Good morning, and welcome to Criteo's First Quarter 2023 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, today's event is being recorded. I would now like to turn the conference over to Melanie Dambre, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Criteo's first quarter 2023 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 IR website now, 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. Thank you all for joining us today. We’re off to a solid start this year and our team is firing on all cylinders to execute on our transformation strategy and capitalize on the significant growth opportunity ahead of us. Our transformation continues to shift our business towards a broader solution portfolio, centered on the fast-growing Commerce Media opportunity. Our Commerce Media platform puts the focus on both our Retail Media expertise and our expanded Targeting solutions with Commerce Audiences complementing Retargeting, which remains the lower funnel tactic enjoyed by marketers. Commerce Media represents a market opportunity of $110 billion by 2025, and it’s real. The agency holdcos have now all created dedicated commerce teams to capitalize on the momentum, and 73% of advertisers anticipate spending more on Retail Media Networks in the next two years than they are today, according to a recent survey from the US Association of National Advertisers. Notwithstanding the near-term challenging macro-economic environment, our trajectory is intact. In Q1, we delivered continued strong growth in Retail Media and Commerce Audiences, which, combined with Iponweb, more than offset some of the pressures we’ve seen in Retargeting. While Retargeting remains an area of continued focus and opportunity, our New Solutions have now become close to half of our top line and will become the larger part of our mix going forward. This is exactly where we wanted to be at this stage of our transformation. We’re quickly gaining share and laying the ground for sustainable, long-term growth. Starting with Retail Media, we now partner with 200 retailers and 2,300 brands, and we’re expanding our reach into adjacent commerce verticals and geographies. No other player matches our market footprint, and our global presence gives us a significant competitive advantage. We secured the renewal…

Thank you, Megan, and good morning, everyone. Our first quarter performance reflects our clear focus on execution and cost discipline. Revenue was $445 million and Contribution ex-TAC was $221 million. Reported Contribution ex-TAC reflects a year-over-year $10 million unfavorable ForEx impact. At constant currency, Q1 Contribution ex-TAC grew by 6.3%, on top of 6% growth in Q1 2022. As expected, this includes organic Contribution ex-TAC down 5%, and Iponweb. Our organic performance was driven by Marketing Solutions down 10% year-over-year, with Retargeting down 17%, and Commerce Audiences up 27%. This was partially offset 180 by continued strong growth in Retail Media, up 22%, despite a tough comparison and a seasonally low quarter. We continue to shift our top-line mix to our fast-growing new solutions. Retail Media, Commerce Audiences and Iponweb combined represented 44% of Contribution ex-TAC in our first quarter, up from 29% a year ago. Client retention remains high at close to 90%, and 37% of our live client use more than one Criteo solution today. Turning to our business segments, in Retail Media, revenue was $38 million and Contribution ex-TAC grew 22% at constant currency to $37 million, in line with our expectations, and was up 70% on a two-year stack basis. Our growth was primarily driven by our client base in the U.S. and the UK, as well as our retailer marketplaces. Growth from existing clients remains strong with same retailer Contribution ex-TAC retention at 122%, and we continue to win new retailers. We also saw strong growth from our agency partners. Our 2,300 global brands are prioritizing Retail Media as a key channel to advertise to consumers at the digital point of sales across multiple Retail Media Networks. We saw strong brand bookings, mainly in CPG, our largest vertical, and health and beauty. In Marketing Solutions,…

Thank you. [Operator Instructions] Today's first question comes from Mark Kelley at Stifel. Please go ahead.

Great. Thank you. Good morning everybody. I appreciate the extra color you had on the moving pieces of the full year outlook. I was hoping maybe you could walk through a little bit more of the retail media piece. Can you help us bridge the gap? What's going to get you to that 30% growth for the full year? It, obviously, implies a nice acceleration in the second half, so maybe a way to think about splitting it between same retailer growth and some of the new wins that you have visibility to? And then second, you brought up CTV a bit today. Can you maybe think -- help us think through; A, how big that is today? And then as the DSP launches and scales, what's the right way to think about that as a contributor from a channel perspective over time? Thank you.

Yeah, perfect. So just on Retail Media, and we're accelerating because there's no signs of slowing down. And clearly, this is an area of massive growth, not only for the industry, but also for Criteo. To achieve the 30% growth, our assumptions are that we have strong costs coming into Q1 and for Q2 and that obviously become easier over the year. Our Q1 is seasonally a low quarter for retail media and obviously Q4 being the highest strongest quarter. We are expecting most of our growth to continue to come from our 200 retailers and our same retail upselling contribution ex-tax as well as the ramp up. We've now have 200 retailers on the platform. We've effectively doubled the number of countries that we operate in. So we're seeing ramp-up there. We have more features in our Commerce Media platform. So there's continued growth in new formats, including display and video. And, of course, we have the launch of Commerce Max coming in Q3. So all of those are the factors that we built into our forecast, we have line of sites to our customer forecasts, and we feel that we're tracking in line with the forecast as well.

Yes. Mark, I'll just pick up the CTV just for a second, and I'll hand it across to Todd. We -- our premise there is still pretty small. We announced a partnership with Magnite last time around, and that's got off the ground. Remember for us, CTV is a channel, and for some of our advertising clients, it's an important one, but for performance, middle, bottom of the funnel, it's still a little ways away. And our focus is on Retail Media and Commerce Media. But to have an opportunity and to have availability to the CTV screen as a channel is an important one to get to offer our clients, and that's helping there. Todd, would you add anything to that?

Not much to add to that. I would just say that just to add to Megan's point that closing the loop between the living room and CTV with our Retail Media partners advertising from a product perspective is group job one. The second thing is making sure that we continue to innovate in formats that work in the living room and bring commerce into those environments. We've invested in both, and the partnership with Magnite really gives us a scale – I mean doorway into the business when our clients are ready for it.

Perfect. Thank you very much.

And our next question today comes from Ygal Arounian with Citigroup. Please go ahead.

Hi, good morning, everyone. Thanks for the questions. Maybe just to start on the macro, if you could talk a little bit about April. I know we're just a few days into May. But we're, at this point, I think, some major shocks from last year and how advertisers are thinking about the rest of the year and how the budgeting lapping some of those comps, but also potentially heading into the recession. So just maybe for us a little bit more color on the overall macro. A – Sarah Glickman: Yes, absolutely. So -- So in terms of what we're seeing on the macro and maybe just to give a couple of data points from our product insights, we saw for Q1, the number of transactions in department stores was down about 13%. Our fashion was down about 9% those are key categories, obviously, for us in our retail space. And the traffic for runs [ph] was down about 4% and 8%, respectively. We do know that we're going to move into, I guess, I wouldn't say they're easy comps, but easier comps kind of going through the year. We are seeing traction in retail media, as I discussed before, we're starting to see some small glimmers of hope I would say, in retargeting starting to reopen small budgets kind of across the board. This is going to be a year of singles and doubles and very few home runs. So our expectation is that we're working closely with our clients. They're hyper focused on performance, which we are hyper focused on delivering for them. It's a large client base, the 90% retention on a significant client base. So we see those being the key factors for us as we look at the year. We are anticipating continued tough environment for the year Now as Megan said, all of our clients are doing much more frequently forecasting every dollar counts and our plan with our client teams is to ensure that we're working hand-in-hand with our customers to show the performance we deliver and to continue to drive more of that budget coming in, not only to the retargeting space. But for us, it's around acquisition and retention -- budget and being able to put those together for them and showing performance across the board. And of course, in Retail Media continuing to shift more of the dollars for the brand into the point of sale for the Retail Media Networks, which is from and center for us in the C-MAX launch. Yes. I will just pile on for one second. I want to reiterate that Retail Media and Commerce Audiences continue to be strong for us in Q2. And so let's -- just an important point when you're thinking through the business as a whole.

Okay. Thanks. And maybe second, just -- you guys have highlighted the cross-selling opportunity before, and also that talked about it today. As Commerce Max is -- of course, you're coming at the market. And I just found the comments about using the first-party retailer data to need to build out on retargeting I thought that was really interesting. Can you update us on the cross selling opportunity, how that's trending? And there are opportunities see there as we work our way through the year. Thank you. A – Sarah Glickman: Its good question around Commerce Max. I'm sorry, the line is a little muffled there. Is it Commerce Max or cross selling

Cross-selling more broadly how maybe comes that and to the commentary around using the retail data to build out retargeting opportunity?

Yeah. Okay. So let me address that one. The -- obviously, the core of everything we do is being drawn back to data that we're privileged to operate for our retailers. And where that becomes different product-wise is in the different tactics that an advertiser might be using, if it's someone a retailer is selling to -- selling advertising to, we're going to use data to help them find audiences better off site, qualify them and also to target recommendations, sponsored recommendations to them better on site. And that's really important one selling tax that's important. The second one is I think what you're talking about, which is that every one of those same retailers needs to still acquire new customers. And for us, that really means putting out a product, which uses their first-party data, much like Performance Max and Advantage Plus would use if it were Google or Facebook so we're doing both of those things at the same time. Reality is it's different buyers in the same company. We service them both. And very recently, we've set up our selling teams to do that cross-selling. So you're just starting to see the effect of that now product-wise, we have readiness to do both.

Yes. So the duty of having a solution set as well, the single platform here is that our clients can take multiple services. And today, 37% of our life clients are using more than one Criteo solution, which means we have access to their data in different places to use in different places. And the reason why that's important is that the fidelity of that data as we use it for measurements and as we use it for optimization and all of those things, which are incredibly important to comment media tons to life for our clients -- so having the platform play in now is absolutely key to making the best of the service that we offer.

Thank you so much.

Thank you. And our next question today comes from Matthew Cost with Morgan Stanley. Please go ahead.

Great. Thank you. So you mentioned your expanded partnership with Shopify -- maybe can you just walk us through a little more detail in terms of what you're doing for them now that you weren't doing before? And really, how that conversation played out? What did you have to prove to them to get them to double down with total? And then just secondly, just if you could provide an update on the Commerce Max launch, any key milestones still ahead and expected timing of the launch? Thank you.

Yeah, I can take, I think, both of those. The first is Shopify. Really, there are a couple of things there that we focused on proving to them as a partner. One is that we make a lot easier for their shopkeepers to onboard and do their first campaigns with Criteo, whether for acquisition, retention or both retargeting that is -- and we've gone ahead and done that. So we've delivered that product, and we're in their apps marketplace and beginning to see that play through. The second thing is that we're watching very interesting interestingly and how we might combine our commerce audiences with their own audience product. And we have some hopes of testing that in the future and being partnered there as well. Underpinning both of these things, I think you mentioned is just pure performance small shopkeepers especially, really don't have a lot of time to do AB testing for their acquisition and retention. And that's something that we're very good at. We're very good at delivering performance without a lot of additional expense. So in the -- from the view of top horizon [ph], what we'll be looking at now that we can onboard shopkeepers and make it easier for them to participate with Criteo is just maxing out their performance. So that's going to be something we look to prove time and time again, not just from the beginning point. The second thing I think you talked about was the C-Max launch. I'm lucky to say, like our alpha and beta period has been incredibly informative through the way that we think about the Max products. Just really going back a little bit, a key point of differentiation for Commerce Max is the ability for buyers to plan and activate Commerce Media starting with products they want to sell and where those products are well stocked for purchase. This really changes the DSD model entirely. In fact, it changes how advertising works and it makes it a lot more effective. So the Commerce Max launch has really focused on taking the deep integrations with retail commerce systems and data, and taking that, buying that -- planning and buying metaphor and making it work so that, as Megan said earlier, every one of the buyers working with retailers and retailers themselves can prove measurement across a variety of planning and buying KPI. So that's been a really exciting part of the learnings in our process of launching Max. And of course, we want to make sure that holistic measurement and optimization across the different types of tactics that retailers sell to advertisers are accommodated in that product as it reaches general availability.

Great. Thank you.

Thank you. And our next question today comes from Mark Zgutowicz with the Benchmark Company. Please go ahead.

Thank you. Good morning. So I wanted just to focus on off-site. It's certainly a hole in the market today. And I'm not sure if I overemphasize this a bit too much, but it seems like it could be a really big opportunity for you guys. And I'm just hoping you can maybe, specifically talk about progression there and how that might be being received in the market today? What further progress you can see there, maybe is it too early to talk sort of case studies on off-site, but any progression there would be helpful. Thanks.

Yes. Hi Mark. Let me start by just sort of giving an overview of how we feel about off-site, which is an important part of Commerce Max, and then I'll pass it across to the Todd to go into more detail. First, the off-site itself is pretty native as a monetization opportunity for retailers today. It's about of the Retail Media space, it's about 10% of the dollars moved, the other 90 being on-site. And so when we think about the Commerce Media opportunity for us, we focus on on-site first, which has been our Retail Media play for the past seven years. We started with sponsored ads and then extended to display, so that we can manage as much of the payers as possible for the retailer. And then we move -- once we have that, we have access to their data to be able to drive that page or manage that page for them, so we have retailer data. And then we move to off-site, which is the next opportunity for retailers to extend beyond on-site. And that is partly the Max opportunity. which is differentiated for us through, as Todd said before, the focus on products rather than consumer first, so products for retailers. Once we have offset, we also have access to data. And then to add to that, what to extend on that is omnichannel, which is a brand crush opportunity, which gives us another whole set of data. And now we're on the page, we're off the page on the open Internet, and we're across the channel into the actual retail stores all the way we're getting access to data, and we're getting as to do more and more things. This is incredibly important because as we alluded to before, the ability to have that data at the source gives you the ability to provide the best measurement that you possibly can for closed loop and it is the ability to offer optimization using that measurement real time back to the retailers. And this -- you can't do anything less than this this is what Commerce Media is all about. This is the promise of what Commerce Media brings to advertising, and this is why so many people are stocking towards that. So on our side, it's a piece of the puzzle. It's an important piece of a puzzle, but we're making sure that we're there at the right time with the right solution.

Yeah. Not much ad and I expect that during the course of our testing, just to emphasize the interplay between on-site and off-site working together and using the data that we're operating at the source of the retailer. -- that we've seen two things. One is, we've seen as much as double the conversion went on-site and off-site are put together, okay? That is something to really think hard about because realizing the excitement around the off-site opportunity is about the combination of on-site and off-site and that source data. And then the second thing that's been incredibly encouraging is that our clients just that attested want to use it again. They're excited to come back. Some of them have been incredibly enthusiastic as a product professional that's very rewarding to see these kind of worlds of distinct media coming together and the buying work for such great performance improvement. So we're pretty fired up about offsite, but only in the larger context.

Awesome. Thanks, Megan and Todd, very helpful.

Thank you. And our next question today comes from Richard Kramer with Arete Research.

Thanks very much folks. Two things, I think, haven't really been touched on yet. Megan, can you talk a little bit about where you are in terms of strategically accessing other large pools of social commerce inventory, whether it's Facebook, interest or elsewhere where you're seeing a lot of commerce and also a lot of signal? And Todd, given the work you were talking about Megan was referencing with ash e-mails in Safari and testing privacy sandbox with Google. Is there a chance that these collaborations on -- especially on attribution against new forms of ID potentially could reverse the decline or extend the retargeting window because we've all been watching that decline for some time, and I don't know if you see a chance that could reverse as Privacy Sandbox comes in and you have an advantage in attribution

Thanks. Thanks, Richard. I'll do this first. Obviously, probably a 10 of the given my franchise here, it's close to the conversations that are going on with the social platforms. Just with Meta, this is good progress for us in terms of implementing the retargeting API across there. There's still testing going on to optimize that integration into Meta. But we'll keep you post it. But what I will say is that, part of how does that work has really set us for us. The ability to explore additional opportunities for Commerce Audiences, extensions and things that we can do with Meta, which are very interesting and potentially very exciting for us. Note that, we also look to formats and other social environments. We talked earlier in the year, I think about text and TikTok [ph] and looking for content in which it leaves itself to our Commerce Audiences and it leads itself to commerce-based advertising. And we're still working through those brands and finding the right partners to have as part of our supply our partnership. I'll pass it for cross-selling.

Hi. How are you doing, Richard. So just to add to that a little bit, I think it's important to reemphasize that our addressability strategy is a multifaceted one. We're making a variety of investments. And in other words, we're not all in on one IT solution that could potentially be a point of failure for us. Obviously, the social platforms play into that. An important call out there is, do the economics holdup for all the scale and matching that you gets the additional signals that the economics hold up for our clients or for our retailers or selling into those audiences. So that's something that we continue to work through with better bidding and better the testing that we've been doing with Meta, as Megan said. Google is in addition to something that we've talked about a lot, which is fast e-mail and our true set and contextual solutions with identity and addressability. Google has been a partner with us since the beginning of their work on Sandbox. And we've seen that partnership accelerate. Our team's products and engineering team spent a lot of time in-person with the Privacy Sandbox team, helping inform the way that APIs work, both the PA product and the topics product, but especially PAA, Richard, so that we can increase our coverage model for retargeting. And then maybe make up some of that difference. At this point, it's upside. And we're very excited to continue to contribute and make that solution something that does scale and provides precision. And we still keep an eye out for the economics. And those are the things that we measure our addressability strategy against the economics have to work for our clients.

Okay. Thanks folks.

Yeah.

And our next question today comes from Tim Nollen with Macquarie. Please go ahead.

Hi guys. Thanks for taking my question. I'd like to ask about your agency relationships. I think, Megan, before you came on board, agencies contributed minimal amounts to Criteo's revenue, and now it's like 1/3 or more. I'm curious because, agencies talk about Retail Media a lot. I wonder, if there's a bit of a competitive dynamic with Sand versus a collaborative dynamic with others, maybe a little bit of both. I wonder if you could just talk about how those relationships work and what you are gaining from agencies. Thanks.

Yeah. Sure. Hi. Tim, we have definitely ramped up our relationship with agencies over the last three years. And I think I've said a number of times on this call that prior to me being here, the notion of agencies as clients, as partners wasn't one that the company entertains thought that it was more of a competitive edge. We don't see it that way. We see agencies being absolutely critical to the e-commerce. And we see now a lot of our ad spend being driven through agencies and increasing through agency relationships. So that area is only getting stronger and stronger One of the agencies out there, of course, compete to us on Retail Media. That's no secret in publics to have a product set themselves. But the other holding companies worked very closely with us hand-in-hand with us to get access to the Retail Media or the Retail Media networks that we have access to. What they love about what we're doing is that we bring retailers together into one our plans for them to buy retailer advertising or advertising across those Retail Media networks, as opposed to them having to have access to each big retailer one by one by one, and maybe not even getting real access to smaller retailers that don't stand up the ability for them to see them and some -- and a DSP that's sitting out there. So long story short, the agencies really like what we're doing to make sure that they have another channel in which they can buy against, which is a retail media channel, which gives them access through one place into the growing Retail Media sector, which has become so much more compelling for their brands and advertisers and we're going to front-row seat. What I love about is about Brian Gleason, not many things I heard about Brian Gleason but, of course, bringing him with his connections and his understanding of agencies has really given us a big gap, a big leg up in this area as well. So this is exciting territory.

Thanks.

Thank you. And our next question today comes from Matthew Thornton with Truist Securities. Please go ahead.

Hey, good morning, everyone. Thanks for taking the question. I've got one on Commerce Max and one on Privacy Sandbox. On Commerce Max, the beta clients that you have as we head into full commercial availability, are they signaling that they're going to shift budget from another DSP to your DSP? Are they not currently using DSP? And as we think about take rate, I guess, without getting to specifics, are we thinking about a market rate take rate, below market rate, above market rate? Any color on those would be helpful. And then just on Privacy Sandbox, just building on a prior question. Todd, given the most recent update that we've seen at a Privacy Sandbox, I guess, does that in any way change directionally you're thinking about the timing and the ultimate impact of third-party IT deprecation in the next couple of years here? Thanks, guys.

I can take the -- why don't I take the second question first, and just say that we don't see the time-line changing. We're still accounting 14 months and from here to there. And obviously, there's a conditional acceptance by the CMA that plays into that. But we all things seem to point to the time-line staying the same. So from our perspective, we're deeply into testing the efficacy of the API, again, very much focused on PAA that's not to ignore topics. And we think that there's -- it's very promising, provided the economics hold up, promising for scale, promising for precision. The economics need to be there. And there are a variety of things that we're testing to prove that out, and we have time to do it, which is all that needs to be said. On the second one, it's tough to say where the budgets are going to come from. And we have some interesting dynamics there, more traditional DSPs – DSPs that focus on audience and media. That's sort of been the core way that planning and activations get done are very interested to their clients, the users of those are very interested to get in on commerce media and to get to retail media inventory. And if you can't do it through the DSP that you're using, it stands to reason that you probably would allocate your budget to another DSP. So we expect some of that to happen. An interesting observation is that some of those DSPs that control a tremendous amount of spend also want to get to the same inventory and that we have leased a method to try with them with our Commerce Grid product, the SSP that we bought in the Iponweb acquisition. So we've got a couple of different things playing out. Obviously, that those things would impact take rates depending on how people want to buy and what they're getting to, ultimately, we don't talk about take rates. But we think about how do we get more of the goodness of Retail Media, Commerce Media out to the broadest buyer set, and I gave you two roads for that.

Perfect. Thank you. Thank you

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd 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 Investor Relations team is available for any additional questions. We wish you all a great day.

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