Criteo SA (CRTO) 2014 Q2 法說會逐字稿

Good day, and welcome to the Criteo Q2 2014 earnings conference call. Today's conference is being recorded. Please be advised that the media will be partaking in today's call on a listen-only mode. At this time, I'd like to turn the conference over to Edouard Lassalle, Head of IR. Please go ahead, sir.

Thank you, Leon. Good afternoon to all of you, and welcome to Criteo's financial results for the second quarter ended June 30th, 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 after the close of the US market 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.

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 tables 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.

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 delighted to share our second quarter results with all of you today. We closed another record quarter of profitable growth, while exceeding the high end of our guidance, both on revenue ex-TAC and adjusted EBITDA.

In the second quarter, our revenue ex-TAC increased 72% year over year at constant currency to EUR67 million. At the same time, we grew adjusted EBITDA from EUR0.7 million in Q2 last year to EUR13.2 million in Q2 this year, an increase of more than 15X.

Overall, we continue to strengthen our position as the performance advertising technology company. Our solid performance in the second quarter was driven by three big trends.

First, we further improved the performance delivered by our technology, in particular the performance of our engine and our mobile solutions. Second, we continued to grow our clients and significantly accelerated our acquisition of mid-market clients. Third, we delivered strong execution across the board in all geos.

Our business rests on direct relationships with advertisers who pay us based on the measurable per-click performance we deliver. The big trends of better performance combined with broader and deeper relationships as well as focus on business execution, drove our success in the quarter.

In parallel to the 72% growth in revenue ex-TAC compared to last year, we grew per-click sales for our clients by 88%, illustrating the acceleration of value delivered to clients by our products during the period.

As these quarter results indicate, our recurring investments in improving our technology are paying off. And we've made significant progress on rolling out our product sets. Earlier this year, we announced a major breakthrough to our core underlying technology the Criteo Engine. This is based on three years of extensive R&D in analyzing actual purchase behavior from billions of impressions, users, and clicks.

The new technology enables Criteo to decide [whenever] to buy each ad impression based on the likelihood that the user will purchase on the advertiser's side. As a result, this new version of our engine delivers a significantly increase in per-click sales at the same ROI target as before this improvement.

By the end of Q2, we had to roll out this new technology to approximately 60% of our clients. Optimizing on conversion is a very significant step. And we believe there is still a lot of opportunity to further improve the performance of our engine.

Turning to Criteo products, in mobile, we are very pleased with the continued momentum in our performance advertising solution on all screens and leading browsers. We announced the full release of our complete mobile solution this April, including a full solution not only for Android, but also Apple devices.

Mobile is now a very significant part of our business, as evidenced by the impact of this momentum on our volumes and financial numbers. We are proud to announce that, in the second quarter, we sold personalized mobile ads for 69% of our client base.

Our in-app advertising business remains in beta but continues to scale, driven by our AD-X tracking solution. In the second quarter of this year, AD-X tracked over 540 million app installs and 1.8 billion clicks with many of the largest in-app marketers globally.

There's a lot of work ongoing with the engine to take full advantage of the mobile data that we now collect based on the large scale of our mobile solution.

After the first quarter operation for our Criteo e-mail solution, we are pleased with the integration process within the Criteo platform. And the rollout of teams is going as planned. Overall, we're excited about the potential of e-mail marketing to enhance our product set and add incremental business from existing as well as new clients.

As a result of our focus on improving the performance of our technology and developing a robust product set, our business from existing clients increasingly contributes to our growth. More than 35% of our year-over-year growth in the quarter comes from increased spending by existing clients. This is true in all regions, especially in the Americas.

In addition, our clients that were already live in Q2 last year generated 24% more revenue ex-TAC for us in Q2 this year. We have maintained a very high share of revenue ex-TAC coming from [uncapped] budget to 75% despite our continued growth in a number of our clients.

As you know, uncapped budgets represent a situation where our client's budget or other [unconstraints] are so large that the constraint doesn't restrict ability to buy inventory. We believe this creates a strong demand elasticity that significantly contributes to the scalability of our model.

Moving to our second growth driver, our continued client growth, we added 564 new clients in the second quarter, ending the period with a record of 6,131 clients, growing 43% year over year. We also maintain a strong client retention rate above 90% and our proportion of direct client relationships above 80%.

We are particularly excited by the strong success in mid-market this quarter, where our growth accelerated as we continue to invest to capture this tremendous market opportunity.

As a reminder, we define mid-market in a given territory as any account outside the top 100 to top 200 advertisers in our core verticals. We, therefore, see a truly massive potential in mid-market worldwide.

In the second quarter, our revenue ex-TAC growth in mid-market accelerated to approximately 100% year over year in the US and Europe. We are very pleased with this continued strong performance and plan on continuing to invest in this promising market segment.

In particular, our cost-to-serve model in the mid-markets using an office-based inside system, industrial processes, and tools, and an automated onboarding platform for clients make it a very effective and scalable model.

On the supply side of our business, publishers are increasingly willing to work directly with us. In the second quarter, we added over 513 new publishers, driving a record total of more than 7,700 direct relationships with publishers at the end of June. This is driven by a combination of continued growth of our marketplace for mid-market publishers as well as partnering with new premium publishers.

Our third growth drivers this quarter was a strong execution across the board in all geographies. We have built a strong leadership team in all our key regions with a big focus on execution. This driven discipline on commercial targets had led all regions to grow between 60% and 100% at constant currencies this quarter compared to Q2 last year.

So, now, let me present our specific performance by geography.

Starting with the Americas, we continue to build momentum in the quarter. As a matter of fact, for the second consecutive quarter, our year-over-year growth in revenue ex-TAC accelerated in this region. From 62% in Q4 last year and 66% in Q1 2014, our growth has accelerated to 78% at constant currency in Q2.

Our performance in the Americas was driven by the continued strong traction in new product adoption by clients as well as the continued strong ramp up of mid-market clients. We also signed some new large clients in the quarter, including Orvis and Party City.

Moving now to EMEA, we continue to see strong core traction across all markets. During the quarter, we maintained a very robust revenue of ex-TAC growth of 60% year over year at constant currency. Our performance, while driven by a combination of, one, new large clients, two, a continued growth in mid-market, and three, increasing spend by existing clients.

New client additions in the region were diversified across all verticals, including some big brands such as ING, the bank, PayPal, or Samsung. In parallel, our mid-market client base continued to ramp up very nicely during the period.

Along with the new Criteo Engine, new product like mobile and (inaudible) continue to drive incremental spend from existing clients.

Moving to Asia-Pacific, we continue to enjoy a very fast pace of growth in this region, with revenue ex-TAC growing 100% year over year. Our very strong growth in the region, while driven by continued contribution from new clients in every market, including Japan, as well as new products, in particular mobile. Some of our client additions in this region including AB Road and music.jp.

Overall, in APAC, we remain very excited by the opportunity to capture incremental growth throughout this fast market region.

Before turning to our priorities for the second half of the year, I would like also to cover some updates related news to our senior leadership. Greg Coleman, who has been our President, will now focus on his nonexecutive role on the Criteo Advisory Board, where the Company will continue to benefit from his deep industry insights. In his advisory role, Greg will continue to contribute to the strategic direction of the Company and help build client relationships based on his extensive experience.

Eric Eichmann, our Chief Operating Officer, will take on expanded duties and become President and CEO -- and COO. His breadth of experience in the industry combined with deep understanding of the business will help Criteo navigate in a rapidly evolving market, while also driving growth and innovation.

As we think about the future, we plan to focus on four priorities in the second half of the year, one, continue driving performance for clients through enhanced technology and products; two, further expand beyond this [platformat], in particular e-mail marketing; three, accelerate our mid-market growth and continue growing large clients in all regions; and four, continue to invest in our hiring capacity, hosting infrastructures, and facilities.

Before closing, I'd like to reinforce the five key reasons why we believe we're in a position to win and win big. First, our cost-per-click pricing creates a truly disruptive model in performance advertising. Second, deep tech integration with our clients give 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 proving to be truly [powerful] and highly scalable. Fourth, our direct relationships, both with clients and publishers, demonstrate the strength of our model and stickiness of our solution, as you have seen in our numbers.

Finally, our superb performance combined with large volumes delivered on all devices and screens drive a high client retention and expansion of our revenues for existing clients. We believe these five key differentiators create network effects for our business, allowing us to steadily improve performance.

Given the majority of our clients have uncapped budgets, this automatically generates increased sales for our clients and more revenues ex-TAC for Criteo and more leverage for our business.

In closing, I'd like to restate we are pleased with our record quarters of profitable growth driven by focused execution across all aspects of our business. We are very satisfied with the progress we are making on our strategy to build a global multichannel performance marketing platform.

We continue to see enormous market opportunity ahead of us and are largely focused on execution on our growth initiatives and investing smartly to realize our full potential.

I look forward to updating you on our many developments as we continue to progress through the year. This said, with that, let me turn the call over to Benoit, our Chief Financial Officer.

Thank you, JB. I'm also very pleased to report another strong quarter today. I will walk you through our quarterly financial performance in detail as well as our guidance for the third quarter and full year 2014. I will then open up the call to your questions.

We delivered another quarter, record 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 66%, or 72% at constant currency, to EUR165.3 million compared with EUR99.4 million in the second quarter 2013.

In the Americas, our Q2 revenue grew 63%, or 73% at constant currencies, to EUR46.9 million. In EMEA, Q2 revenue increased 58%, or 57% at constant currency, to EUR84.2 million. In Asia-Pacific, our Q2 revenue increased 99% year over year, or 114% at constant currency, to EUR34.2 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 publisher, as a key financial measure to evaluate and monitor our business performance.

As JB highlighted, our strong performance in the second quarter reflects our continued technology improvements, our success in growing our client base, and our focused execution across all geographies.

Our global revenue ex-TAC grew 67%, or 72% at constant currency, to EUR67 million in the second quarter, compared with EUR40 million in the second quarter 2013. Our revenue ex-TAC margin in the quarter was at 40.5%, consistent with recent quarters and increasing 0.2 percentage points over Q2 last year.

Looking at our revenue ex-TAC performance from a geo standpoint, in the Americas, our revenue ex-TAC growth accelerated from 66% in Q1 to 78% in Q2 at constant currency to EUR18.6 million. In EMEA, our revenue ex-TAC grew 61% or 60% at constant currency to reach EUR35.1 million. In Asia-Pacific, Q2 revenue ex-TAC increased 88%, or 100% at constant currency, to EUR13.3 million.

Before I discuss our profitability, I'll just say a few words on the impact of foreign currency in the quarter.

Overall, foreign exchange in the second quarter had a negative impact of approximately 5 percentage points on our revenue ex-TAC. The main currency contributing to this headwind included the Japanese yen for 44% of the total impact, the US dollar for 38% of the total impact, and the Brazilian real for 24% of the total impact, while the British pound continued to have a positive tailwind impact in the quarter.

Foreign currency had no impact on our total adjusted EBITDA in the quarter.

Moving onto the profitability of our operations, we grew Q2 adjusted EBITDA by EUR12.6 million year over year to EUR12.6 million -- or EUR12.6 million at constant currency to EUR13.2 million in the second quarter compared with an adjusted EBITDA of EUR0.7 million in Q2 last year.

This strong increase in adjusted EBITDA is principally the result of our strong revenue ex-TAC performance in the quarter. In addition, some favorable exceptional items, amounting to a total of approximately EUR1.7 million, also contributed to this growth, including primarily an increase in R&D tax credit to be recognized in 2014, partially offset by our continued investment in the quarter.

As a reminder, we had significant exceptional items that negatively impacted our adjusted EBITDA in Q2 last year. Adjusting for the exceptional items in both periods, our adjusted EBITDA grew 264% or EUR8.3 million year over year from EUR3.2 million in Q2 last year to EUR11.5 million in Q2 this year.

Looking now at our expense in greater detail for the quarter, hosting and data cost increased by 19.3% to EUR4.7 million in Q2, excluding depreciation and amortization. As we noted in previous quarters, we continue to see some economies of scale from the investing in our own equipment. We plan to continue investing in our own servers and hosting equipment to support our current and anticipated future growth.

Our Q2 operating expense increased 44% to EUR53.7 million as we continued to scale the old Criteo organization to support our growing business. Excluding the impact of share-based compensation, pension costs, depreciation and amortization, and acquisition-related deferred price consideration, which we reference as operating expenses on a non-IFRS basis, our operating expenses increased 39% to EUR49.1 million in the second quarter.

Our global headcount grew by 187 since the end of March to a total of 1,112 employees at the end of June, including the addition of the Tedemis and AdQuantic teams.

Looking at our operating expenses by function, research and development expenses increased 38% year over year on a non-IFRS basis to EUR9 million in Q2, largely driven by headcount increase to 226 employees at the end of the quarter.

Adjusting for the EUR1 million increase in R&D tax credit that favorably impacted our expenses this quarter, our non-IFRS operating expenses in R&D increased 53% year over year in the second quarter.

As we further enhance 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 and our full mobile offering, including in-app.

Non-IFRS operating expenses in sales and operation increased 32% to EUR29.1 million in Q2 2014, also largely driven by headcount increase to 701 employees at the end of the quarter. As in the previous quarter, we continued to grow sales and account management teams in all of our regions, in particular in our mid-market organization.

We intend to further accelerate our investment in the current year, particularly in our mid-market teams and sales-related headcount in new geographies. We also plan to continue investing in new facilities to accommodate our growing teams globally.

Finally, our non-IFRS operating expenses in general and administrative in the second quarter increased by 60% to EUR11 million, while our G&A headcount grew to 185 at the end of June 2014. This was primarily driven by an increase in operating expenses associated with our public company life, a ramp up in our HR teams to fulfill our ambitious recruitment plan, the continued strengthening of our IT infrastructure.

Adjusting for exceptional items that favorably impacted adjusted EBITDA in the quarter, over 86% of our revenue ex-TAC overachievement this quarter flowed through to adjusted EBITDA. We reiterate our plan to continue investing in 2014 to support our current and future growth.

Moving onto our cash generation for the quarter, our cash flow from operating activities increased by 170% to EUR11.2 million compared with EUR4.1 million in Q2 last year [by] the negative change in working capital quarter.

Our CapEx increased 59% year over year to EUR10.5 million in the second quarter, primarily as a result of our continued investment in datacenter equipment, internal IT, and facilities. In line with our plans, our CapEx program accelerated in Q2 compared with the prior quarter, in particular in facilities, and we continue to expect our total spend on CapEx for the full year to remain in the range of 5% revenues.

Our free cash flow was EUR0.7 million in Q2, growing by EUR3.2 million year over year. In the first half of 2014, our free cash flow generation reached EUR8.4 million or 30% of our adjusted EBITDA for the period, further demonstrating the robustness and scalability of our financial model.

Total cash, cash equivalents, and short-term investments were at EUR242.9 million at the end of June, representing an increase of EUR8.6 million compared with December 31st, 2013. This is primarily the result of our free cash flow generation in the first half of the year as well as EUR18.8 million in proceeds from capital increases, including the EUR16.4 million net proceeds from the primary portion of the follow-on equity offering we did in March, offset by EUR18.8 million in cash consideration paid for our acquisition in the first half of the year.

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, August 5th, 2014.

For the third quarter 2014, revenue ex-TAC is expected to be between EUR71 million and EUR73 million. Also, for the third quarter 2014, adjusted EBITDA is expected to be between EUR10.5 million and EUR12.5 million.

For the fiscal year 2014, revenue ex-TAC is expected to be between EUR280 million and EUR284 million. At the midpoint, this represents a EUR14 million increase when compared with our prior guidance. This also represents a 58% year-over-year growth at the midpoint of the range compared, as a reference, with a 57% year-over-year growth reported in the full fiscal year 2014 -- 2013.

Also, for the fiscal year 2014, adjusted EBITDA is expected to be between EUR55.5 million and EUR59.5 million. This represents an upgrade of EUR8.5 million compared with our prior guidance.

This guidance assumes the following estimated foreign currency exchange rates, a euro-USD exchange rate of $1.35; a euro-Japanese yen exchange rate of JPY140.1; a euro-British pound exchange rate of GBP0.81; and a euro-Brazilian real exchange rate of BRL3.18.

This guidance also assumes no additional acquisition are completed during the quarter ending June 30th, 2014, or during the fiscal year ending December 31st, 2014.

Before closing, I want to re-emphasize that we expect the second half of 2014 to continue to be an exciting time for Criteo. We will continue to accelerate our investment across our many growth initiatives, particularly in further strengthening our technology and mobile product portfolio, as well as growing mid-market clients across geographies to support our growth in H2 and prepare for 015.

As our upgraded 2014 financial guidance illustrates, we are pleased to reinvest a portion of our incremental revenue ex-TAC into the strategic initiatives to accelerate our growth.

In closing, I am very satisfied with our strong operating performance in the second quarter, driven by focused execution across the board. We are enthusiastic about the progress we are making as we continue to successfully broaden our client base while expanding our robust product set beyond display and across multiple screens.

We have a very large market opportunity ahead of us and see strong growth prospect for the remainder of the year. I look forward to continue building long-term trust with our public investors and sharing our 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). Deb Schwartz, Goldman Sachs.

Great. Thanks. So, you saw an acceleration in growth in revenue per customer in the quarter. I was wondering if you could just help us understand the drivers of that, whether it's moving a little bit more upper funnel from an ad product perspective or its new products.

And then second, as it relates to the mid-market opportunity, can you frame that for us a little bit more from the standpoint of, what are the verticals that you're seeing the most success with? And how should we think about the size in online penetration or of the advertisers that you're targeting with that product.

So, thank you very much. When it comes to the different products contributing to our growth, it's really a combination of -- we've been announcing in the last six to 12 months a lot of new products, combining [mid-funnel], combining mobile, e-mail marketing, and many others, and also the improvement, the major improvement of our engine with this conversion optimizer, which is huge boost because, before, we were optimizing mostly on clicks. And now, we're optimizing on conversion, which ultimately what really matters for the clients.

And it's really a combination of all of this which creates a lot of leverage. So, we're still in a rolling phase of all those products. We haven't reached 100% penetration for all of them. As you know, we have more than 6,000 clients now. And upselling them with our full product suite is a long process. But, it creates also a strong tailwind into our business into increasing the contribution of our existing client base. And we think this is a big strength of our model.

Yes, regarding verticals on mid-market, in a way, it's very similar to [tier 1]. It's just that the size of the accounts is smaller. And we realize that, in each market, rather than targeting just 100 or 200 big clients, which obviously are very strategic for us, there is also huge potential in the [torso], where you're talking more about thousands of potential clients. So, it's a very different go to market because, to address this segment, you need to have a very different organization, very different processes with a lot of automation.

There's many things that have to be done automatically or with self-serve interface from the client side. And this requires specifically technology investment that we've been doing in the past 18 months.

And now that we have the platform in place, we can hire aggressively the sales team, the inside sales team. And we have three big hubs. We are concentrating those teams, one in London for Europe, one in Boston for the US, which is now our biggest team in the US is now our Boston office, and one in Tokyo for APAC.

And we are very excited about this new market opportunity transforming several thousands of clients to potentially a much bigger number in the future.

Great. Thank you.

Douglas Anmuth, JPMorgan.

Thanks for taking the question. Two things I just wanted to focus on, I know you may have hit on it a little bit just now. But, JB, can you provide some more color on the new engine and in particular what you think sort of the key enhancements are versus the previous technology? And then also, what makes up the 40% where the new engine is not rolled out yet? Is that based on specific geographies or type of clients or some other characterization?

And then secondly, on mobile, I may have missed it. But, did you give the overall percentage of the business that is mobile now and also the percentage in Japan? And can you talk about the progress with AD-X and how you're doing in terms of moving into apps and when we can see that start to impact more? Thanks.

Sure. So, first to engine, so, as you know, we have a cost-per-click model. So, we're charging our clients per click. And there is a strong correlation with the click-through rate and conversion rate. So, as you improve the click-through rate, you improve ultimately the revenue for our clients.

Now, ultimately, we need to make the best possible performance for our clients. You want to optimize on conversions. Conversion is a much harder problem than clicks because you have much less conversion than clicks.

So, you need a much more complex predictive technology to predict conversion than predict clicks. And it took us probably two years of development to fully have the full conversion optimizer into the model, which is very important because it's ultimately, obviously, what clients are looking for. They're not buying clicks for clicks. They're buying clicks because -- only if those clicks are converting into revenues.

The reason why we are -- there is still so-called only 60% of our clients that are with this conversion optimizer is that it requires some change in the technical settings of our clients. And this is something we do client by client. We'll have also to explain this to each client that it's a different bidding strategy for them. And we need to discuss with them about the ROI targets. So, it's an ongoing process. As I said, we're a very large client base. So, it takes time.

But, this is something we're pushing aggressively across all our geographies. So, we are pushing this conversion optimizer, obviously, in the US, but also in Europe and in APAC at the same time. And it's been a very strong contributor to the growth of this quarter and a big part of why we've been exceeding our guidance this second quarter.

Moving to mobile, it's obviously the second very big driver and also an area where we're pleasantly surprised by the progress we've made in the last six, 12 months, where we started, we were literally zero.

Now, just to take a step back on how clients are looking at mobile versus desktop, they're not opposing mobile and desktop. At the end of the day, as I said, our clients are trying to maximize the number of sales. And they're really -- they're focused in making sure they can reach their client across all screens because, now, users are moving from a small smartphone to the next tablet and then to a laptop. And there is a continuum of devices.

So, what we're pitching to our clients that they need to make sure to be present and to do this targeting across all screens. And as a matter of fact, they have one global budget. They don't have a specific mobile budget and specific desktop budget, which would be hard because it's very difficult really make a clean cut between what is purely mobile and what is laptop.

So, we think this is why we've been giving the metric that what's important is the number of our clients that are across now -- across all screens and offering this continuum of targeting. And we're very proud to see that now 69% of our clients have been converting to all screens.

This said, just to answer precisely your question, and I'm sure you'll remind that, in March this year, we communicated that 15% of our revenue ex-TAC was coming from mobile clicks. And now, it's more than 20% coming from mobile clicks.

So, it's going very nicely. It's growing faster than our overall business. So, even if our business is growing 72% year over year, we see the growth of mobile faster, which is quite intuitive and reflecting to the overall shift of e-commerce from desktop devices to mobile devices.

Now, as I said, really our focus now is making sure all of our clients, and not only 69% of our clients, are present on all screen and having seamless marketing campaigns across all devices in one single bidding interface.

And just to add, Doug -- Benoit speaking -- with respect you -- I think you asked about two geographies. I think, in Japan, we are both 28% in Japan. And it's also worth noting that the UK was very high during the quarter, pretty much at the same level than Japan. So, we see a very strong momentum there.

Yes, UK is pretty amazing how quickly e-commerce is shifting to mobile devices.

So, now, we are not planning to continue reporting that metric because we believe that it becomes less and less relevant. As JB was explaining, there is now a continuum. But, we are happy to share the momentum with you today.

Okay. Thanks, JB and Benoit.

Ross Sandler, Deutsche Bank.

Thanks, guys. I just had one question for Benoit on the numbers and then one for JB on product. So, on the APAC growth rate, so ex-FX, it was very strong, decelerated a little bit in the quarter. Can you just give us some additional color on what was driving the growth and the deceleration in APAC? And did the higher or the increase of the Japan VAT have an impact on consumer purchases and potentially on your e-commerce business in that country?

And then, JB, for the product question would be around social. So, Facebook's now saying that they control about 25% of mobile traffic outside of China. And from what we understand, they're requiring a PMD token to buy this mobile inventory. And Website custom audience is somewhat unique to them. So, how do you guys access that channel? Do you feel like you need to acquire a PMD to have an exposure in social? And how successful do you think mobile can become as a channel for Criteo if Facebook inventory isn't available? Thanks.

So, with respect to Asia-Pac, Ross, we are very satisfied with the growth in Asia-Pac. We are 100%. Yes, it's a small deceleration sequentially. But, it's a very strong momentum. It's true that the (inaudible) tax change in Japan at the very -- the 1st of April had an impact boosting retail during the last -- at the end of Q1 and had some impact. So, we've seen some softness at the beginning of the quarter in retail. But, we see the momentum pretty much back now.

Yes, it's really a one-off event. And I was in Japan. This is JB. I was in Japan 10 days ago. And all the clients were saying that the two first week of April had been very slow compared to the end of March. But, by May and June, it completely recover the normal trend, yes.

So, moving to Facebook, Facebook is a very successful partner of us. And we're working very nicely with them. And we've been working with them for a long time.

The mobile inventory, as you know, they have a specific technical setup. As a matter of fact, they had also a very specific technical setup for desktop and took us a long time to build together with Facebook the right technical protocol. It was not only -- not only Facebook has a specific way to connect to the inventory, but Criteo has also specific requirements because we have a very unique way to connect to our publisher because we want to have the ability to target each individual impression with a specific bidding request and a specific built-on-real-time customized ad.

So, this is why -- and we have the same discussion with all our publishers. We need to have a specific setup. With Facebook, it's probably more complex than the average publishers. So, it's taking a longer time on average. It took us a longer time on the desktop.

But, we are confident, as they recognize we are a very strategic partner for them. And we are one of the biggest buyer on the Facebook exchange that we are making progress with them on how to do this, on the mobile piece that, as we explained in the previous quarters, is taking time. It's not entirely in our control.

There is a technical roadmap on both sides. But, I think there is a very good positive spirit on both sides to make it work and with the right way that both the Facebook constraint got taken into account, and what is unique about the way Criteo is connecting to our publishers is also into the picture.

Thanks, guys. That's very helpful. And great quarter.

Thank you.

Thank you.

(Operator Instructions). Brian Fitzgerald, Jefferies.

Thanks, guys. Maybe a quick follow up on Facebook. Do you see a -- you said it might take longer to implement the plug in to the mobile side of things. Do you see it ramping on the same trajectory once it's plugged in as desktop or [FBX]?

And then can you differentiate between what you're seeing in terms of preferred inventory in the Americas versus maybe compared to Europe or some of your older cohorts? Thanks.

So, clearly, once we're connected, we should see the same pattern on mobile than on desktop, meaning that it's not going to be overnight, a huge increase, because once we are connected on Facebook, as it happened on desktop, you had to refer each client one by one. And once more, we have 6,000-plus clients. So, it's a good problem to have that we're a very large, very long work to do it client by client.

And when I look at the desktop piece, we still have -- we don't have -- we're not at 100% coverage. We are above 80%. But, it's a lot of work to upgrade client per client for the Facebook inventory. But, obviously, the reward is very big once you've done this. And now, it's a very significant piece of our business.

In term of geos, our two area, key area of focus are US and Europe. In APAC, as I'm sure you know, Facebook has a lower penetration than in other markets. And we are in discussion with the equivalent of Facebook in the local Asian market. I have in mind in particular Japan, China, and Korea, where you have very strong alternative to Facebook and a much more diversified landscape when it comes to social inventory.

And then quickly, the -- on the preferred inventory, do you see any real differentiation between the caliber of preferred inventory you're seeing in the Americas versus Europe or maybe versus some of your older publishers versus newer ones?

Well, at the end of the day, the quality of the inventory for us, it's highly related to the price. In the -- generally speaking, in the US, the inventory costs more. It's more expensive. And at the same time, the conversion rate of clients for e-commerce is higher in the US. So, there is a very good balance.

And it's pretty normal that, in a very mature advanced market, you would see a much more sophisticated clients on one side, much more sophisticated publisher on the other side. So, all numbers are higher, while in more, I would say, emerging geographies, you would see lower cost of inventory for the same quality, but also lower conversion rates on the client side.

So, there is a very good balance in each market, which is very much related to the maturity of the market when it comes to e-commerce and ad tech sophistication in general.

Great. Thanks, guys.

As there are no more questions in the queue, that will conclude today's Q&A session. I would now like to turn the call back to Mr. Edouard Lassalle.

Thank you very much, everyone. And we look forward to continue to update you in the coming quarters. Thank you.

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