Criteo SA (CRTO) 2014 Q1 法說會逐字稿

Good day and welcome to the Criteo Q1 2014 earnings conference call. Today's conference is being recorded and at this time I'd like to turn the conference over to Mr. Edouard Lassalle, Head of IR. Please go ahead, sir.

Thank you, Sarah. Good afternoon and good morning to all of you on our conference call and welcome to Criteo's financial results for the first quarter ended March 31, 2014. Joining us on the call today are JB Rudelle, Criteo's Co-Founder and CEO; and Benoit Fouilland, Chief Financial Officer.

Please note that this call is being broadcast live on our Investor Relations website at ir.criteo.com. A replay of the call, along with the earnings release issued before the US market opening today, will also be available on our Investor Relations website.

Before we begin discussing our earnings, I would like to remind you that some of our discussions today will contain forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion, anticipated market demand or opportunities and other forward-looking statements. As always, these statements are subjected to risk, uncertainties and assumptions.

Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance.

Further information regarding the factors that could affect Criteo's financial results is included in the filings that the Company makes with the Securities & Exchange Commission from time to time, including in the section entitled risk factors in Criteo's prospectus filed with the SEC on March 21, 2014.

Also, I would like to remind you that during the course of this call we will discuss non-IFRS measures about performance. Reconciliations to the most directly comparable IFRS financial measures are provided in the table in the earnings press release published earlier today.

Unless otherwise stated, all comparisons made in the course of this call are against the same period in the prior year and include contributions from the acquisition of Tedemis, closed during the first quarter ended March 31, 2014.

Now, with this in mind, let me turn the call over to JB Rudelle, Criteo's Co-Founder and Chief Executive Officer. JB, the line is all yours.

Thank you, Edouard. I'm very pleased to share our first-quarter results with you today. We closed a record quarter of profitable growth, while exceeding the high end of our guidance, both on revenue ex-TAC and adjusted EBITDA.

In the first quarter, our revenue ex-TAC grew 76% year over year at constant currencies to EUR62.7 million. Our adjusted EBITDA grew 224% year over year at constant currencies to EUR14.5 million.

We continue to strengthen our position as the disruptive global leader in digital performance advertising.

Overall, our strong growth in the quarter was fueled by, one, the continuing broadening of our client base across our geos and market segments; two, increasing our revenue from existing clients by driving more sales from them; and three, our continued strong traction in mobile, growing to 15% of revenue ex-TAC in March from 10% in December 2013 and 2.5% last September.

On our first growth driver, broadening our client base, we added approximately 500 new clients during the first quarter, excluding Tedemis accounts, ending the period with a record of 5,567 clients, representing a 46% year-over-year growth.

As we continue to grow our client base, we see our business increasingly diversified and steadily less dependent on our top 20 clients. In markets where we have established a mid-market presence, our mid-market client base is showing strong growth and we are particularly satisfied with this trend.

In the quarter we continued to maintain our strong client retention rate above 90%, reflecting the stickiness of our solution. As you know, one of the key attributes of our cost-per-click model is its ability to work directly with clients. And in Q1 our proportion of direct client relationships remained very high, at approximately 80%.

In parallel to clients, our direct relationships with publishers also continue to be a healthy growing part of our business. In particular, our Criteo publisher marketplace, targeting mid-market publishers, demonstrates a truly global footprint very similar to the scale of the largest RTB platforms in the world.

In the quarter we also continued to be a very active buyer on the Facebook Exchange in all our markets.

On our second growth driver, revenue from existing clients, we're becoming more important to our clients by generating more sales from them and generating a larger share of their overall sales.

Our clients work with us because of our performance and many of them give us effectively uncapped budgets tied to post-click performance targets. Therefore if we improve performance, we see an immediate improvement in our client's sales and our revenue ex-TAC.

We delivered significant improvements in performance this last quarter and, as a result, generated more clicks and more sales for our clients. Part of this growth was obviously mobile. Then there was also a significant part that came from other technical improvements. This quarter saw continued improvements in our prediction engine performance as well as the rollout of enhanced banner capabilities.

Our third growth driver was mobile. Criteo has now released a complete personalized mobile advertising solution across all leading browsers and app platforms. This is critically important, as our clients are seeing rapid growth in their sales via mobile, especially through tablets. As a result of this solution, Criteo is now generating over $1 billion in post-click mobile sales for our clients on an annualized run rate.

We are seeing significant revenue and sales on mobile browsers from both smartphones and tablets. During this quarter we also announced the beta launch of our solution for mobile apps. We now have an end-to-end performance advertising solution across online, mobile web and mobile apps for both iOS and Android platforms.

Our in-app solution is now live with dozens of clients and we believe it's the first time anyone has delivered individually personalized conversion-optimized deep-linking apps.

Our initial results are extremely encouraging, showing that we can achieve on our clients post-click cost of sales goals and leverage the full capabilities of Criteo performance engine. Where clients have meaningful app traffic, our performance compares closely to what we deliver to them on the desktop.

Our revenue from in-app is not material this quarter and we do not expect it to be in the near term. The vast majority of our clients are only just beginning to launch their own apps. As a result, mobile browser will be the main source of our revenue for the rest of the year.

Now let me update you on our performance by geography.

Starting with the Americas, we continue to build momentum and strengthen our operations in this strategic region. In the quarter, our revenue ex-TAC growth accelerated 4 percentage points at constant currencies from 62% in Q4 last year to 66% in Q1 this year.

Our growth in the Americas in the quarter was primarily driven by continued traction in upselling existing large clients and a continued strong ramp up with mid-market clients where we continue to invest. We also signed new clients in the quarter in the Americas including Crocs, Rent.com and Talbots.

We continue to build our team the US and are very satisfied with the progress we're making.

Now in EMEA. EMEA is a good illustration of how our most established client relationships translate into deeper adoption of our full product offering. Our growth in revenue ex-TAC accelerated 20 percentage points at constant currencies from 46% in previous quarter to 66% in Q1. We are particularly satisfied with our strong performance in the UK, Germany and France in the quarter.

Overall our growth in EMEA was driven by the continued growth in existing client spend and upselling to new products and an acceleration in new large clients, particularly in the UK and in Eastern Europe, and also an acceleration in the mid-market segment across the whole region.

Some of our new client additions in the region included IKEA, Walbusch and Visa.

Finally, we're also pleased with our success in France in verticals outside of retail, such as CPG, financial services and automotive.

Moving now to APAC, Asia Pacific. We continue to enjoy very rapid growth in this strategic region as our revenue ex-TAC increased 120% at constant currency in the quarter, largely driven by our success on mobile.

Our growth in Q1 in APAC was driven by additional new clients across the region, in particular in Korea and in Japan, including NTT Docomo Travel, the addition of quality inventory from new direct publishers and our continued success in mobile, now representing 26% of our revenue ex-TAC in Japan in March, up from 18% in December.

The recent launch of our publisher marketplace in Japan was also very successful, as it already represented over 8% of our revenue ex-TAC there in the quarter.

As you know, we have also significantly deepened our relationship with Yahoo Japan over the past year and we continue to be very satisfied with this partnership.

Overall in APAC we're excited by the opportunity to capture the massive growth potential in this very dynamic region.

As our numbers show, we're off to a good start to 2014. We are also progressing on track on our 2014 growth initiatives and see an opportunity to invest further and accelerate our investments.

Our three priorities for the year are: one, further investing in R&D; two, further broadening our client base; and third, capitalizing on our Tedemis acquisition to expand beyond display.

In R&D we are investing in three core initiatives: the performance of our engine, our full mobile solution and our bidding technology.

Given the impact of our engine improvement in our growth in Q1, we intend to re-double our investment there in order to continue driving higher performance and generate more sales for our clients.

In mobile we plan to increase our investment in our comprehensive solution, including our in-app technology, our product team and our partner ecosystem. We recently also completed the acquisition of a Paris-based company called AdQuantic, adding state-of-the-art bidding technology to our engine; a key area for us. We are excited to bring the very talented engineering team of seven on board in Paris.

With regard to further broadening our client base, our key investments areas in 2014 are one, expanding our mid-market presence; and two, geo expansion.

In mid-market we are growing the team and strengthening our internal processes to capture the very significant opportunity worldwide. We're excited by our good progress there and believe our mid-market business is poised for further growth as our penetration of this huge addressable market is still at a very early stage.

On geo expansion we're making good progress in building the infrastructure and business relationships in China to start operating locally in the coming quarters. In addition, to accommodate our growth teams globally, we are increasing our investment in new facilities and new offices.

Lastly, we're moving beyond display. As you know Criteo has been successful since the start because we were able to disrupt old ways of doing display advertising and replace them with personalized, user-centric advertising, delivered in real time and charged on a cost-per-click.

While Criteo started entirely in display, our clients have been pushing us to expand our user-centric approach across their other marketing channels.

Email is one of the key channels for our clients, as you know. By acquiring Tedemis we are accelerating our plans here since it will allow us to roll out a personalized real-time cost-per-click email product to our clients in our core markets this year and to disrupt this email space.

We are very excited by the quality of the Tedemis team and the great alignment with Criteo culture, Criteo technology and Criteo business model. Furthermore, more than two-thirds of emails are now consumed on mobile devices, so this is also a big boost to our mobile plans.

In the coming quarters we plan to roll out our new email product to the US, French, German and the UK markets, leveraging our existing sales channels and direct relationship with clients on open budgets.

Before closing I'd like to reinforce our five key reasons why we believe we are truly positioned to win.

First, our cost-per-click pricing creates a truly disruptive model in digital performance advertising.

Second, our deep technical integration with our clients gives us privileged access to very large volumes of granular and actionable shopping data at massive scale.

Third, our fully automated end-to-end technology platform is highly powerful and, as you know, highly scalable.

Fourth, our direct relationship with both clients and publishers illustrates how we are differentiated and how our approach is sticky.

Finally, our superior performance combined with volumes deliver a scale on all devices, drive our very high client-retention rate.

We believe these five key differentiators create network effects for our business, allowing us to steadily improve performance, which, given many of our clients have open budgets, automatically generates increased sales for our clients and more revenue ex-TAC for Criteo.

In closing, I'd like to restate that we are very pleased with our record results for the quarter. We are excited about the progress we are making on our strategy to build a global multichannel performance marketing platform. We have an enormous market opportunity ahead of us. We are focused on executing on all our growth strategies and accelerating our investments to realize our full potential. I really look forward to updating you on our progress and activities all around the year.

With that, let me turn the call over to Benoit, our CFO.

Thank you, JB. I'm also delighted to report another solid quarter today. I will walk you through our quarterly financial performance in detail, including the contribution of Tedemis, as well as our guidance for the second quarter of FY2014. I will then open the call to your questions.

We had a record first quarter of profitable growth, which exceeded our revenue ex-TAC and adjusted EBITDA expectations.

Let me start with our revenue for the quarter, which increased 61%, or 68% at constant currency, to EUR152.5 million compared with EUR94.9 million in the first quarter 2013.

As in previous quarters, our revenue performance reflects our continued focus on expanding our business across our geographies as we leverage our scale.

In the Americas our Q1 revenue grew 50%, or 62% at constant currency, to EUR37.6 million. In EMEA Q1 revenue increased 54%, or 54% at constant currencies, to EUR83.9 million. In Asia Pacific our Q1 revenue increased 101% year over year, or 131% at constant currency, to EUR31 million.

As we have repeated in the past, while we view revenue as a useful indicator of our actual client spend, we consider revenue ex-TAC, or revenue excluding the traffic acquisition cost paid to our publishers, as the key financial measure to evaluate and monitor our business performance.

Our global revenue ex-TAC grew 68%, or 76% at constant currency, to EUR62.7 million in the first quarter, compared with EUR37.3 million in the first quarter 2013.

Our revenue ex-TAC margin in the quarter was at 41.1%, consistent with recent quarters and increasing 1.8 percentage points over Q1 2013. Looking at our revenue ex-TAC performance from a geographic standpoint, in the Americas Q1 revenue ex-TAC grew 54%, or 66% at constant currency, to EUR14.7 million. In EMEA our revenue ex-TAC growth accelerated from 45% in Q4 2013 to 67%, or 66% at constant currency, in Q1 to reach EUR35.3 million. In Asia Pacific Q1 revenue ex-TAC increased 93%, or 120% at constant currency, to EUR12.7 million.

Before I discuss our profitability, let me say a few words on the impact of foreign currencies in the quarter.

Overall, foreign exchange had an approximately 8 percentage point negative impact on both revenue and revenue ex-TAC growth in the first quarter.

The main currencies contributing to this headwind included the Japanese yen for 56% of the total impact, the Brazilian real for 25% of the total impact and the US dollar for 16% of the total headwind impact, while the British pound had a slight positive tailwind impact in the quarter.

Moving on to the profitability of our operations. We increased Q1 adjusted EBITDA by 218% year over year, or 224% at constant currency, to EUR14.5 million in the first quarter compared with EUR4.6 million in Q1 2013. This strong increase in our adjusted EBITDA is principally the result of our strong performance in revenue ex-TAC in the quarter.

Offsetting this positive impact, we recorded some non-recurring transaction expenses in the quarter related to the Tedemis acquisition, on one hand, and to our follow-on equity offering on the other hand for a combined amount of approximately EUR1.1 million.

We also incurred a slightly higher run rate in operating expenses than expected. These additional operating expenses relate to accelerated investments we decided to make to capture our current and future growth opportunities.

Looking now at our expense in greater details for the quarter. Hosting and data cost increased modestly by 9% to EUR4.1 million in Q1, excluding depreciation and amortization. As we noted last quarter, we are starting to capture some incremental economies of scale from the investment in our own equipment. We plan to continue investing in our hosting infrastructure to support our current and anticipated future growth.

Our Q1 operating expenses increased 58% to EUR49.1 million. Excluding the impact of share-based compensation, pension costs, depreciation and amortization and acquisition-related deferred price consideration, which we refer to as non-IFRS basis, our operating expenses increased 52% to EUR44.1 million in the first quarter.

Our year-over-year increase in operating expenses was fairly balanced across our three main functions in the quarter -- research and development, sales and operations and G&A -- as we continued to scale the whole Criteo organization to support our growing business.

Our global headcount grew organically by 115 heads since the end of December 2013 and by 46 due to the acquisition of Tedemis, to a total permanent employees of 971 at the end of March 2014.

Looking now at our operating expenses by function, research and development expenses increased 47% year over year to EUR8.5 million in Q1 on a non-IFRS basis, largely driven by headcount increase to 202 employees at the end of Q1 2014.

As we further develop our technology platform and enrich our product portfolio, we plan on continuing to invest in additional R&D talent during the year, particularly around our engine performance, our full mobile offering and our bidding technology.

Non-IFRS expenses in sales and operations increased 50% to EUR24.7 million in Q1 2014, also largely driven by headcount increase to 570 employees at the end of the quarter as we grew sales and account management teams in all of our regions, in particular in our mid-market organization.

As a percentage of revenue, our non-IFRS sales and operations expenses decreased by 1.1 percentage points over the period to 16% in the first quarter.

While this incremental operating leverage is a positive achievement, we intend to continue investing significantly in sales and operations in the current year, particularly in mid-market teams and in sales-related headcount in new geographies. We also plan to invest in new facilities to accommodate our growing teams globally.

Finally, our non-IFRS expenses in general and administrative in the first quarter increased by 62% to EUR10.8 million. Our headcount in G&A increased to 153 at the end of March 2014, primarily in our HR and IT organizations to support our various growth initiatives.

Our non-IFRS G&A expenses also included approximately EUR0.5 million of one-off expenses in the quarter in relation to the Tedemis acquisition and our equity follow-on offering.

Now, talking about the Tedemis contribution in the quarter, we have consolidated Tedemis operation from February 20 to March 31, 2014. Over the period, Tedemis generated EUR0.7 million in revenue ex-TAC and a negative adjusted EBITDA of approximately EUR0.9 million, including transaction-related expenses.

With Tedemis, we are adding 46 permanent headcount. We expect Tedemis to be accretive to Criteo EBITDA in 2015. We do not intend to disclose isolated financial contribution from Tedemis in the future.

With regards to AdQuantic, we view this addition typically as an "acqui-hire" where we are onboarding a very talented R&D team in bidding technology. As a result, we do not expect any revenue contribution from AdQuantic this year and, as JB discussed earlier, we intend to incur additional R&D investments in relation to the development of our bidding technology.

Moving on to our cash generation for the quarter, our cash flow from operating activities increased by 149% to EUR11.4 million compared with EUR4.6 million in Q1 2013.

Our CapEx increased 52% year over year to EUR3.8 million in the first quarter, primarily as a result of our continued investment in hosting infrastructure.

Our free cash flow was EUR7.7 million in Q1, growing by 266% year over year. This represents a 53% conversion of adjusted EBITDA into free cash flow and demonstrates the robustness and scalability of our financial model.

Total cash, cash equivalents and short-term investments were at EUR242 million at the end of March 2014, representing a EUR7 million increase compared with December 31, 2013.

This is primarily the result of our free cash flow generation in the quarter and the EUR16.4 million net proceeds from the primary portion of our equity follow-on offering in March, offset by the EUR17 million cash consideration paid for the acquisition of Tedemis in February.

I will now wrap up with our thoughts regarding our guidance.

I'll remind you that the following forward-looking statements reflect our expectation as of today, May 6, 2014. This outlook includes the contribution of Tedemis over the corresponding periods.

For the second quarter 2014, revenue ex-TAC is expected to be between EUR61.5 million and EUR63.5 million. Also for the second quarter 2014, adjusted EBITDA is expected to be between EUR6.5 million and EUR8.5 million.

For the fiscal year 2014, revenue ex-TAC is expected to be between EUR265 million and EUR271 million, including approximately EUR8 million for Tedemis. This represents a EUR20 million increase compared with our prior guidance.

This revenue ex-TAC range represents a 54% year-over-year growth at constant currency at the mid-point of the range. Foreign exchange is expected to have a negative impact of approximately EUR8 million, including approximately EUR3.5 million incremental headwind when compared to our previous guidance.

Also for the fiscal year 2014, adjusted EBITDA is expected to be between EUR47 million and EUR51 million.

This range is unchanged compared to our prior guidance, despite a negative contribution of approximately EUR4 million from acquisitions after transaction-related expenses, respectively EUR3 million for Tedemis and EUR1 million from AdQuantic, and a negative impact from foreign exchange of approximately EUR4 million, including EUR1 million incremental headwind when compared to our previous guidance.

As a reminder, we expect operation from Tedemis to be accretive to adjusted EBITDA in 2015.

As a result of our increased investments, we expect our adjusted EBITDA generation in Q3 2014 to be consistent with Q2 2014 and to accelerate significantly in the fourth quarter of the year.

This guidance assumes the following estimated foreign currency exchange rates: a euro-USD exchange rate of $1.38; a euro-Japanese yen exchange rate of JPY140; a euro-British pound exchange rate of GBP0.84; and a euro-Brazilian real exchange rate of BRL3.3.

This guidance also assumes no [additional] (corrected by company after the call) business acquisition during the quarter ending June 30, 2014 or during the fiscal year ending December 31, 2014.

Before closing, I want to re-emphasize that 2014 is another exciting year for Criteo; a year when we will accelerate our investments across all of our growth initiatives, particularly in further strengthening our technology and product portfolio and broadening our client base across geographies and market segments.

As our 2014 financial guidance indicates, we are pleased to reinvest our incremental revenue ex-TAC into our various exciting strategic initiatives to accelerate growth.

In closing, we have entered 2014 with strong positive momentum and I'm very pleased with the strength of our business and growth prospects. We have a very large market opportunity ahead of us and we are only just beginning to roll out our new products across new screens and new marketing channels.

I look forward to continue building long-term trust with our public investors and sharing our profitable growth story every quarter as we continue to realize our full potential.

With that, I'll turn the call back to the operator now to take your questions.

(Operator Instructions). Richard Fetyko, ABR Investment Strategy.

First on the sales hiring, I'm just curious how many sales people you plan to add this year versus last year.

And then I'm curious on the mid-market sales particularly. As a percentage of total revenues, where do we stand now perhaps versus last year?

So with respect to our total sales people, as I said in the call, we have in sales and operations -- our total headcount in sales and operations is 570 people at the end of the quarter.

As part of the 570 people, you have roughly 250 people who are directly involved in sales and we are planning to continue to invest in building that team in new geographies and in the mid-market throughout the year, keeping in mind that we've been adding organically 115 newcomers into the headcount, excluding the impact of Tedemis, during the quarter.

With respect to MMS, or mid-market sales as we call it internally, we currently generate globally 25% approximately of our revenues ex-TAC from the mid-market. And the level of growth that we are experiencing in mid markets, as we roll out this approach in our wider geographies, is a level of growth which is significantly higher than the growth of the total business at this stage as we are rolling out this new approach.

And can you give us just some sense of which markets and geographies you've rolled out in? And which ones are ahead of the pack versus which ones are (multiple speakers) --?

I can give you a sense here. We started to roll out successfully the mid-market sales approach in Europe first, out of London, where we're sitting today, covering all of the key European markets.

And we've expanded that approach starting in 2012 in the US and have been growing significantly the US team, covering all of the US out of Boston. And we have more recently started out of Tokyo to implement also the same approach in Asia. So that's roughly the coverage we have today.

Right. Thank you.

Doug Anmuth, JPMorgan.

I just wanted to ask a few things. First on Tedemis, if you could just talk about the opportunity more there, how you think about the characteristics of the email business relative to display in terms of open budgets. If you're building work directly with clients and are you talking about the same clients in most cases?

And then secondly on mobile, good to see that it's up to 15% but can you talk more about what you need to do to move this over from browser based towards apps as you go through this year and into 2015? Thanks.

So first on email. Email as you know is a huge market by itself and it has its own ecosystem. We have decided to enter the email because we can do it the Criteo way, meaning we can apply the same success factors that made us successful in this way, which was primarily the disruptive business model, the cost-per-click model, where we buy the inventory, in this case email inventory on a CPM [basis] (corrected by company after the call) and we charge clients only when there is a click in the email. And the click-through rates in emails are very, very high and thus the conversion rates are very strong also.

So this is why we were really very excited by Tedemis because they really had replicated exactly the Criteo model. Today, it's a much lower scale because it's purely in France but we should be able to leverage our direct relationships in all our countries to expand the model.

So really the idea is that we are not selling to a new type of clients. It's a product to upsell our existing client base.

Regarding your second question on apps, we have a fully functional product and, as we said, with clients that have already significant app traffic it performs very, very well in a very consistent way to other channels.

There is one thing which is, I would say, today limiting a little bit the expansion of our in-app business is the maturity of our own clients with apps. A number of our clients either they don't have apps or their app is very new and they're still really in the ramp-up phase, so we're helping them to expand in this area. But it's going to take some time and we have to grow at the same pace as our own clients.

But we believe that investing ahead of the curve, having a fully functional solution, even if for some of our clients they don't have the app to use it, is very important to position ourselves as a true multichannel global solution.

Thank you.

Ross Sandler, Deutsche Bank.

I had three questions. I guess I'll just go one at a time. I guess the first two would be financial. So the net revenue or revenue ex-TAC to gross net revenue margin in EMEA and America has both increased year on year and that's contrary to what you guys expected from back in the IPO road show.

So can you just talk about what's driving that? You've got a mix shift towards mobile, towards Facebook and towards middle markets. Which one of those is driving up the revenue ex-TAC margin?

In fact I would not characterize this as the major, I would say, event of the quarter, because if you look, in fact, the 41.1% is very consistent with what we have experienced over the last three quarters. We have indicated at the time of the IPO that 39% to 41% was the range that we were pretty comfortable with. So we are within that range.

So there is nothing major to highlight in that respect that would explain a change. In fact, we have been quite stable in terms of margin, if you compare to the prior quarters.

Okay, got it. And then on the Asia business, can you guys give us a little bit of color on what's driving the growth in mobile? Is it fairly broad based across your core retail and travel customers? Or are you also participating in some of the rapidly growing mobile gaming categories as well?

So your question is about mobile in APAC?

Yes, where's the growth coming from? Is it just your core incumbent verticals or is it some of these newer categories that have cropped up?

I would say APAC being probably the most recent region for us, there is still enormous growth in our core retail categories and so probably there was less focus of the team on new segments, new verticals and more focus on retail.

There is especially strong growth in APAC on mobile. As you've seen now, Japan is above 25% of our business now is mobile and Japan is a very big business for us. So this is really to illustrate how big as a growth driver mobile can be for us.

Good, that's helpful. And then the last one is on the AdQuantic acquisition. So this is a small talent-driven acquisition, but these guys are, from what I understand, a search bid management tool provider.

So, I guess, can you just talk about the strategic rationale? Is this about the data, potentially their customer list, their engineering prowess? Do you view search engine marketing as a potential new revenue area outside of display re targeting?

Well, what we see is that what they've developed for search is something which has potentially very broad applications and the logic of the bidding is really additive to our own R&D, the guys are extremely talented.

And, as we are also expanding our R&D team, we thought we could combine two things by accelerating R&D hiring with this acquirer and, at the same time, bringing a technology which is additive to our own. And we believe there is still a lot of leverage and a lot of upside we can gain purely on the engine piece of our technology. And what they develop is very complementary.

It's going to take several months or several quarters really to integrate this into our platform, so you won't see the benefit overnight. But, once more, as we're committed for the long term, we think that in 2015 we should start to see the benefit of this AdQuantic acquisition in our numbers.

Thanks, guys.

Brian Pitz, Jefferies.

Just a couple of questions. First a follow on to mobile questions. How are you guys thinking about Facebook's new mobile FAN ad network? I know you said you've done a lot of business through FBX already. I'd like to get your sense on how that's going to work out.

And then just a question on uncapped budgets. With over 70% of revenue ex-TAC from uncapped budgets, what is the essentially limiting factor in terms of tapping those budgets even deeper? And how has that number trended over time, if you could give us some context? Thanks.

Let me take the one on Facebook. So, as you know, all our Facebook business today is on the desktop and we haven't gotten into the mobile inventory yet.

The technical setup is a bit more complex because it's in apps, as you know, Facebook, when it comes to mobile and not mobile browser, so it adds a new layer of complexity.

Other than that, when it comes to Facebook, it's specific and they have specific technical settings of their own. So we are now working onto this area. So it would take a little more time to be live on the mobile piece of Facebook. But, overall, we are really confident that Facebook is going to be a very strategic partner for us in the long run.

Yes and just talking about the open budgets, we are seeing the share of our revenue ex-TAC generated from open budget pretty stable, just above 70%. So it's a major portion of our revenue that is generated out of open budgets.

And what we see here is clearly an opportunity when we bring new products like emails to tap into those budgets as we are pushing through our existing sales force, leveraging on our existing relationships in the core markets where we want to push in this here.

We are definitely going to leverage that critical capability we have to work on open budget and generate 70% plus of our revenue from open budgets.

Got it. And just really quick on the guidance. You're taking up revenue by quite a bit and maintaining EBITDA, obviously investing more heavily in R&D and sales and ops. Any other additional color you could give us in terms of investment specifics? Thanks.

So, as you noted, in fact we are maintaining our EBITDA guidance despite obviously the impact of the acquisition, but also you've noted that we are incurring some significant incremental headwind from FX.

So the area of investment that has been highlighted very much by JB is that we are going to invest into R&D, continuing to accelerate our investment in R&D and obviously AdQuantic is one illustration of that. But beyond the impact of the acquisition we are going to continue to invest in R&D to make sure that we support this accelerated growth.

And also we are making significant infrastructure investments, particularly in facilities, where we are growing our facilities in several locations, in our largest locations in Paris and in London, in particular. And we are also going to continue to increase our investment in sales and operations in the MMS, mid-market sales, that we just talked about, as well as, obviously, supporting the roll out in the new geographies.

Great, thanks.

(Operator Instructions). Ralph Schackart, William Blair.

If you look at revenue ex-TAC America, it follows the seasonal pattern we would have expected. However, Europe is very strong at 20-plus-% growth sequentially. I guess the first question is why the big growth differences?

And then, as a follow up, maybe just on Europe in particular. You had four quarters of accelerating growth. Any color or context in terms of why you're seeing such strong growth there? And maybe you could talk about some products you released in Europe and if those products will eventually be brought to other regions. Thank you.

So yes, US has been accelerating this quarter, so this is something we are really satisfied and it's clearly a big focus for us. And what is really nice is it's coming from a combination of growth in client spend, of MMS, which is, as Benoit mentioned, a big investment for us, especially in Boston, and there is also a lot of new clients coming in. So this is obviously very, very important for us.

When it comes to Europe, I think there are combinations of different things. And we have a strong position in Europe where there is a new dynamic where, with the visibility we have now as a public company, there are a lot of new doors opening. And we had a lot of very strong wins in Germany and in the UK with new clients that before were closed to us. And now they are opening the door because we are recognized as a much more properly established company.

And in Europe some clients tend to be perhaps a bit more conservative and working with a more established company is something that might be important for more traditional players than in other regions.

One of the reasons why, with our increasing visibility in Europe, there is this kind of a snowball effect, which is driving the whole business up.

And we see the combination of this with all of what we mentioned regarding our new product suite creates a very strong momentum.

There is a further momentum in specifically to Q1 for Europe, which is linked to those new client sales, especially in France and in the UK, which creates also a booster in those regions in Q1.

Great. Thank you.

Deb Schwartz, Goldman Sachs.

Two questions. The first one is, I wonder if you could just give us a bit more color on what you're seeing on revenue per advertiser, given the fact that you've been adding a lot of mid-market clients. If you could talk through what you're seeing from some of your larger, more established clients?

And then, secondly, any major publisher deals that you've signed in the quarter? And if you could give us a sense of what your inventory mix is from direct publishers versus RTB would be helpful.

So maybe first on the dynamics with respect to particularly the business from our larger clients, that we continue to see an increased contribution of our larger clients. So our large clients are continuing to increase their spend as we bring more opportunity to them, bringing more product to them, and that validates the strength of our model.

So if you look at our overall revenue ex-TAC per client, we have a very nice evolution there, which is driven by the large customers, the large clients. And, as we are adding obviously small clients, there is a dilutive effect that you see on more of the lower parts of the clients because they come, obviously, at a lower spend but at a lower cost of service, obviously.

With respect to -- can you repeat your second question?

It was just a question on whether or not there are any major publisher deals worth calling out in the quarter and then if you could give a sense of what your inventory mix is between RTB and direct.

Just to clarify, we buy everything in real time. So when you say RTB real-time buying we -- the distinction we make is between what we call public exchanges, which is the inventory available for anyone, just plug in to the main exchange of the market, from the one where we have a direct privileged relationship with publishers with most often either first look or better access to inventory than [when we go through exchanges] (corrected by company after the call).

So it's fairly balanced, those two sorts of traffic, and we've been growing the two in a fairly balanced way.

And what I would add is we have these direct relationships through our PuMP platform, so our direct platform for the publisher marketplace. So for small publishers that we've added, we've added a significant number of publishers on that platform, it goes to 600 that we've added during the quarter. So continuing to develop that platform.

And we see a mix between exchange versus direct relationship which is close to the 60%/40%,which is a slight evolution compared to prior quarters but very similar in term of pattern.

It's quite remarkable that, building on our [Publisher Marketplace platform, which our publisher marketplace, we have more than 6,000] (corrected by company after the call) publishers on this marketplace and all aggregated, this is bigger than most exchanges on the market.

So the specific asset of us, which is really, truly unique, is really a remarkable scale where very few players have been achieving it and for some of them it's their unique business. For us, it's just a fraction of our business but it's very meaningfully done of absolute [size].

Thank you very much. I think we are getting to the end of this call. Thank you very much to all of you and especially the ones for which it is very early in the morning. I'm looking forward to update you next quarter. Thank you.

Thank you, sir. That will conclude today's conference call. Thanks for your participation, ladies and gentlemen. You may now disconnect.