when we think about these things from a product perspective, we're not just rolling in features for Lowe's, but we're making sure they work better together, so they can grow revenue.

Great. Thank you so much. That was really helpful.

The next question comes from Mark Kelley of Stifel. Please go ahead.

Hey. Good morning. Thank you very much. Can we just maybe go through just the current environment? I think Q4 came in a bit better than you were expecting. And I appreciate the comments about December kind of tracking weaker and that's carrying through to January. But I guess can you maybe just describe how your conversations go with your agency partners and brands. Is it -- they're not giving you enough visibility kind of when you start the quarter, but as the quarter progresses, the conversations just get a little bit more solidify and budgets end up coming through. It's more of just like a wait and see, is that the kind of the dynamics you're seeing just bigger picture? That's the first one. And then on the second -- my second question is just on the Retail Media side. I would imagine that in this environment, budgets would shift more towards retail media, but Sarah to your point, traffic is down a bit consumers perhaps pulling back a little bit. I guess those dynamics, I assume get us to the 30% growth for the year. And is a key driver just more eyeballs on retailers' websites? Is that like the main driver that would kind of reaccelerate that growth? Thank you.

Yeah. Hi, Mark. I mean, I think just a couple of comments here. First of all, when we look at Retail Media, we're talking about 33% year-over-year. And then that that was 23% in Q4 2022 that was an incredibly tough comp as well from the year before. What we're seeing in the discussions is that, the retailers most of the year end to January. Specifically, we saw this last year as well. The outlook tends to be more around this timeframe in February. The conversations are all very good conversations and the conversations with brands have been incredible. Brands absolutely want to ship more dollars over to Retail Media, but there is an overall portion. So I would say, we feel very, very good about the discussions we're having. We feel fantastic about our agency partnerships as well as Megan mentioned, we just signed a new U.S. Holdco (ph) deal as well. 34% of the Media Spend is coming from agencies. So when we look at our large retailers, even if they have ground teams. Yeah. Like, Lowe's, for example, have a large brand team. All the smaller brands in Retail that's coming to us and for the most part, when we look across our network of 175 retailers, brands with the agencies want to unlock that spend across our entire network. So we're seeing it win-win. Now, in some cases, we do everything for the retailer. We do it incredibly well. We get fantastic fulfillment. In other customers, we're more of the tech that enables all of that, that we benefit from what Todd talked about in terms of additional capabilities. And we're super excited at our customers those co-creating with us the Commerce Max DSP. We just did a design sprint last week and we got input from them at the beginning of the sprint and the end of the sprint. We're working hand in hand. So we feel good about the overall dynamics. There is caution as of now related to brand budgets that's across the board and we expect that that will continue to unlock as we partner with them and as more of these dollars, absolutely we expect to move to the Retail Media and Commerce Media space.

Thank you very much.

The next question comes from Matthew Cost of Morgan Stanley. Please go ahead.

Good morning, everyone. Thanks for taking the questions. I'm just wondering if you could provide an update on Commerce Max and some of the key gating factors you're working through there, to bring it to general availability later this year and sort of areas of strength and things you think still need to be improved in order to get to that point? And then in terms of just the full offering that you have for the company right now, obviously, you brought an Iponweb, you've used M&A as a tool to expand the capabilities of the company, leaving aside any specific rumors when you look at the offering that you have right now as a company. Are there specific capabilities that you think would be really additive that you're focused on bringing in whether that's building them organically, buying them or partnering to have them? Thanks so much.

Yeah I can take that. How are you doing, Matt? So a couple of things here that you touched on. And it's first important to say that it's our goal to become the Commerce Media DSP of choice for our agencies and brands alike. So everything that we build product wise is really driven by that ambition. In terms of actually connecting the dots of that ambition to Commerce Max, which I think we've said we expect ETA on or around summertime. And that we've also been watching some great wins in testing. It's just important to say that from a feature perspective, there are a few things we're really concentrating on. The first of which is, we want to help agencies unify their planning and their spending, their buying across our entire network. With the fragmentation in Retail Media, that has become a bigger and bigger problem as the market develops. And we have the ability to solve that problem for our partners. Number two, I think going back to the performance topic that we hit on earlier because we're able to unify planning and buying across the network. We're also able to apply our legacy performance capabilities in new ways to help those agencies actually get performance for their brand partners and to help our retailers monetize more effectively as we said with Lowe's. So there are two things that I just would say, you should take away and one is, planning and buying more effectively across the network as a theme in MAX. And the second is, making sure that those plans and those buys not only can be measured in a closed-loop, but that they perform well for both partners, both demand and supply side partners.

Great. Thank you so much.

You bet.

The next question comes from Richard Kramer of Arete Research. Please go ahead.

Thanks very much. Megan, one for you. If we saw 2022 as sort of a year of integration and product launches and you've obviously flagged the softer first half in ad spend, which we also see. But do you see ‘23 as a need to be a year of sales execution? And to make sure you monetize all the retailer inventory and keep up your targeting and so forth. And if that's the case, can you maybe rank what are the channels you're looking for growth, whether it's faster growth from the agencies, from retailer activations, from Shopify merchants, -- to get a sense of where you see that the growth resuming and coming from. Maybe a quick one for Sarah. You mentioned the cost cuts, but given the cash balance you've got, what speaks against sort of sustaining the investment in R&D and product development given the pipeline you've got and making sure that, that doesn't slip in terms of timescale? Thanks.

Hi, Richard. Thanks for the question. In terms of 2022 being integration, I would say 2023 is about acceleration, is that we see the window of opportunity right now. So as I said in the opening comments, the shifting of more talent, doubling the size of our Retail Media team is front center for us to do that right now. So there's an acceleration there. There's also an acceleration in terms of go-to-market around retailers. So really making sure that we're -- as we've said before that we've just one or renewed or deep in relationships with five of the Top U.S. retailers is just testament to sort of activity that can see us doing, so really focused on the retailers. And then a strategic focus on the brands and the agencies really centered on lighting up Commerce Max. And Commerce Max is one of our acceleration efforts through the first half of this year because Commerce Max is where all of the Retail Media networks come together in front of the agency that they can buy it across networks, which doesn't exist today. So we've got this big window of opportunity in front of us. We're putting our foot down very hard on that accelerator and we're doing that through the first half of this year. Our transformation continues. The transformation started when I joined the company, it continues from a single point solution company to multi solution platform that provides our Commerce Media technologies and capabilities. And we need to continue that transformation through this year through next year and probably the year after. But this year is the year of acceleration. This is our time.

Yeah. And just before I get to the R&D question, and just on Shopify, we increased the number of Shopify merchants by 36% in 2022 compared to ‘21. We're kind of early at the beginning of that. So we feel very good about the continuous focus on Shopify and Shopify like clients. So that's another big area of capability and focus for us. And for product and R&D, the first thing I'll talk about is the incredible interlocks that we do between our commercial teams, product teams and R&D. It's one process and it's focused on where the ROI is and where the dollars are. So that has been, I would say, an unlock in 2022, especially with [indiscernible] as well as the Iponweb team coming in, so we work hand in hand to really ensure that we're delivering and we're looking at proof of getting new features to our customers that they want and that they all use or drive revenue. And we are continuing to invest in those areas. We just announced a senior new hire in our product team. We've got incredible talent across the board in R&D, which is obviously now being turbocharged along with the Iponweb team as well. So it's a powerhouse. What we need to do is ensure that we continue to invest in that to unlock more capabilities faster and to continue to drive performance. So it's not a massive increase in investment that we need. It's ensuring that the powerhouse is 975 engineers in our company are really driving to ensure that they deliver not only for our existing clients, but for the new areas that they're focused on.

Okay. Thanks, folks.

The next question comes from Matthew Thornton of Truist. Please go ahead.

Yeah. Hi. Good morning, everyone. Maybe an easy one for Sarah and then one for unless [indiscernible], Sarah. Megan, data privacy headwind, I think you called out – sorry, if I heard this wrong $10 million in 4Q, so I heard that. And for ‘23, what do you -- what are you assuming there? And then secondly, again, just kind of coming back and thinking about ‘23 and the linearity of the year. And my question here is, obviously comps will ease as we get through the year. But how are you thinking about macro? Are you assuming macro conditions hold throughout the year? Do you feel like that guide is officially conservative given that backdrop? And somewhat related to the prior question, one of the biggest upside potential drivers figure that we should be honed in on? Is it Commerce Max? Is it the Meta partnership? Is it Shopify? Is it other? You or an arch, what should we really looking at as potential upside drivers for ‘23? Thanks.

Yeah. So first of all, on the single Lowe’s (ph), we had $60 million in 2022, of which $10 million related to Q4. That was largely for the Firefox and the Samsung of browsers as well as some explicit consent. We're expecting about $10 million for 2023 in a number that we've assumed, and we won't be tracking for that. The next future job would obviously Google, which we already talked about in Investor Day, and that won't impact 2023. In terms of the operational plan and the assumptions that we've taken, I mean, we're working day in, day out with our marketers and our retailers. And, yeah, they're cautious about spend. So we're assuming that there'll be growth in the second half as we come -- yes, we've got tough comps in Q1 and Q2. We're expecting the continuation of growth and we're expecting with the new capabilities that will ramp up in Q3, Q4. We're also an incredibly seasonal business and especially the Iponweb coming in as well that seasonality is a little bit more focused. So Q1 and Q2, we'll continue to see a slower growth environment with the macro and we anticipate Q3 and Q4 with new features, but also with just the tailwind of the secular trends of Retail Media and the highest seasonal patterns that we have been in especially in Q4 that will be where we see the growth drivers. So most of that is very similar to what we've seen in past years. And of course, there's been a lot of discussion, in industry around the reversion, [indiscernible] the more classic pounds precoated shopping. That being said, online traffic continues to grow and Retail Media budget continue to shift. And on product, I can hand it…

I would just add one thing, the, -- because these things are all interconnected that that you mentioned to a degree, Matt. Adoption from a Retail Media perspective continued wins and actually more usage from those networks is something that we think a tremendous amount about because what -- the knock on effect of that, of course, is that we get the unlocks, the revenue unlocks and the long term growth that Retail Media as an opportunity overall provides. So for now, the idea of getting more adoption is really important. You mentioned Meta. I want to be really clear about that. There are great opportunities with Meta to add scale reach and possibly performance. We don't know as we go through, we're learning and experimenting with Meta as a partner, but to provide scale reach hopefully with performance to our Retail Media partners. So when you think about something like Meta, I would say, two things. one is, it's the biggest -- world's biggest logged-in audience. And with that, that provides the kind of scale for us to use, but especially as an extension of the work that we're doing with our retail partners. It also adds to what we're doing with Shopify Plus customers in our Performance business as we've talked about before. So I think you're talking about two different parts of the business there. Shopify, you're talking about our core business from buyer. Meta, you're talking about more than just a supplement that's something that can really add and accelerate our Retail business of the future. So there are two things there. Hopefully that helps.

Great. That's helpful. I'll jump back in the queue. Thanks everyone.

The next question comes from Doug Anmuth of JPMorgan. Please go ahead.

Yeah. Hi. This is Katy on for Doug. Thanks for taking the questions. Just a quick one on AI. It's obviously been getting a lot of attention in the past couple months. So can you just talk a little bit more about the ways in which Criteo's ad stack is already leveraging AI capabilities? And from an investment standpoint, is this a priority area for you guys? And how can you just better utilize some of these AI solutions going forward? And then secondly, just want to talk about CTV a little bit. In the recent partnership with Magnite. Can you just discuss some of the capabilities there? And how can you leverage your existing Ad solutions to augment your CTV offerings? And just like what are you embedding from this channel and your outlook for 2023? Thanks.

Thanks, Katy. Todd is scratching head.

Well, the reason I'm scratching is because [indiscernible] landed coming and so forth have really helped people understand better what Criteo has done with predictions using AI for years. So this is the first time that we can really provide in market examples that people understand about what we've been really good at, which is making a prediction about how it consumer is likely to choose a brand and buy something. Okay. So it's just important to say that the new libraries and the new applications that are out there are things that we have a very good understanding with and we look to incorporate stable diffusion as a good example of something we've been doing internally with damages for a while. Obviously, those applications are all only as good as the underlying collections of data that they read. And what's an important takeaway here is that our access to commerce data which is not in the public domain, is something that we use for making those productions. So yes, the AI in -- that is coming in the public sector and flocking on top of tax collections on the internet is useful. But only insofar as it can help extend the predictions we already make with Commerce Data. So that's really important. The second thing you asked, I think was about CTV. CTV is a really important one, but I'm sorry -- yeah, the Magnite relationship. And we're excited about the Magnite relationship first off because it gives us a great deal of scale to use CTV and experiment with CTV as part of a performance solution for retailers. So one of the issues for us is that CTV has been a little bit slower because it doesn't have a direct connection to a purchase. As some of the other channels do. So what Magnite does for us is it gives us great scale to start testing our performance thesis and tracking the purchase all the way from a retailer site that we work with, up to the living room where any one of us might be exposed to a brand for the first time. So I would say we're just opening that space, Magnite gives us scale to do that more quickly. And you'll see more from us as we learn how to make CTV perform for our retail partners.

That's helpful. Thanks.

You bet.

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

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

Conference is now concluded. Thank you for attending today's presentation and you may now disconnect.