Criteo S.A.

Good morning. Welcome to Crickeo's first quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please press the star key followed by zero. After the prepared remarks, there will be an opportunity to ask questions. To ask a question, please press star then one. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Edouard Lafalle, Vice President of Head of Investor and Analyst Relations. Please go ahead.

Thank you, Kate. Good morning, everyone, and welcome to Kudos Q1 2020 Earnings Call. We hope you're all safe and healthy wherever you are. With us today are CEO Megan Tarkin and CFO Benoit Fouillant. Please note that because of lockdown restrictions, we are all joining this call from different locations today, and as a result, may face unwanted technical challenges. In the course of our call, management will make certain forward-looking statements. These forward-looking statements reflect Creo's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Creo's business. Importantly, at this time, the global COVID-19 pandemic is having a significant impact on the global economy, on the business of our clients, as well as on CREO's business, and may further impact CREO's financial condition, results of operations, and cash flows. There are significant uncertainties about the duration and extent of the pandemic impact. The dynamic nature of these circumstances means that what is said on this call today could materially change at any time. For more information, please refer to the risk factors discussed in our earnings release, as well as the most recent Form 10-K filed with the SEC. We do not undertake any obligations to update any forward-looking treatments discussed today, except as required by law. In addition, during this call, we'll also discuss non-GAAP measures about performance. Definitions of such metrics and the reconciliations to the most directly comparable GAAP financial measures are inserted in the earnings release published on our website earlier today. Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. With that, it's my pleasure to now introduce and hand it over to Megan.

Thank you, Edouard, and good morning, everybody. It's a pleasure to be with you all for our second call together. I'm joining you from the safety of my home in upstate New York, and I hope everyone is staying safe as well. On our call today, I'll cover four key topics. Firstly, how we're adapting to the circumstances of the COVID-19 outbreak. Second, our current assumptions for the business implications of COVID-19 for the rest of 2020. Third, our progress on our four strategic pillars, which I outlined in our last call. Fourth, the latest developments on our online identification plans, in particular around Chrome. And fifth, our strategic and operational priorities for the rest of the year. Let me start by saying that in my first full quarter as CEO, I've been confronted with a very different set of challenges from the ones that I expected when I joined. Still, we tackle the challenges as they come. I'm very proud of our team's agility. I'd like to thank each and every Criteo for their outstanding contribution throughout the early stages of the crisis and to this day. As I indicated during our last earnings call, I'm a firm believer in transparent communication and an open dialogue with all stakeholders. It's therefore my intention to be as clear and helpful as possible today and providing you with the visibility you need on our business during these unusually fluid and challenging times. So my first point, we adapted early and quickly to the circumstances of the COVID outbreak. The safety of our employees has been our immediate and number one priority. We closed all of our offices around the globe before local authorities' requirements. Our policy is safety first, always. At the same time, we focused on business continuity to ensure that all of our operations and R&D functions remained 100% up and running and our associates had all the resources they needed. We quickly put in place a plan in place for supporting our clients, securing our data centres and maintaining our internal processes. I'm pleased to say that today we're operating very smoothly and thanks to tight communications and seamless alignment within and across teams. We're also supporting our clients more than ever during these times. For example, we're providing COVID-related weekly updates about shopping trends across categories and regions. We're assisting clients in trying to identify new revenue opportunities and helping them to adjust their messages in line with the new paradigms. We're working with them to leverage the significant rise in online users to capture new audiences and build customer loyalty for their businesses. We launched several social contribution campaigns to help all those on the front lines. We're assisting people around the world. For example, our technology enables the APHP Foundation in Paris to raise funds in order to improve the working conditions of medical teams and fund research on COVID-19 treatments. We're also running pro bono campaigns for the Ad Council, a nonprofit organization promoting the works of various nonprofit NGOs and U.S. government agencies. Internally, we also immediately applied financial rigor and took incremental measures to control our cost base. I'll talk to that in greater detail in a few minutes. We intend to continue to manage our business in this way during this time. People and safety, operations and clients, cost control and social responsibility. This gets me to my second topic. As early as April 1, we communicated our updated Q1 guidance to the market and exceeded our initial adjusted EBITDA target. Benoit will talk more about this in a few minutes. So for now, let me talk about the potential implications of COVID-19 for Q2 and the rest of 2020. Whilst acknowledging that there are still many moving pieces and we continue to learn more every day, I want to establish that our current forecasting framework is based on the best knowledge we have as of today, April 29th. We started feeling the COVID-19 impact from mid-February on. Different verticals have been impacted differently. Traditionally, our business mix is about 70% retail, 10% travel, 10% classified, and the remaining 10% a collection of verticals including auto, finance, and gaming. Spend and the travel verticals decreased by around 95% compared to pre-COVID-19 levels, while spending classifieds decreased by 40% or more. Retail, by far our biggest vertical, has held up well, with spend reductions in our core solutions limited to about 10%. The impact also varied by client segment, as mid-market clients sustained their spend in more resilient ways than large clients. We saw a healthy 5% increase in our mid-market client base. We also saw different developments in our various geographies related to factors like the time of the outbreak, the restrictions on social life, and the industry mix. And finally, pure online clients have seen less impact than those with a more traditional brick and mortar model. challenged by the temporary closures of their stores. These indicators, along with the other factors, have helped shape our modelling for the remainder of the year. Looking forward, in short, we see a slow recovery out of the crisis with no full return to pre-COVID levels by the end of the year. We've built various scenarios based on a framework with two critical dimensions. Number one, The timing of the trough by business, vertical and geography. And number two, the pace of recovery by vertical and geography. Within these scenarios, we've benchmarked our assumptions against our own data, third party data and against what we learned from our clients about the short and mid-term effects on their businesses. I'll focus now on the projected assumptions that form our mid-case scenario. On the first dimension, the timing of the trough, we assume that our retail client spend has reached its low point in EMEA and APAC that will deepen further in the U.S. until end of June. For travel, we assume that it has already reached its low point and will plateau now until early July. For classifieds, we model a further deepening in the U.S. and APAC namely Japan, and then a plateau until the end of June. On the second dimension, the pace of recovery, we assume that retail will gradually recover in the near over the second half of 2020, aided by government support measures, but will remain weak in the US into Q4. For travel, we've modeled a much slower recovery leading to a still material impact by the end of the year. For classifieds, we see a gradual recovery over the second half. I acknowledge these assumptions carry a lot of uncertainty. There are still many things we don't know today and things are rapidly changing. As a result, we'll intend to update you as we progress throughout the year. Taking all of these considerations into account and as of today, We believe our business in Q2 will decline by 32% to 35% year over year on a revenue extract basis. And from this level, you may see a progressive recovery during the second part of the year. This obviously assumes there isn't another significant wave of COVID-19 outbreak during or after the projected recovery or any unexpected material economic disruption of any kind. In response to the consequences of COVID-19 on our business, we took immediate and meaningful incremental measures to further contain costs. We implemented a strict hiring freeze until further notice. We stopped business travel. We cut marketing spend, events and third party services and further optimized hosting costs. These reductions came in addition to the savings already included in our 2020 guidance provided last February. We intend to further implement cost control measures to right-size our business during this time while maintaining our investment in our product strategy. Now, let's take a look at how we deliver against our strategic pillars which remain in focus. Firstly, our core business remains resilient and shows positive signs. Our retargeting business with large clients has been softer so far, especially in the travel and classifieds verticals, and a function of large clients temporarily reducing spend or pausing campaigns rather than stopping working with us. However, we see the retail vertical holding up much better than other verticals as e-commerce grows due to the crisis. Our mid-market remains resilient in the current circumstances, particularly in retail. and continue to grow in Q1, driven mostly by new clients. Second, we continue to expand our product portfolio. We're excited by the growth and resilience of our new products. Our app install has performed well since the outbreak, growing over 90% in Q1, especially with non-traditional clients. This was close to 45% better than expected. Our app install solutions drives customer acquisitions by having new users install our clients' mobile apps on their devices. If most global consumers are locked down within the confines of their homes and look for entertainment or information or simply want to communicate on their phones, we believe demand for app install may remain high throughout the various innings of the crisis. Another positive is that apps are cookie-less by design and therefore immune to all cookie restrictions. Retail media grows strongly across the board, accelerating to 41% in Q1. As brands benefit from increased consumer use of e-commerce for a broad range of product categories such as webcams, shaving and grooming gear, loungewear and exercise equipment, in Q1 we created a business partnership with Unilever which adds tremendous value for Unilever brands. from both a data insights and resources perspective. We also expanded our business with Carrefour with a huge increase in traffic to their sites and reaction to the COVID outbreak. Our teams enabled Carrefour to effectively address their brand advertisers requests while preserving great customer experience. At a time when e-commerce has become the new normal for consumers, retail media proves not only resilience but counter-cyclical, in particular in the grocery space. For this reason, we believe we offer even higher strategic value to brands and retailers when an online presence becomes critical for brick-and-mortar retailers beyond Amazon. Looking forward, we expect demand for retail media to continue to flourish, and we're excited to launch our new unified retail media platform, expected late in Q2. This platform will combine our various retail media offerings and provide retailer and brands with self-service transparency and control over their full funnel ad campaigns using sponsored products and other rich ad formats. Third, we make good progress with our strategic game changers. As I explained in our Q4 call, we're exploring what we call strategic game changers to accelerate the execution of our strategy. These aim at strengthening our core business and expanding our portfolio with new solutions, especially around best-in-class full-stack DSP. In Q1, we added new partners for audience creation and brand safety, such as Leeds Bridge and Oracle Data Cloud. We expect these partnerships will strengthen our consideration solutions, and I'm excited about our strategic relationship with Nielsen, announced last week. that will allow us to integrate with their digital ad ratings and digital brand effect measurement solutions. We believe offering independent measurement from a global leader like Nielsen will enable our clients to understand the brand lift benefits of their performance campaigns, as well as measure the demographics of consumers they reach across platforms. As we evolve into a full funnel ad tech platform, and align our technology to a broader array of marketing objectives and insights, including CTV, this integration will provide more transparency, flexibility, and performance for brand advertisers. In April, we hired David Fox, our Chief Development Officer, joining from Stellar Labs, whose focus will be on further strengthening our offering through more strategic partnerships. I want to emphasize that in executing our strategy, we prioritize the use of our cash primarily for building and partnering and will remain extremely thoughtful about any potential new M&A going forward. And last, we continue to drive tech and operations excellence across the board. In mid-Q1, I improved the efficiency of our operations by changing the organizational structure. In the current context, we've paused the hiring of most of our new C-suites. Instead, and during this time, our leaders are doubling down. Our search for a new CFO in light of Benoit's previously announced departure at the end of June is still underway. As I said earlier, we took immediate and meaningful measures to further contain costs. Beyond containing our fixed and variable costs, we continue to drive tech excellence and assigned our top employees to the areas and projects. that are key to our roadmap, such as online identification. And that's a good segue to my fourth point, the latest developments in our work to mitigate the risk around Chrome. As you've heard me say before, we're strong believers in user-personalized advertising and its benefits for all participants in the ecosystem, starting with consumers, publishers, and advertisers. In line with our convictions, we've made further progress to move beyond browser control and redefine how consumers can liberate themselves to see personalized, meaningful ads. In doing this, we continue to leverage our direct integration with advertisers and publishers and use their first-party data as a means to create identity solutions for our clients. This first-party data continues to feed our ID graphs increasing both its size and resilience and providing a massive source of identity data. Our graph continues to grow to well over 2 billion users and now aggregates persistent identifiers like hashed emails or logins for over 96% of these users. We're also investing ways to build and support a user ID network around users cookie-less identifiers for advertising, independent of browsers that allow users to manage their consent and preferences. All of this creates a powerful ID spine to help our clients to get the right message to the right person at the right time. With our commitment to supporting consumer choice while protecting their privacy, we're also actively participating in the World Wide Web Consortium with respect to crimes initiatives around cohort-based advertising. And Parallel will continue to entertain a constructive dialogue with Google, both about the consequences of the changes being considered in Chrome, as well as potential opportunities to partner. And this leaves the fifth topic, our priorities for the rest of the year. While things are fast changing around us, we remain proactive, disciplined, and engaged in our strategic and operating priorities. First and foremost, we stay focused on protecting the safety of our people and guaranteeing the best business continuity for our clients and partners. Second, we'll continue to support our clients throughout the crisis and aim to help them maximize opportunities during the recovery phase. Third, we're hyper-focused on managing our cost base and prioritizing our use of cash. Fourth, We'll look to further our industry lead in shaping the future of personalized advertising. And last but not least, we remain dedicated to executing against our product strategy while staying nimble as the landscape unfolds. This includes leveraging our core strength and direct response marketing and our best-in-class performance solutions to help our clients best rebound from these unusual times by driving sales for them. As we head into what's likely a tough recession for the global economy going forward, we believe marketers will increasingly look for valuable, high-return investments that drive sales. A number of industry experts or analysts, including Ratko Vidikovic at Adpros, believe that top-of-funnel budgets like brand awareness are more likely to be cut than direct response. and suggests marketers will prioritize the safer, more measurable, and more accountable channels that are typically direct response. A recent survey from advertisers' perceptions shows that 65% of advertisers say they'll focus more on performance marketing in the COVID-19 context. For this reason, we think our core strength in direct response marketing, as well as our strong client relationships, may prove to be the competitive advantage competitive advantages and helping our customers best recover from these hard times. With that, I'll now hand it over to Benoit to cover our Q1 performance and cost control and liquidity and our financial outlook. Benoit.