Good morning, everyone and welcome to Criteo's Third Quarter 2023 earnings call. [Operator Instructions] After the prepared remarks there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Melanie Dambre, Vice President, Investor Relations. Please go ahead.

Good morning, everyone and welcome to Criteo's Third 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 judgment, 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. I'm pleased to report that we delivered another solid quarter with top line and adjusted EBITDA above our expectations, driven by organic growth acceleration, market share gains in Retail Media, and strong cost discipline. Our performance is a testament to our team's hard work and the trust of our clients who continue to prioritize performance and rely on our solutions to drive sales and return on ad spend. We've embarked on a significant transformation journey since I joined Criteo four years ago, and we've successfully moved our business from a single solution retargeting play to a multi-solution platform offering, end-to-end AI-enabled ad tech services with a focus on commerce. We've demonstrated resilience and we're now positioned at the forefront of the changes in our industry, all while navigating the impacts of signal loss, the global pandemic, geopolitical conflicts and a volatile macroeconomic backdrop. Our unique commerce data at scale, deep integration with retailers, differentiated technology, advanced AI, world-class team and R&D powerhouse have been the foundation of our strategy to become the leading ad tech provider for Commerce Media, the fourth wave in digital advertising. Since our Investor Day one year ago, we've focused, continued to focus our business on areas of high growth and expanded our leadership position in Commerce Media. We've maintained a high say-do ratio and built the only unified AI driven platform that directly connects advertisers with retailers and publishers to drive commerce on retailer sites and the open internet. Over the past 12 months, we've successfully integrated our acquisition of Iponweb and brought our Commerce Media platform to life for our clients. We further expanded our partnerships with agencies, retailers and supply partners just as we said we would. We're well on…

Thank you Megan and good morning everyone. Our first quarter performance reflects our strong execution despite a mixed macroeconomic environment. Revenue was $469 million and contribution ex-TAC was $245 million. Reported contribution ex-TAC reflects a year-over-year $5 million favorable ForEx impact. At constant currency, our third quarter contribution ex-TAC grew by 13% on top of 14% growth in Q3 2022. This includes organic growth of 8% driven by strong growth in Retail Media up 29% and a return to growth in Marketing Solutions up 1% year-over-year at constant currency. Within Marketing Solutions, Commerce Audience was up 31% partially upset by Retargeting being down 7% as expected. Iponweb contributed $34 million. We continue to shift our top-line mix to our fast-growing new solutions for Retail Media, Commerce Audiences and Iponweb that represented 51% of our contribution ex-TAC in our third quarter. Our client retention at 90% remains resilient. Turning to our business segments, in Retail Media, revenue was $50 million and contribution ex-TAC grew 29% at constant currency to $48 million. Our growth is primarily driven by our client base in the US and our retailer marketplaces. In Q2, we added 10 retailers and 100 brands and our same retailer contribution ex-TAC retention was up sequentially to 123%. We also saw strong growth from our agency partners and robust brand bookings, mainly in CPG, our largest vertical, as brands shift more spend to digital channels. The Retail Media spend we activated in Q3 grew 39% year-over-year above market growth demonstrating that we continue to gain share. In Marketing Solutions, revenue was $386 million and contribution ex-TAC was $163 million with strong growth in Commerce Audiences offset by lower Retargeting. While Retargeting was down 7% year-over-year, it improved sequentially as the integration of our deep learning algorithms and advanced vector database technology…

Thank you. [Operator Instructions] The first question is from the line of Mark Kelly with Stifel. Please go ahead.

Thank you. Good morning. Maybe, can we dive into the last part of your prepared remarks, just about the 2025 targets? When I think about all of the newer wins you've had, whether it's Uber or other marquee names, and then you just hinted at two really large retailers in the US that you just can't announce yet. When I take all of that positive commentary and win momentum and pair that with your thoughts on Retail Media for next year and the growth expectations, those two don't totally align in my head. So maybe can you walk through the moving pieces a little bit more outside of the fee structure changes and some of the other moving pieces? Obviously, weaker challenging macro environment, but just how are those new wins layering in? And I guess maybe what are you seeing from some of your more legacy clients? Thank you.

Yeah, thanks, Mark. Well, first of all, I do want to focus on the share gains we have in Retail Media. Today, we're delivering services to 60% of our US top retailers, and we continue to deliver to 50% of our European retailers. So the strategy hasn't changed. The clients are terrific, and we continue to meet with them weekly, daily, talking about strategy, talking about operations, talking about execution. What has changed for 2024 is our largest customer, we've recently engaged in a renewal, and we've moved to an economic pricing model that is more SaaS-like. That's a scale player, a mature player. We continue to drive massive value to them, and we continue to -- which also delivers, of course, value for us. But with that, we have more SaaS-like recurring revenue, so it's really shifting the economic model. We do continue to have the volume base, take rate fees, and we continue to have pricing structures for the value-add services. Our expectation is that the national brand dollars are going to shift into our ecosystem. It all takes time. And so as a market maker, we feel very good about where we are in terms of client-based incentives of our product, in terms of our strategy. However, for 2024, we're starting from a lower starting point versus our ambitions in the 2025 ambition. And our expectation is we'll take, I would say, a shorter term hit on the growth rate versus where we expected to be in 2024. That's really the biggest change. It's a short-term, I would say, adjustment to the growth rate with the expectation of short, medium, and long-term gains on all the things you spoke about, client-base, product mix, and continue to shift dollars. And we're relentless on looking and ensuring that we continue to drive those brand dollars into the Criteo platform.

Okay. All right, thanks. And then maybe just one quick follow-up, just on the SaaS fee structure and then the take rate on top of it, I guess, are you seeing more competitive pressures from other retail media network providers? I guess, what was the reason for the fee structure change?

Yeah, I would say the fee structure change is more in line with our newer contracts, which so we see it as more an adjustment to the way we do business. And with scale, we'll continue to drive more fees and more scale. We're also continuing to add capabilities into our Commerce Media platform. We delivered a lot this year, of course, with C-Max, the focus on C-Grid as well for retailer curation. And as you know from Todd, there's a roadmap over the next year, two years, that we continue to look at how can we drive digital spend for brands into the Commerce Media platform.

Yeah, I'll just add, it's a good question, and good topic. Sarah said before that, you know, our strategy remains the same. It does. And it's working. But we're growing share by the day, and certainly winning in this space. It's we're carving out a marketplace here, we're building something for the long term and it is a long term vision. We're -- core of our strategy is to win the retailers, we continue to do that. The second part of our strategy is to grow with the retailers and we do that by driving demand to them, but also building out capabilities that they can subscribe to through a SaaS type model. And then as we're building out this market places to be flexible and work with our clients to evolve our pricing models to ones that work for both of us that create sustainable, profitable economics for both of us. And so these are the things that, you know, we're working through as we're relatively early in the stage of building out this marketplace. But it doesn't take away from the strategy and the strategies that in the unfolding.

All right. Thanks, Megan. Thanks, Sarah.

The next question is from Ygal Arounian with Wedbush Securities. Please go ahead.

Hey, good morning. It's Ygal with Citi. I just want to keep kind of digging into that point, I guess I'm not really fully understanding. And first of all, I want to make sure I heard you, Sarah, the Retail Media contribution ex-TAC could be lower in 2024 than it is in 2023. And so maybe first what's prompting the shift to the SaaS like model? Was it more from you guys? Or is it more from your client? And then I guess the piece that I'm not totally getting is why it's less revenue generative, right? So you should theoretically be growing the billings next year, but you're getting less of a contribution as you shift to the SaaS model. So can you help just please explain that a little bit better? Thanks.

Yeah, First of all, to clarify, Retail Media will continue to grow. What we're anticipating is that the growth rate will be lower, certainly lower than we had assumed in our ambition. And we anticipate it will be lower than our 2023 growth rate as a short-term perspective. The biggest shift in the model with our largest scaled retailer is that we were doing more Criteo sold for all brands. And as our retailers shift, and many have already shifted to this model, some will do their own sell for their largest brands. And we will continue to sell for the medium to long tail. In addition to that, we receive fees for everything that goes through our platform, which is all the volume. That's the biggest change. And again, we do anticipate and we do see many opportunities for us to continue to drive scale, not just with this large scale player, but also with the significant ecosystem we have in the US and in Europe. And of course, as we continue to build our Asia PAC as well.

Okay, that's helpful. Sorry, I misunderstood. And then with the launch of Commerce Max, maybe you could just share a little bit on early reads, what you're hearing from agencies and partners. And within that being also, Omnicom made an acquisition this week that feels like they're moving more into Retail Media on their own or Commerce Media as a whole. And Omnicom has been a key partner. So does that change anything with your relationship with Omnicom at all? Thanks.

And sorry, just one thing on the last part of your question. I do want to emphasize that our Retail Media, our Commerce Media platform is self-service. So a huge benefit of driving scale and driving to these new economic models is there is a shift to more self-service. And that will enhance our profitability over time. We do have positive contribution across our businesses. So the expectation is not only will drive scale and deliver top line, but we're also continuing to deliver profitability overall for Criteo. So those are other key factors as we look at the platform. In terms of C-Max, we've had terrific traction in terms of the number of retailers, brands and agencies coming into that platform. It's going to take time to see the dollars. So we're starting to see the flow through coming through in Q4. We just launched in September, as you know, and our expectation is that will continue to drive in 2024. The conversations are terrific. The contracts that we're seeing, or sorry, the agreements that we're seeing with the agencies and brands are incredibly encouraging. And our retailers are absolutely leaned in.

So that one's, again, we're excited about C-Max and the traction. We had a really great launch of that event. It seems like only weeks ago. And so the follow up is definitely coming, but the momentum is building around that. I think you asked also about Flywheel, Omnicon. Is that correct?

Yeah, just because they've been an important partner here. So --

Yeah.

Does that change the partnership at all, the relationship?

No, it doesn't change the partnership at all. The relationship's still strong. It actually, what it does do is it further sort of validates the importance of Retail Media. So as more and more agencies are leaning into their own capabilities to be able to stand up teams and technology to accommodate brands asks for Retail Media spend, this is just validates that agencies are really leaning into this. They're not making a Retail Media buy as part of a social buy or a buy on another type of media. It's very positive. If you look through the, I call it the supply chain, I guess, of the way technology is used all the way through from the conversation with the brand all the way through to the buy, Flywheel is right up sort of the very end of that, at the very top of that. And we work with them to activate their buys. So again, very positive for Retail Media and Commerce Media as a whole and we continue to enjoy our relationship with them.

Yeah, just to add to that, Flywheel is one of the biggest buyers of Retail Media utilizing our APIs. They're a fantastic partner with us. We've done a lot of cross-marketing with them as well at events. They're in housing some of the tools so they can buy across retail media networks. We see that as a positive for us and of course, it increases their own operational efficiency from an Omnicom perspective. And ultimately, agencies are shifting to create Commerce Media centers of excellence, which we see as a terrific sign for us, especially given our holdco relationships.

Sir, are you done with your question?

Thank you.

The next question is from the line of Doug Anmuth with JP Morgan. Please go ahead.

Hey, this is Katy on for Doug. Thanks for taking the question. I just want to dive a little bit more into the 4Q outlook. I think that the organic growth is implied to decelerate slightly versus 3Q levels. So can you just provide some more color on what you're seeing quarter to-date that might be making you a little bit more cautious and how we should think about sizing some of these moving pieces like macro geopolitical conflict and the holiday season so far? Thanks.

Absolutely. I mean, we saw a soft October, so that's a starting point, especially with trading patterns, media trading. In terms of the holiday season, of course, we're expecting a terrific holiday season. Our sales teams are all in. We're not seeing an early start to the holiday season. So that's the caution. And that's the caution. I would say we're similar to most others in terms of watching and seeing. We're bullish. We know we love to deliver performance for our clients. And we're leaning all in. But that's where our caution is, is knowing that we're not seeing an early holiday season and, frankly, reading the daily news and seeing some of the concerns raised. We're going to be keeping a close eye on the retailer's results as they come out over the next few weeks. And that will be a gauge. Week on week, we are seeing improvement coming into November. So good signs, but not enough for us to sign off on a terrific Q4, especially given it's a pretty short season with the 5% or 6%. That being said, we feel terrific about the strong Q3 we delivered. And we're looking forward to continuing to deliver a strong Q4 as well.

OK, thanks. And if I could just do one more, is there anything you can share on how to think about 2024 profitability? Just thinking about the fact that you realize some cost efficiencies in 2023 but how should we think about the pace of investment next year? Thanks.

Yeah, we have a program now and a rigor around operational excellence. So we've been very focused on our operating model, our operational excellence, on knowing where we should be taking more efficiencies, but also where we need to invest for growth. We're not going to give guidance for 2024 on this call. But I would say we feel very good about the $70 million that we delivered in 2023. That was above our plan of $60 million. And it's part of our operating rhythm that we will continue to look at where do we see ability to invest and also where do we see ability to continue to be more efficient. The shift to the Commerce Media platform and the self-service capability enables more efficiency. And the continued focus on ensuring that we're delivering for our clients at scale also enables flow through of those dollars to the bottom line as well.

Okay, thanks.

The next question is from Matthew Cost with Morgan Stanley. Please go ahead.

Hi, everybody. Thanks for taking the questions. I guess on the guidance for 2024 and kind of like the expectation step down for 2025, how much of it is macro versus micro? So you talked about an expectation to outpace the market in 2024. Are you expecting to outpace the market to the same magnitude you did before or just the market will be weaker? What's the mix there? And then I have a follow up. Thank you.

Yeah, first of all, we're not giving guidance for 2024. But of course, as always, we'll discuss guidance in our early 2024 call after year-end. Our expectations is that we will continue to outpace the market on media spend. And we're focused on short, medium, and long term, and in particular, medium to long term. For 2024, most of the challenge is the macro, I would say, slowdown from the beginning of Q4 last year that was pretty significant. So the starting point is significantly different. That would be the key item that's changed the focus on the ambition to meet where we wanted to be by 2025. Yeah, we're making a market. We're spending time getting the product right. We feel fantastic about our launches. We feel good about the economic terms that we set with our clients. We feel terrific about the pricing model we have for performance advertising and for retail media. And frankly, we wanted to make sure we were transparent with all of you as we go along this journey. So the uncertainty includes Privacy Sandbox. We feel very good about where we will be for next year internally; it's a major dynamic shift for our industry. And that's all going to happen in 2024 from testing to deprecation. That's the biggest disruption the advertising industry's seen in the past 20 years. So there is, of course, some uncertainty as it relates to that.

Yeah, I'll just weigh in again because I want to reiterate the long-term story here because it's just so critical. We're in this for the long term and our strategy remains the same. You'll see that we continue to win retailers. And from the biggest retailers to the smallest retailers, we're winning them. We're significantly ahead when it comes to features and capabilities and how much we're doing for those retailers. We respond to them every single day to make sure that we're in lockstep with them in their journey and that we're growing with them. And so this is a long-term market play of which we find ourselves in a terrific position. During this, we have to continue to work with those clients to evolve the economics to make sure they're long-term, sustainable, focused on the right things, they drive profitability for us. And that's what you're seeing in the short term. But we continue to see a massive, a total addressable market for us where we now see closer to the market, the size of the market that's available to us. And we're driving headlong towards our leadership position in that. So think out to the long term as much as you can.

Got it, thank you. And then just on Commerce Audiences, it was definitely another strong performance there this quarter. I think you mentioned in the slide deck, no incremental signal loss impact in the quarter. So I guess, what is motivating people to lean in to Commerce Audiences even as kind of Retargeting is declining somewhat year on year? Is it just preparing for signal loss next year? Why are people doing it so aggressively now when Retargeting is, you know, it's not getting any worse in Q3?

Well, it's a new tactic for us. We've talked about it for a little while. And it's a newish tactic for us. And as I said before, we've wanted to expand beyond Retargeting to offer solutions that go up a funnel. And our clients are looking for those, that optionality to be able to move their dollars around depending on what objectives they're trying to meet. Commerce Audiences, as we said when we were doing our event last year, is sort of based on audiences that are shopper audiences, that are commerce-based audiences as opposed to people who may be searching their family tree or doing different activities but not close to the point of sale. And so having those, that capability for targeting is a very powerful one. But let me not speak to it. Let me pass it across to Todd, who's the architect of Commerce Audiences. He can talk it through.

Yeah, thanks, Megan. I can't add that much, but I can say that the growth is really pretty simple. If you think of how growth marketers are doing business, they're splitting their attention between acquiring new customers, the best new customers who are shoppers based on real commerce data. And then they're looking at ways to retain those customers and drive more lifetime value. In the past, Retargeting really fell into more the latter bucket, and Commerce Audiences fall more into the former. If you look at how spends is cut across those two activities, today about 30% is still going to retention style marketing, and about 60% or 65%, a little bit more, are going to growth on the acquisition front. So what you're seeing in this growth is, to Megan's point, we brought a new capability to customers that are already thinking a you're seeing this growing as rapidly as you are, and we expect it to continue.

Thank you.

The next question is from Matthew Thornton with Truist Securities. Please go ahead.

Yeah, hey, good morning, two questions if I could. First, on the Retail Media shift that you're seeing with your top client, more of a self-serve model, is there any way to think about what percentage of Retail Media is still tied to a more full-service, take-rate-take model, and thus still could shift to more of a self-serve model? That would be the first question. Second question, and maybe this one's for Todd, the Privacy Sandbox has been open for testing. You've been working with Google for a while now. So my question is, have we learned anything about just the usability or the efficacy that informs or incrementally informs your opinion for 2024? I would think that there's probably some learnings and either gaining confidence or loss of confidence as you think about 2024. But again, I'm just kind of curious if there have been learnings on that front? Thanks so much.

Yeah, I'll take the first part of that question. I mean, in terms of the Retail Media model with our economic model with our clients, we feel very good about the economic pricing that we have across the board. We've renewed most of our clients over the last 12 months, and we continue to renew. We've also seen already a shift to large brands being sold by the client versus by Criteo, and our Commerce Media platform capability being self-service already leans more into a platform pricing model. So ultimately, we anticipate the growth to continue in terms of scale and in terms of that mix of, I would say, SaaS-like fees plus volume-based fees plus value pricing for other services that we're delivering. And that's where most of our contracts already are and are continuing to shift. It's going to be around the scale and continuing to bring in new capabilities with increased fees coming in over time. It's really the scale play along with that new economic pricing model. Then I can hand over to Todd on your Privacy Sandbox question.

Yeah, thanks a lot, Sarah. It’s not -- and we, of course, have learned a lot on the back of a very large investment at the company with the Privacy Sandbox and partnering with the Google team. What we've learned so far is that we can do a reasonably good job with our targeting, our recommendation, our bidding, and our measurement as we have in the past. And what we're excited to learn next, because the knowledge that we've gained thus far has really been on traffic that commingles Privacy Sandbox with third-party cookies. And what we're really waiting to do and learn from next is the January or Q1, rather, release of cookie-less traffic by Chrome that 1% of the population that will be made available for testing for five months thereafter on a completely cookie-less basis. So we've been preparing for this and we're feeling very good leading into that test. We're going to learn a lot once we see how pure cookie free traffic can be targeted, can be made recommendation to, can be measured. But we feel very strong going into that period. And we're going to be excited to share the results of our testing as we go through and as we have in the past.

Let me just grab on this one a little bit because, Matthew, it's an interesting question and it really speaks to the DNA of Criteo. So I do want to say something about this. I have a background as an athlete, as some of you know. And as an athlete, you train every day, twice a day, for a day that is years ahead. Years ahead and it's just, it's about your resilience. It's about keeping your eye on the prize regardless of the ups and downs. At Criteo we do exactly the same thing. So we are laser focused on getting through the Privacy Sandbox, having trained for it for years. And it's the same story with our positioning and our future for our ad tech position for Commerce Media , the ad tech provider for Commerce Media. It is eye on the prize. It is training every single day, twice a day, for the day in the future. And that's the DNA that we have developed here. So I just wanted to throw that out there because it's just an important part of who we are.

Great. Thank you.

There are no further questions.

Okay. Thank you, Megan, Sarah and Todd. This now concludes our call for today. Thanks everyone for joining. We're available for any additional questions. Have a good day.

Thank you. Bye-bye.

Thank you. Bye-bye.

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