Good morning, everyone, and welcome to Criteo's Second Quarter 2021 Earnings Conference Call. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Edouard Lassalle, SVP Market Relations and Capital Markets. Please go ahead.

Thanks, Ed, and good morning, everyone. Thank you all for joining us today. I hope everyone is doing well and staying safe. The start to 2021 has been strong for Criteo, showing growth and momentum. Recent developments around cookies highlight the importance of first-party data and underscore our leadership in this area. I appreciate your attendance at our Investor Day, where we presented our new brands, our strategy for the Commerce Media Platform, and our strengths in Commerce Media. Our teams are in place, and we continue to progress steadily on our three priorities: growth, execution, and first-party data. Again this quarter, I'm pleased with the momentum we're building with our company's transformation and the Commerce Media Platform. Together with Sarah, we'll cover four topics today. First, the implications of Google's decision to delay the deprecation of third-party cookies in Chrome for the industry and Criteo. Second, how our Commerce Media Platform strategy is positioning us for long-term success. Third, how our continued progress across growth, execution, and first-party data is fueling our business momentum. And fourth, what our Q2 performance indicates for our growth outlook in the second half. Starting with the Chrome announcement, Google's delay in phasing out third-party cookies in Chrome through 2023 is positive news for those who depend on a thriving, open Internet. This gives our industry more time to prepare, but Google's decision does not alter our strategy or product roadmap. Criteo aims to be the strategic partner for global brands, marketers, and media owners as they transition to cookie-less advertising on the open Internet. We are leading the way in connecting first-party data across our ecosystem and creating viable marketing alternatives without cookies. We expect to strengthen our lead during this extended timeframe and provide a safety net for businesses in a first-party data world. Although the market is relieved right now, the urgency remains, as unprepared marketers will still face challenges when cookies eventually disappear. To succeed in a post-cookie landscape, the industry must expedite making first-party data interoperable across our diverse ecosystem. Marketers and brands require a collaborative environment to reach audiences across the open Internet, including on retail digital properties, all linked by first-party data. This involves the collection, aggregation, and interoperability of consented first-party data to facilitate seamless digital marketing on the open Internet and to ensure competitiveness against walled gardens. With our Commerce Media Platform at the center of the ecosystem, Criteo is uniquely positioned to foster this collaborative environment. Regarding our Commerce Media Platform strategy, during our Investor Day, I discussed the significant opportunity Commerce Media presents. This new advertising approach utilizes commerce data and machine learning to target consumers throughout their shopping journeys, enhancing our targeting capabilities. We believe Commerce Media could represent a total addressable market of around $100 billion by 2024, reflecting an annual growth rate of 22% compared to our current market. Our plan is to not only broaden our market reach but also gain market share across existing segments. Criteo's role in Commerce Media is to provide the platform and solutions that leverage the world’s largest commerce data set, enabling marketers and media owners to engage and monetize audiences to achieve commerce results, be it leads, sales, or advertising revenue. In essence, our approach to Commerce Media benefits everyone: brands like Adidas and P&G gain new customers, media outlets like CNN and the Weather Channel attract new audiences and advertisers, and consumers receive more relevant and enjoyable experiences online. Commerce Media represents the future of ad technology, and we have a strong and unique position in this space. We are in possession of vast commerce data sets comparable only to major walled gardens, combined with exceptional AI capabilities and a unified tech platform designed for first-party database marketing. Additionally, we have substantial consumer reach through our media network and 15 years of experience driving effective marketing outcomes. With our first-mover advantage and solid competitive barriers, we are well-positioned to succeed in the evolution of Commerce Media. As for our progress, we are making steady advancements on our priorities, starting with growth. Our growth rate accelerated to 18% in Q2, exceeding our guidance by four points. The growth was well-distributed across our portfolio, with retargeting increasing by 10% and New Solutions by 50%. We experienced double-digit growth across all regions, fueled by ongoing retail and commerce growth, along with positive trends among enterprise and core customers. A notable example of a significant enterprise customer we've expanded with is a well-known global sportswear brand, which has developed a comprehensive direct-to-consumer strategy focused on brand loyalty. Over the past two years, we've consistently grown our business with this client by utilizing several of our solutions, fostering a long-term partnership as they transition from a retail-focused to direct-to-consumer model in markets like the U.S., South America, and Asia Pacific. In Q2, we supported this client’s earnings growth by collaborating on audience-based strategies that enhance their e-commerce channel. Through our first-party media network, we empowered them to activate their first-party audience, reaching new customers both online and in-store. We contributed to a 75% increase in retail and clearance sales on their sites compared to Q1 and a 200% rise in on-site conversions compared to Q2 2020. Consequently, our business with them grew by 130% year-over-year and 180% compared to Q2 2019. This client appreciates Criteo's performance and the diversification we've achieved away from the digital advertising duopoly, reinforcing our standing as a strategic enterprise partner for leading brands and retailers globally. Execution is our second priority, and our team continues to carry out our strategy effectively across various initiatives. We are committed to investing in talent and have welcomed several industry experts to enhance our organization. Q2 saw solid momentum in our Marketing Solutions, particularly with New Solutions growing by 52%, which includes strong bookings from our newly launched contextual product. We look forward to leveraging this momentum to increase agency awareness and spending. When launched this year, our new supply-side platform will enable agencies to reach commerce audiences and measure outcomes using their clients' first-party data, whether via Criteo's demand-side platform or platforms of their choice. In Retail Media, we have cemented our leading position, adding ten new retailers in Q2 and transitioning 15 existing retailers to our Retail Media Platform, including recent agreements with Best Buy and our first retailer in Japan, as well as a high-end fashion retailer and a large membership-only big-box retailer in the U.S. On the demand side, we welcomed over 200 new brands, and on the product side, we’ve made advances in new solutions such as contextual, video, and connected TV. To expand our first-party media network, we're developing the Criteo supply-side platform to offer more advertisers using third-party demand-side platforms privileged access to audiences and media across our expansive network. Following a successful proof of concept, we now collaborate with over 450 publishers to activate third-party demand through our direct connections, generating significant momentum. Moreover, we've made strides in connecting directly with more publishers, recently integrating with a leading global soccer site ahead of the UEFA Euro tournament in Q2. These direct integrations help us minimize costs and optimize our supply paths while increasing our business with media sources that don't depend on third-party cookies. As a result, approximately 60% of our daily active users on the web are now addressable through directly integrated publishers. On the M&A front, we acquired Mabaya in May, extending our Commerce Media Platform into online marketplaces. We have an active M&A pipeline focused on enhancing our first-party data capabilities and advancing our Commerce Media vision. As for first-party data, we continue to strengthen our differentiating advantages. As highlighted at our Investor Day, we believe the key to establishing a sustainable first-party data solution lies in serving both marketers and media owners effectively. This is the essence of our Commerce Media Platform. Our understanding is that a superior solution for the supply side will be driven by our control over demand-side data, as it allows us to minimize data loss throughout the value chain. Once cookies are phased out, connected first-party supply will be essential for marketers and media owners to effectively advertise and monetize consumer audiences on the open web, and that is precisely our direction. We are actively collaborating with both demand and supply sides of the market to help create the open ecosystem I mentioned earlier. We are investing in large-scale infrastructure to facilitate the collection, aggregation, and interoperability of consented first-party data across all marketers and media owners. The Criteo supply-side platform will grant us even more access to direct supply and data as we incorporate third-party demand into our existing base. The acquisition of Mabaya adds to our range of first-party data supply-side customer businesses that do not rely on third-party cookies, further strengthening our position in that area. In conclusion, our team has shown steady discipline and conviction across our strategic priorities in Q2 and the first half of the year. Looking forward, we remain focused on our three main priorities: first, driving growth by accelerating our momentum, focusing on commerce, delighting clients, and attracting top talent; second, executing effectively to maintain a high say/do ratio; and third, leveraging first-party data to advance past the cookie era using our competitive advantages. I am optimistic about the progress we've made with the Commerce Media Platform. Our leadership team is dedicated to adhering to our growth goals, and our strong balance sheet supports our investment strategy. Criteo is uniquely positioned to lead in Commerce Media, offering a bright outlook for the future. Now I’ll turn it over to Sarah, and I will be back for Q&A.

Thanks, Megan. And yes, we are very pleased with our business performance and the momentum on our Commerce Media Platform strategy. I will discuss the drivers of our operating and financial performance in Q2 and share our outlook for Q3 and 2021. In Q2, we outperformed across our portfolio of retargeting and New Solutions for revenue and revenue ex- TAC, and we had a 31% adjusted EBITDA margin. So let's dive into our performance. The media spend our Commerce Media Platform activated was over $2.4 billion in the last 12 months, and accelerated to over $620 million in Q2, growing 31% at constant currency. As we said at our Investor Day, activated media spend is the underlying spend that our Commerce Media Platform activates for marketers and media owners. Our take rate on this spend reflects the value that our customers rely on our stores to ensure best-in-class returns on their advertising dollars. Clearly, we benefited from digital marketing tailwinds in Q2, in which revenue grew 26% or 22% at constant currency to $551 million. Our revenue ex-TAC growth of 18% accelerated over 17 points compared to Q1. This included $8 million of incremental identity and privacy impact, slightly lower than anticipated. Our revenue ex TAC margin was 40% of revenue in line with expectations. And on a two-year comparable to Q2 2019, revenue ex TAC grew 11%, excluding privacy impact. Our Retail business was particularly strong across all our solutions, growing 19% year-over-year and 17% when compared to Q2 2019. Travel remains challenging despite budgets increasing 360% year-over-year and is still down 73% versus Q2 2019. Our Marketing Solutions revenue ex TAC grew 15%, including our retargeting business growing 10%, driven by strong execution in all regions and continued healthy trends in commerce and retail. Our Targeting solutions grew 52%, driven by audience targeting growth of 31% and omnichannel accelerating to close to 200% as stores continue to reopen. Retail Media grew 49% on a revenue ex TAC basis driven by existing accounts and the onboarding of new customers. Prime Day was a highlight for our large retailers and brands, especially in North America, and we are excited by the ramp-up of activity with Carrefour. Overall, our new solutions across Criteo, including Retail Media, grew 50% to 25% of our total revenue ex TAC. We now have over 21,000 customers with close to 40% of live clients using our new solutions. We added over 700 net new clients in Q2. Same-client revenue ex TAC growth of 16% improved 14 points relative to Q1, including a 17-point improvement in Marketing Solutions. All our regions grew double digits in Q2. On a revenue ex TAC basis, the Americas grew 23% at constant currency, improving 15 points of growth compared to Q1, driven by traction in our strategic customers. In EMEA, revenue ex TAC grew 13% at constant currency, improving 15 points from Q1 due to high e-commerce sales during extended lockdowns offset by travel. Revenue ex TAC in Asia Pac grew 20% in constant currency, improving 25 points compared to Q1, largely driven by one large marketplace restarting campaigns, offset by weak travel and the muted macro in Japan still impacting classifieds. We continue to invest in growth while maintaining our cost base. Our adjusted EBITDA of $67 million was up 61% at constant currency, driving a 31% margin, up 9 points year-over-year and up 6 points compared to Q2 2019. Our growth investments are largely funded through productivity, enabling top-line leverage as we ramp up commercialization of new solutions. Key investments in Q2 included contextual, commerce insights, and Retail Media with terrific new hires in solution selling, product and go-to-market as well as R&D. In Q2, non-GAAP expenses were $153 million, up 8% at constant currency. Non-GAAP OpEx increased $11 million or 9%, including 14% for R&D and grew only 5% before the impact of our higher stock price on social charges. On that same basis, we increased employee costs by $14 million or 15% at constant currency. We are also upgrading our back office processes and tools. As you can see in our non-GAAP reconciliation, we incurred just shy of $10 million of pre-tax restructuring and transformation costs in Q2, almost entirely related to downsizing our global real estate office footprint. We anticipate pre-tax restructuring and transformation expenses of around $30 million in 2021, largely driven by our real estate portfolio actions and to a much lesser extent, employee severance. Moving down our P&L, depreciation and amortization increased 11%, and share-based compensation expense increased 63% due to our stock price over the period. Our business performance and solid cost management drove a 102% increase in income from operations and a 144% increase in net income, reflecting lower financial expenses. Due to our stronger revenue performance and regional mix, our projected 2021 tax rate is now expected to be 27%, with a Q2 effective tax rate of 22%. Our weighted average diluted share count was around 65 million, up 5% as a result of our increased stock price. Diluted EPS was $0.23, up 156%, and adjusted diluted EPS was $0.63, up 133%. Our strong cash generation and cash position continue to provide ample execution flexibility. Our free cash flow was $13 million in Q2, and we repurchased close to 800,000 shares at an average cost of $37.60 per share. Since the $100 million buyback program commenced in early 2021, we have repurchased $35 million worth of Criteo shares, including $30 million in Q2. We closed Q2 with a strong balance sheet and $553 million in cash and marketable securities after the Mabaya acquisition. We have total financial liquidity in excess of $1 billion, providing strong flexibility for capital allocation. We maintain a robust capital allocation process with our primary goal of investing in our continued organic growth and leveraging M&A to accelerate our Commerce Media Platform, including capabilities to further strengthen our first-party data assets. I'll now provide our guidance and business outlook for Q3 and 2021, which reflects our expectations as of today, August 4. Our guidance reflects Retail reopenings, sustained secular trends in online commerce and contemplates tougher comps for year-over-year growth in H2. For H2, we expect limited recovery for travel, down over 70% from 2019 levels and incremental identity impact of $43 million, largely driven by Apple's ATT in iOS. For fiscal 2021, we are increasing our guidance for revenue ex TAC growth of 6% to 8% at constant currency. We are strengthening our Commerce Media Platform with our fast-growing new solutions, expecting it to grow over 50% in 2021. We maintain our assumption of an incremental identity and privacy impact of about $56 million in 2021 relative to 2020. We are also increasing our adjusted EBITDA margin guidance to 32% of revenue ex TAC, demonstrating operating leverage and our top line strength. We expect our EBITDA to free cash flow conversion to be about similar in 2021 to the 2020 rate, between 45% and 50%. In Q3, we're guiding for revenue ex TAC between $202 million and $205 million or approximately 8% to 9% growth at constant currency. We see momentum in our Commerce Media Platform with continued strength in retail and new solutions, which we expect to grow around 60%. We expect our underlying growth in retargeting to be reduced by $17 million for incremental identity and privacy impacts. On the bottom line, we expect Q3 adjusted EBITDA between $47 million and $50 million as we make higher investments in our growth areas and the higher social charges for our RSUs. Finally, I am excited to be in our Paris headquarters meeting with our amazing team. Our Criteos have been integral in delivering terrific results and have helped shape our flexible hybrid workplace that enables innovation, collaboration, and teamwork while integrating flexibility and work-life balance. In closing, we continue to be pleased with the momentum our business is enjoying, powered through our broader platform offering and execution by our global teams. We are laser-focused on providing the world's leading Commerce Media Platform, driving sustainable profitable growth and creating long-term value for our customers and for our shareholders. And with that, I'll now open the floor to your questions.

I have two. First, I just wanted to ask about the privacy outlook. It seems like iOS 14.5 changes were slower to roll out than initially anticipated, and you've obviously heard that from a number of other companies. Just wanted to get a sense of how you're thinking about maintaining the $55 million privacy impact for the full year, and maybe some of the puts and takes there. And then also, I was just hoping to get an update on the innovation side, just in terms of more on contextual targeting and also perhaps UID2.0. And is there any advantage in your view that you gained with some of these products just with Google deprecation pushed out some?

I can address the privacy impact. You're correct that our privacy rollout was slower than we expected in the first half, primarily due to the gradual rollout of iOS. In the second half, we anticipate a significant increase, mainly regarding iOS's App Tracking Transparency. We have noticed that explicit consent rates have been lower than we projected, while the ATT on iOS is slightly better than we anticipated, with opt-out rates around 65%. We based our assumptions on a balanced perspective, drawing on previous data. We consistently update our outlook every quarter, so we feel confident about our projections for 2021 and are focused on mitigating those risks.

Yes, sure. Doug, just to address your question about timing, and the impact of the extension from Google as it relates to contextual specifically, really, we had a fast start with our contextual product. This gives us more time to tune that product and to get it further in the market than we already have. It remains a top of mind tactic as an alternative to data deprecation or things that are reliant on third-party cookies or mobile ad IDs. So we feel very, very good about how the market is sitting in terms of wanting our new products, reflected by our growth, our New Solutions growth. And things are going very well. Just to dig into contextual a tiny bit, since our last call, we opened 5 new markets, bringing us to 9 total. And we have an alpha going in Japan, which is actually very promising in terms of its results. We have about 70 advertisers using that solution. And the performance gains are quite good for mid-funnel metrics for cost per qualified visit. Most importantly, incrementality of the qualified traffic that we're able to drive, meaning unduplicated new audience to our customers' websites exceeding 80%. So this is, as you know, a cookie-free solution. The dynamics in the market and both the performance of the product are quite strong. The extra time we will not just use to continue getting into market and tuning, but we will also be bringing some of our other core capabilities to the contextual product. We've started to do so with advertising, personalization and product recommendations and also on-site product recommendations that match so that overall performance continues to grow while we have that extra window to work. All good stuff. I would say we're firing on all cylinders.

I had two questions. Sarah, you referred to travel still being down significantly. But I think at least in the U.K., we have a slightly distorted view about what travel is going on, i.e., not very much. But if you're in Europe, people have been really starting to move around quite a bit. So as you look through to Q3, how does that trajectory in terms of travel recover? Because I think it's most concentrated in your European segment. And then the second question was on Retail Media. Does the Publicis acquisition of CitrusAd change anything for you guys? It's obviously a ringing endorsement of Retail Media. But I think Publicis was working with you guys anyway. So I'm just interested in your thoughts on that deal and how that might change anything for you.

I was supposed to visit my parents in the U.K., but that isn't happening yet. I understand the situation regarding U.K. travel. Our outlook is that travel remains sluggish. We are noticing some people starting to fly, but the retargeting business in travel, where we had previously been strong, is not recovering quickly. The competition is fierce, and some of the major players with a significant presence in travel are capturing a portion of that market. We are hopeful for improvements every day; each week we are receiving more budget, but it is starting from a very low point. We do not see a significant rebound yet. Our expectation is that we will likely remain down around 70% compared to what we anticipate to be a 65% decline by the end of this year. We believe it may end up closer to 70%.

Yes, I can address that. It's great to hear from you, Sarah. Regarding Citrus, you're correct that this situation clearly validates the Retail Media opportunity. We were aware that Citrus was in consideration, and we view Publicis's acquisition as positive for us for several reasons. Firstly, Citrus has been a small yet aggressive player, and being part of Publicis will likely change their dynamics, possibly slowing them down or shifting their focus. However, we've generally observed that acquisitions like this can lead to such changes. The key point is our independence. We're confident that with Citrus now under Publicis, major players like Omnicom, WPP, and Dentsu may hesitate to redirect budgets to Citrus for their large brand clients, seeing us instead as an independent option. We are already receiving inquiries from brands seeking robust independent players, which speaks volumes about our Retail Media capabilities. The overall Retail Media market is valued at $32 billion, indicating there’s space for multiple players, but we consider ourselves the largest outside of Amazon. We aim to be the equivalent of Amazon advertising within the open Internet, and that’s our primary focus. We currently partner with 50% of the top retailers in the U.S. and Europe, and the acquisition of Mabaya will enhance our retail media portfolio. Therefore, this validates Retail Media as a significant domain, and our independence plays a crucial role in how we serve our clients.

Maybe a couple on Retail Media as well. First, obviously, you guys outperformed the guidance in the second quarter. But when we look at the gross spend versus the revenue ex TAC growth, can you just kind of remind us and walk us through the puts and takes in terms of how the, I guess, I’ll call it the take rate is ebbing and flowing there in that business and how it will continue to ebb and flow in that business? And then just secondly, coming back to the consolidation, when you think about that market, when you look like traditional SSPs as an example, the logic has been mergers equated to less than two and not greater than two. So they really haven’t worked. I’m curious in this space, if you look at someone like a Criteo and PromoteIQ or something like that, if the logic goes the other way and there is accretion to be had and thus that’s the direction this category will continue to go. Any thoughts there would be great.

Well, I’m happy to address the first part of that question. And also, I’m sure there will be others who will pitch in on the second part. So we said this last quarter that from Q1, as we move to our Retail Media platform, we actually moved from gross accounting for revenue to net accounting for revenue. So in other words, our revenue and our RexT are the same. So there's really no impact other than accounting, and we show that within our tables. What we look at is gross media spend, which is effectively the amount we activate for our customers, and that's why we started to include those metrics. But our revenue was up 10%, RexT up 49%. Yes, we're very happy with those numbers. We see continued traction.

Yes, Matt, I think if I understood your question correctly, it’s kind of is there a collision between Retail Media, which has largely been an on-site business so far with the more traditional marketplace views of an SSP. And we would take the position that that is the case. And the reason for that is because anyone who is trying to monetize their on-site audiences would also like to monetize those audiences off-site. And that means that you have to be able to blend both on and off-site audiences as one, which means that more traditional supply aggregation where those on-site audiences can be reached to actually expand total revenue, available revenue is a sensible thesis.

I think you mentioned that 60% of audiences are now a direct integration with the publisher. Can you just talk about your kind of go-to-market strategy? How high can that go? How are you guys building that, just break that down? And then new solutions continue to grow nicely. Can you just talk about the drivers there? And outside of Retail Media, like what are the products that you're seeing that are really resonating?

Yes. I mean, we're heavily leaned into direct connections, and you’re seeing the results of that commitment for pretty obvious reasons, going back to what we were talking about at Investor Day. The reduction of kind of overall take rates and what we call the tech tax so that our marketers achieve stronger marketing outcomes is really dependent on removing extraneous take rate or what could be looked at as extraneous take rate between our marketers and our media owners. So the direct connecting we’re doing is aimed squarely at reducing that expense. By going direct, obviously, we’re saving our marketers from additional supply-side platform take rate. And in doing so, we’re able to achieve better outcomes for them. So you can look for us to obviously continue that investment with verve.

Yes. And I can take the second part on the New Solutions. So yes, there’s a few areas that we’re focused on and also are performing incredibly well. Audience is up 31%, and that’s largely due to our customers, especially as they look to first-party data and they look to how they can move up the funnel themselves, how can we help them there. So we’re seeing terrific buy-in on our solutions. And then omni, which really focuses on the retail stores and getting back into the stores, especially in preparation for back-to-school in Q3, that’s up about 200%. So that’s largely due to the stores reopening.

I'd like to come back to the impact of IDFA and potentially cookies and the work that you're doing there. Just to be clear, it looks like you're calling out incrementally worse impact in Q3 and then again from that in Q4 from identity and privacy issues. Just to be clear, that's mostly IDFA and why is that getting worse even though most of the new platform installs, I think, have taken place and you seem to know what the opt-out rates are? And then also, given the delay in the cookie elimination, I guess, is there any impact from cookies currently in 2021 numbers? And what can we think about in terms of what it will mean in '22, if anything, meaning could your retargeting business again be flat to up again next year if there's no cookie impact next year?

Yes, I can address the first part of that, and I'll let Todd or Megan add on to other areas. Regarding our overall privacy impact, at the beginning of the year, we expected an impact of about $60 million. Currently, we are at approximately $56 million, and we anticipate that the impact from iOS will be around half of that amount. In Q2, the implementation was delayed more than we expected, which primarily affected the latter part of that quarter. As for today, we are aware of the opt-in rates, although that information is relatively new to us. Therefore, we have made slight adjustments to our assumptions regarding iOS IDFA.

I would like to add that Sarah highlighted the gradual rollout. There are still many apps that have not yet implemented it, and we are observing those numbers align with our conservative model. However, you can consider us somewhat insulated from the overall effects of ATT opt-outs and large individual apps due to our network reach. What we aim to determine is the extent of our audience that has consented on both the publisher and advertiser sides. Additionally, we have a significant breadth for matching.

Yes, I want to reiterate that. I go back to what I said in opening around the Chrome delay. It doesn't change our strategy whatsoever. It gives us more time to bring the market on board and make sure that they're ready for a world of first-party data. And our Commerce Media platform is the platform on which we can provide that. And the capabilities that, that offers across the open Internet using our DSP and SSP solutions, that's what we're laser-focused on. It's a good thing for the market because it gives more time.

Great closing, Megan. Thanks a lot, and thanks, Sarah and Todd. Thanks, everyone, for joining. This now concludes our call today. Our team is available for any additional request as usual. So we wish you all a good day, and thanks all for joining. Thanks. Bye-bye.

Ladies and gentlemen, that does conclude today's conference. We do thank you for attending. You may now disconnect your lines.