Criteo SA (CRTO) 2015 Q1 法說會逐字稿

Good day and welcome to the Criteo Q1 2015 earnings conference call. Today's conference is being recorded. Throughout today's presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Edouard Lassalle, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning and good afternoon to all of you. Welcome to Criteo's financial results for the first quarter ended March 31, 2015. Joining us on the call today are JB Rudelle, Chairman, Co-Founder, and CEO; Benoit Fouilland, Chief Financial Officer; and Eric Eichmann, President and Chief Operating Officer. After our prepared remarks, Eric will participate in the Q&A session of this call. Please note that the earnings release issued before the opening of the US market today along with a live broadcast of this earnings call are both available on our Investor Relations website, ir.criteo.com. A replay of the earnings call will also be available later today on our Investor Relations website.

As usual, before we begin discussing our earnings, I would like to remind you that some of our discussions today will contain forward-looking statements. These may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion plans, anticipated market demand or opportunity, and other forward-looking statements. As always, these statements are subject to risks, 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. In addition, reported results should not be considered as an indication of future performance.

Also I'd like to remind you that in this call we will discuss non-IFRS measures of our performance during the course of this call. Definition of these metrics and the reconciliation to the most directly comparable IFRS financial measures are provided in the earnings press release and accompanying financial tables issued earlier today. Last, unless otherwise stated, all growth comparisons made in the course of this call are against the same period in the prior year. With this in mind, let me now turn the call over to JB Rudelle, Criteo's Chairman, Co-Founder, and Chief Executive Officer. JB, the line is all yours.

Thank you, Edouard. Once again, I'm pleased to announce another record quarter of profitable growth. Actually, for the sixth quarter in a row, we exceeded the high-end of our guidance for both revenue ex-TAC and adjusted EBITDA. In the first quarter 2015, our revenue ex-TAC increased 55% at constant currency to EUR105 million. Over the same period, our adjusted EBITDA grew 89% at constant currency to EUR28 million. As we like to say at Criteo, performance is everything. What we mean by that is that bringing the best possible performance to our clients is at the very core of all our action. We believe that our continued rapid growth is the direct result of this extreme focus on generating measurable sales for our clients. As our Q1 results show, we executed consistently on our growth plans. The investments we made in 2014 are paying off. They're actually fueling our growing leadership in the performance marketing world.

Turning specifically to our Q1 results, our strong performance in this quarter were driven by three things. First, the continued roll out on all devices of new improvements in our technology. Second, another record in new client additions across regions while maintaining our client retention rate over 90%. And third, continued momentum in expanding our publisher relationships.

So regarding the first driver, we continued to roll out new tech improvements that generate better performance on all devices for our clients. The latest generation of the Criteo Engine not only predicts the likelihood of a user to buy, but also the basket value of this purchase. This new Engine was live with 22% of our client base at the end of the first quarter. During this year, we plan to further improve our Engine and to deploy this latest version with a broader base of our clients.

On mobile, we continue to be very pleased with the strong traction of our multi-screen solution. Our solution allows to seamlessly engage and convert customers across all devices and leading operating systems, both on mobile Web and apps. By the end of the quarter, 84% of our clients were using our multi-screen solution. Furthermore, the strong momentum in mobile commerce continues to be a huge opportunity both for our clients and for us. As our latest State of Mobile Commerce Report showed, in Q1 34% of global e-commerce transactions were generated on mobile. This is trending towards markets such as Korea or Japan where already more than 50% of e-commerce transactions are now done on a mobile device.

While retailers increasingly embrace mobile commerce, they sometimes still find it hard to navigate through the complexity of marketing on various devices and platforms. Our full solution across Apple and Android, browsers and apps, greatly helps our clients to manage this complexity. In Q1 we strengthened our in-app solution by launching our first mobile measurement partnership program. This exciting program has received a lot of interest from the ecosystem.

Turning now to cross-device. As you know, the ability to match shopping data across devices has become increasingly important in this new mobile fragmented world of multiple devices. Our cross-device solution is capable to take shopping intent from one device, show an add on another one and track sales on a third device. This new ability both broadens our addressable inventory and helps our clients to better calculate their return on investment.

Overall, our improved technology and ability to convert consumers seamlessly across devices help generate more sales for our clients. During this quarter, our clients continued to increase their spend with us. In particular, clients that were live in both Q1 last year and Q1 this year generated 25% more revenue ex-TAC at constant currency this year compared with the previous year. Our ability to maintain over 75% of our business from uncapped budgets continues also to be a key success factor.

Our second growth driver was new client additions. In Q1 we set a new record in Criteo's history by adding over 640 net clients. We ended the quarter with more than 7,800 clients. While we continue to add large clients in all regions, our specific investments in the mid-market segment are paying off. In all regions we maintain a strong mid-market momentum, which continues to outpace the growth of the rest of the group. As we have only penetrated a small fraction of the overall addressable mid-market, we plan to further invest in this area in the coming quarters.

The third growth driver was our continued success in expanding our publisher relationships. We continue our partnership with Facebook especially on integrating their Dynamic Product Ads to reach users on mobile. In the first quarter, we brought more clients into our solution which supports Facebook's Dynamic Product Ads on mobile in-app inventory. As the capabilities of the Dynamic Product Ads expand so does its performance for our ecommerce clients. In the quarter, we also further increased our ability to access inventory on mobile devices especially in the Apple world with the release of a new real-time user sync technology. When implemented by partners like the Rubicon Project, it allowed them for the first time to access our important demand on Apple devices.

Our publisher marketplace also continues to enjoy positive traction and is generating an increasing share of our business. At the end of Q1, overall we had direct relationships with more than 10,000 publishers. Furthermore, according to ComScore data, Criteo ads reached 1.1 billion unique users worldwide just on the desktop in March 2015. This is the second largest reach worldwide and represents a 15% increase compared to March last year.

Moving now to our performance by region. We are once again very pleased with our consistent execution across all geos. Let me start with the Americas. In the first quarter, revenue ex-TAC grew 101% at constant currency compared to 66% in the first quarter last year. The U.S. market continues to be the primary driver of the region's performance. In the U.S., our positive traction is driven by best-in-class performance and increasing buying power to excess inventory. Client adoption of our new products continue to be strong. In the U.S. we added several important clients including Shopbop, another Amazon company we are working with. Our rapid ramp-up in the mid-market segment remains also a very significant growth driver in the region.

Moving now to EMEA. Our revenue ex-TAC grew 34% at constant currency. We further expanded our client base across markets, segments and verticals in this region. We continue to perform well in existing markets and see further potential in early stage markets such like Eastern Europe, Russia, and Turkey. Our enhanced Criteo Engine along with our multi-screen solution and email product are driving incremental spend from our clients in the region. In particular, our email product represents now a meaningful part of our business in France.

Moving now to Asia-Pacific, we also maintained there a rapid growth on a large scale. In Q1 revenue ex-TAC grew 61% at constant currency and 31% sequentially. In Japan in particular, our strong performance was driven by the adoption of new products supported by the strong penetration of mobile devices and also by the new sales organization focused on gaining even more new clients. On top of that, our Southeast Asian markets are now seeing strong momentum and now represent a greater share of our Asia-Pacific business. Overall we're excited about the opportunity to capture incremental growth across this very dynamic region.

Let's move now to our priorities for the rest of 2015. We remain very focused on three key areas. First, continue to upsell our clients to a full multi-channel performance marketing solution. As you know for CMOS, the ability to engage and convert seamlessly across all performance marketing channels is getting critical. Our solution already covers full key performance channels; display, native, in-apps, and email. We plan to further roll out this holistic approach across our client base. We're also putting an important focus to deploy on a much larger scale across device solutions throughout the year. Given our very large footprint both on the client and the publisher side, we believe we can create a lot of incremental value in this area. In parallel, we continue to roll out a full suite of products including our unique email marketing solution.

Second area is further innovate and roll out our core technology in order to generate more sales for our existing clients. Those core innovations, they are applied to all our marketing channels and create direct leverage into the model. The first specific area is around constant improvements to the prediction engine focusing on conversion value. But another important area we are very excited about is creative optimization especially around native ads. This huge growth in mobile is quickly transforming the publisher advertising landscape. To maximize this new opportunity, we are rolling out a series of new creative capabilities both in apps and in browsers. This combines very flexible creative elements of the banner with higher degrees of real-time optimization for each of those elements.

Third area of focus, we remain obviously very focused on further expanding our global geo presence. We expect significant growth in major markets like the U.S. and also in early stage markets such as Southeast Asia, China, Russia, and Latin America. We also are setting up new legal entities in Dubai, Turkey, and Canada.

Overall our Q1 results are consistent with our execution. Our tech investments are paying off, we have exciting new products in the pipeline, we are as committed as ever to grow our leadership in performance marketing.

In short, 2015 has begun well and we are confident it will be another exciting year for Criteo and as we progress through the year, we look forward to updating you on our growth initiatives. With that, let me turn the call over to Benoit, our CFO.

Thank you, JB. Once again I'm also delighted to report another great quarter today. As usual, I will walk you through our quarterly financial performance in detail as well as our guidance for the second quarter and fiscal 2015. I would then open up the call to your questions.

In Q1 2015, we continued to deliver strong profitable growth exceeding our revenue ex-TAC and adjusted EBITDA expectation. I'll start with our revenue, which in Q1 grew 71% or 59% at constant currency to EUR262 million. As we have repeated ever since our IPO, revenue ex-TAC is the key financial measure we use to monitor our business performance. In Q1 our revenue ex-TAC grew 68% or 55% at constant currency to EUR105 million compared with EUR63 million in Q1 last year. Revenue ex-TAC margin in Q1 was 40.2%, in line with our expectation and consistent with prior quarters.

Looking at performance by region in the first quarter. In the Americas, revenue ex-TAC grew 138% or 101% at constant currency to EUR35 million. In EMEA, we grew revenue ex-TAC by 76% or 34% at constant currency to EUR48 million. In Asia-Pacific, revenue ex-TAC increased 74% or 61% at constant currency to EUR22 million.

Overall, changes in foreign exchange rates represented a significant tailwind in the first quarter. Globally our revenue ex-TAC benefited from 13 percentage points of reported growth due to changes in ForEx rates. The U.S. dollar contributed three-quarter to this tailwind.

Moving on to the profitability of our operations. We grew Q1 adjusted EBITDA by 94% or 89% at constant currency to EUR28 million compared with EUR15 million in Q1 last year. Our adjusted EBITDA margin as a percentage of revenue improved by 1.2 percentage points to 10.7% compared with 9.5% in Q1 2014. Our growth in adjusted EBITDA is primarily the result of our strong revenue ex-TAC performance in the quarter. In addition, slightly lower than expected hosting cost due to a temporary shift in our data center expansion program contributed to increasing our adjusted EBITDA in Q1.

Looking at our Q1 expenses. Our other cost of revenue principally made up of hosting and data costs increased by 55% to EUR12 million. Excluding amortization of CapEx, our other costs of revenue grew 50% to EUR6 million in Q1 driven by continued investment in our service and hosting equipment over the period.

Our operating expenses increased 61% to EUR79 million in Q1 as we continued to scale the organization to support our growing business in particular in our R&D and sales and operation team. On a non-IFRS basis, our operating expenses grew 61% to EUR71 million in the first quarter.

As in prior quarters, headcount-related expenses represented over 75% of our total operating expenses in Q1. Our recruiting plans for 2015 are quite ambitious and we are pleased with our hiring results so far. We added over 200 net positions in Q1, which represents an increase of 17% compared with December 2014. We closed the first quarter with a global headcount of over 1,500 including 38 employees coming from the acquisition of DataPop in February. This represents a 64% increase compared with Q1 2014. We think this bodes well for our ability to continue to execute. For the remainder of 2015, we plan to maintain a strong hiring momentum.

Looking now at our operating expenses by function. Non-IFRS research and development expenses grew 59% to EUR14 million in Q1. This was largely driven by a 48% increase in headcount to 298 employees at the end of March. We plan to continue to accelerate our R&D investment for the remainder of 2015, particularly into recruiting.

Moving on to sales and operations. Non-IFRS operating expenses increased 74% to EUR43 million in Q1 also largely driven by a 69% growth in headcount to 966 employees at the end of the quarter. Consistent with prior quarters, we continued to grow sales and account management teams in all regions, in particular across mid-market. In the remaining quarters of 2015, we will continue to grow our sales and operation teams globally in particular in our mid-market centers in Boston and Barcelona. We will also open new offices in Dubai, Turkey, and Canada.

In G&A, non-IFRS operating expenses increased 31% to EUR40 million in Q1 while our headcount grew 65% to 253 at the end of March. This was driven by the ramp up in finance and HR teams and the ongoing strengthening of our IT and facility infrastructure. While IT and facility headcount are accounted for in G&A, the majority of the corresponding expenses are reallocated to R&D and S&O in line with customary industry practices. As a percentage of revenue, non-IFRS G&A expenses decreased by 1.7 percentage points to 5.4% in Q1. We expect nonetheless to continue to scale our G&A functions to support our strong anticipated growth and to prepare to potentially become a U.S. Domestic Filer in 2016.

Overall while more than 115% of our revenue ex-TAC overachievement flowed through to adjusted EBITDA in Q1, I want to reiterate our plan to continue to invest in the second quarter and the remainder of 2015 to support our current and future growth.

Moving now to our cash generation. Our cash flow from operating activities increased by 3.2x to EUR36 million in Q1 compared with EUR11 million in Q1 last year. This continues to be driven primarily by strong adjusted EBITDA generation as well as an exceptionally positive change in working capital in Q1.

Our CapEx increased by 3x to EUR11 million in Q1, primarily as a result of our investment into data center equipment and to a lesser extent into facilities and internal IT. In line with our plans, we expect our CapEx program to accelerate in the coming quarters of 2015. As a reminder, our total CapEx program for 2015 should grow to approximately 6% of revenue from less than 5% in 2014. We plan to continue to build hosting capacity in all regions, including in Mainland China and to significantly increase our redundancy capacity to strengthen our overall infrastructure. We will also continue to increase our investment in internal IP and facilities globally including in two new offices in New York and London.

Our Free Cash Flow grew by 3.3x to EUR25 million in Q1. Over the last 12 months to Q1 2015, the conversion of our adjusted EBITDA into Free Cash Flow reached 75%, which illustrates once again our very robust and scalable financial model.

Finally, our total cash and cash equivalents stood at EUR294 million at the end of March, an increase of EUR4 million compared with December 31, 2014. This is primarily the result of our strong Free Cash Flow generation and proceeds from capital increases over the period partly offset by the cash consideration paid for the acquisition of DataPop in February 2015.

I will now wrap up with our thoughts on guidance. I remind you that the following forward-looking statements reflect our expectation as of today, May 5, 2015.

For the second quarter 2015, revenue ex-TAC is expected to be between EUR105 million and EUR107 million. Adjusted EBITDA is expected to be between EUR18 million and EUR21 million. As a reminder, from a seasonality standpoint, the second quarter is typically the lowest quarter for Criteo in terms of adjusted EBITDA generation. In Q2 this year we expect a sequential increase in our expenses of approximately EUR10 million mainly due to one, the full impact of our strong hiring in Q1; second, one-time expenses such as our global summit for all Criteo employees worldwide; and third, an acceleration in our hosting cost.

For the fiscal year 2015, revenue ex-TAC is expected to be between EUR454 million and EUR460 million. At the midpoint, this represents a EUR20.5 million raise to our prior guidance. Also at the midpoint of the range, this would imply a 51% reported growth compared to 2014 or 41% at constant currency. Also for fiscal 2015, adjusted EBITDA is expected to be between EUR120 million and EUR127 million. At the midpoint, this represents a EUR12 million raise to our prior guidance. This includes the reinvestment of EUR3 million net of favorable ForEx impact.

Underlying our Q2 and fiscal 2015 guidance, we have assumed the following exchange rate for our main currencies: a euro-U.S. dollar of 1.10, a euro-Japanese yen of 1.35, a euro-British pound of 0.75, and a euro-Brazilian real of 3.3. This guidance also assumes no additional acquisitions are completed during the second quarter or fiscal year 2015.

In closing, I'm very satisfied with our strong result and solid execution in the first quarter. We are confident as we enter the second quarter and expect an exciting 2015 overall. As our raised 2015 guidance implies, we are pleased to reinvest a portion of our incremental revenue ex-TAC into strategic initiatives to accelerate growth. I look forward to continuing to build long-term trust with our shareholders and update you every quarter on our story.

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

(Operator Instructions) Douglas Anmuth, JP Morgan.

First, I was hoping you guys could talk a little bit more about Facebook and DPAs, how those are going so far? If you could help perhaps give a breakdown of your Facebook business in terms of what's desktop in terms of FBX and what has shifted over in terms of mobile and DPAs? And then also how would you compare kind of the click-through rate and efficacy that you're getting between those two and also the economics that you see as you go from desktop to mobile there? And then secondly, I was hoping you could provide some thoughts on Twitter's acquisition of TellApart and how you think that may or may not impact your ability to partner with Twitter going forward? Thanks.

First on Facebook, so as you know we've been working on the desktop part for quite a long time now, over a year. DPA is still relatively new and we just started the ramp-up so of course there is a lot of potential there because I'm sure everyone is aware there is now much more mobile inventory than desktop inventory on Facebook. So, we are very excited about this partnership. This I would say second wave of Facebook for us is still relatively new, but we expect this to become a significant contributor to our growth in the coming quarters and we'll update you further on that later on. Acquisition of TellApart by Twitter, your second question. So just to put this into perspective, if you look in the last two years, we've seen a general pattern of lot of the our competitors, whether it's in the U.S. or in Europe, getting acquired one after the other.

And this is something I think which is very usual when a market is maturing and you have a very strong leader which is showing a lot of momentum. It's getting harder and harder for other players to stay on par and this is something in general that you see that smaller competitors tend to be acquired at some point, which usually creates even more momentum for the lead player and this is a repeat pattern that we've seen over the last two years. And we had a lot of indicators whenever we do head to head test with clients or other competitive individuals showing that each acquisition compared to our competitor has been strengthening over the last two years. It's very clear. And these are I would say illustration of this overall dynamic.

If I could just follow up quickly on CapEx. Benoit, you mentioned that you're increasing the CapEx supporting the expansion in China. Can you just talk for a minute about your business there and what's going on there that requires you to increase the spending that much more?

I mean clearly from a CapEx standpoint, this is not new on the CapEx. We had indicated at the beginning of the year if you remember in the last call that we would have a more ambitious CapEx program for the year moving from 5% of revenue, which has been pretty much the average over the past years, to 6% as a result of significant investment in infrastructure and to redundancy in particular between data centers as well as supporting new regions. Clearly in order to be a player in China, a significant player, you need to have a data center in Mainland China and you need to make that investment a bit ahead of the business momentum obviously to be able to serve your customers there. So, that's what we are doing as we speak. We are investing this quarter into China and we'll continue to do so over the course of Q3 as well.

The only thing I would say is when we started in China, we established a data center in Hong Kong and once we are in China, we're seeing that this true momentum in the market is a favorable market for our product. We've decided to go into China and we're setting up a data center and our expectation is that that will also improve our performance and will allow us to grow even faster.

Great. Thank you, guys.

Ross Sandler, Deutsche Bank.

JB, the mix shifts towards mobile in your business, do you see the kind of 40% rev ex-TAC margins staying the same or in that same range given that a lot of this native mobile inventory has yet to find its way to exchanges and requires a little bit more heavy lifting to integrate and oftentimes is a little bit more costly inventory than what is available on exchanges? That was the first question on mobile. And then Benoit, sales and marketing ex stock-based comp was up about 75% in the quarter and delevered a little bit relative to levering most of last year. So, is that DataPop or is there some other stuff going on and is that a trend that we should expect in the rest of 2015? Thanks.

So regarding your first question, it's true that for native ads typically you have on average more complex technical integration process than for regular IAB formats, which creates I would say higher barriers to entry for players because you have to manage this complexity. It had zero impact on our margin. I mean technical integration is just one-off cost when you just start a new relationship with a publisher. And generally speaking, the other side of this complex integration is that it's harder for the publisher to scale demand because it creates more work on the demand side and there are less players capable to do this integration. So relatively speaking, this inventory is then easier to access and we come with a full integrated demand. We have typically very favorable buying conditions and sometimes more favorable than on I would say traditional exchanges. This is one of the reason why we are so excited by native even if it adds some complexity, but also it creates a lot of new opportunities for us in growing our business.

So coming to the S&O, it's true that we have invested in S&O particularly in headcount and a bit ahead of the curve. If you look at the total headcount increase, the majority of the 200-plus headcount increase that we had during the quarter was coming from S&O, 133 exactly coming from S&O, and a large portion of that is going into MMS investments that we're making in our various centers. We've opened as you might remember an office in Barcelona that we are growing rapidly in MMS and we are also now covering MMS, being mid-market sales, just to remind everybody, and we are growing also our office in Boston as well as our presence in Asia-Pacific. So, all of that is going to yield results during the course of the year and it doesn't change anything to the overall profile of operating leverage coming progressively out of sales and operation as you've seen coming through over the prior years.

Debra Schwartz, Goldman Sachs.

Just wondering if I could ask a question about the new Criteo Engine rollout. I think you mentioned that it's operationalized with around 22% of your customer base. Given that it optimizes for a basket size, wondering whether or not you're planning on rolling it out to your full client base and what you expect the timeline there to be? And then secondly, just wondering if you can give a little color on how different categories of advertisers performed in the quarter from retail to travel as well as your others? Thanks.

This is the Eric. So yes, we're at 22% of our customer base and as you would expect, we normally go after the bigger fish first. But our intent is obviously to deploy this across the board and we will be deploying this over the next few quarters. In terms of performance, what we've seen is that we're seeing increased performance in the travel sector and there we're seeing something around 20% incremental delivery. So, that's quite exciting and we're continuing to deploy these across all channels.

And any commentary on different categories of advertisers?

We're deploying it across all categories so travel, retail, and classified. And generally what we're seeing in terms of results around retail is quite positive.

Great. Thanks.

Brian Pitz, Jefferies.

Following up to Doug's question on Facebook, you mentioned a significant amount of Facebook mobile inventory coming from DPAs, just curious if you can quantify the amount of inventory that is being unlocked here? And maybe any broad comments on ad budgets, are you seeing new dollars coming from offline or are these dollars coming in from other online platforms? And then quickly on OpEx, any specifics on the much better G&A in the quarter and can you give us any additional color on spending plans or projects in Q2 given the lower EBITDA guide? Thanks.

So exactly how much of the overall Facebook mobile inventory is accessible through DPA, I think this is more a question for Facebook than for us. We have access to DPA and we see there is a huge potential. How much exactly of the whole Facebook approximately it is, I think it's for Facebook to answer this. Regarding offline, that's an interesting topic and we've been doing a number of tests with our clients to measure the offline impact on online companies and I mean we were pretty shocked by the results. We've seen that on average for every sale we generate online, there is an incremental another sale generating offline, which means there is a lot of value that we are providing to our clients; obviously it applies only to clients that have offline activity and not the pure online players. There is a big piece of this value that today is not fully measured and understood and potentially a very interesting area of growth for us once our clients have the right measurement tool to do this in a scalable way. It's definitely an area, very exciting that we are looking at increasingly especially in the U.S. where the ecosystem is more mature.

So with respect to the increase in expenses in Q2, I think there are primarily three factors there. I mean obviously we had a very strong hiring in Q1 as you've seen and there will be obviously a flow through into Q2 of the full impact of this hiring that will contribute to the increase in OpEx. We also have traditionally in Q2 our Worldwide Summit where we gather and this is a very important moment in the life of Criteo. We gather all of the employees and that will take place also in Q2 and being fully recorded in term of impact in Q2. And as I said earlier in the prepared remarks, we also have an increase in hosting cost. As you know, we are ramping up our investment in data centers, hosting costs are going to ramp up. So, these are the three main factors of the sequential increase in OpEx.

Great. Thanks.

John Egbert, Stifel.

It seems like weakness in non-performance display advertising has been a common trend for some other notable digital media companies in the first quarter. Do you think you've been a beneficiary of this trend and are you seeing any noticeable dollar shifts from any advertiser verticals or categories in particular? And second, now that you've been diving deeper into in-app advertising, are you starting to work with any advertisers that you hadn't really done much business with before? Thanks.

When it comes to performance, as we've been reminding in the first part of the call, our business is driven by design. The vast majority of our clients work with us on uncapped budgets and they are driven by specific ROIs that they are targeting and we provide them as much volume as possible. So our focus is not really about stealing budgets from others, but maximizing the opportunity with our existing clients and the way we do this is by improving the technology and accessing new inventory. These are the key drivers. And the way our clients deal with us is relatively independent from what they do on other channels where they measure things differently. When it comes to in-apps, our approach is the full multi-channel solution where we don't sell specifically purely in-apps, we sell our global multi-screen, multi device solution. And what's very exciting for our clients is the ability for Criteo to deliver consistently this ROI target across all channel, all devices, browser, apps the same way. And it's really the focus we are having today into our rollout.

Okay. Thank you.

Justin Patterson, Raymond James.

So with respect to the email product, I believe you talked during the prepared remarks that you were seeing some pretty solid trends in France with that. Could you talk about whether that's just getting more spend from your existing customers, bringing in new customers on that kind of what market segment that's satisfying? And secondly, could you talk just more about verticals broadly? Within the mid-market segment it sounds like investments increased pretty meaningfully there, is that still kind of the core e-commerce travel base or are you starting to get some more traction within CPG, auto, and some of those other areas you talked about? Thanks.

This is Eric. So on the email product, which we are deploying quite rapidly in France, what we're seeing is just like with our other cross channel solutions, the spend is mostly incremental for our clients and it is complementary to what they do today in display. And so, we're very excited and the performance is very good and very comparable to what we get in terms of ROIs on the display side. And the intent obviously is to deploy this more broadly initially in the U.S. and in the UK over the next few quarters. And then for the mid-market segment, we continue to invest in that segment. We see a lot of potential and we see the potential to continue to accelerate our investment there.

Specifically in terms of verticals, it's relatively similar to the mix we had in Q1. Probably as we are at the earlier stage in general market penetration in mid-market, it's probably even more focused in retail and travel just because traditionally these type of clients are early adopters so they tend to adopt very quickly a solution. And as we grow more mature and we've seen this pattern repeating over time in all geos, we broaden step by step our client base to more and more verticals.

Great. Thank you.

(Operator Instructions) Richard Kramer, Arete Research.

JB, could you talk about the rising number of new clients and within your guidance and your thought process, when should we expect to transition from adding clients to trying to drive increased spending per client? This would seem sort of a key proof point of talking about uncapped budgets. Maybe I don't know if you could divide the client base into cohorts and talk a bit in more detail about rising spend. And for Benoit, can you talk over what the rationale and costs would be for a U.S. listing that you mentioned briefly? And also you had previously guided to about EUR10 million negative impact from DataPop, is the increase in guidance related to those figures being lower or is that EUR10 million cost still on track?

Regarding your first question, we were very pleased in the first quarter that we had really a combination of both because on one side, it was a record quarter in terms of new net client addition as we said, 640. It's the biggest number we've ever seen in one single quarter and we're talking about net addition, net of the churn. But at the same time, we are seeing very solid momentum in term of average spend by client, and specifically from a cost perspective as we mentioned earlier in the call. When we look specifically on our clients that were live in Q1 last year with Q1 this year so it's really just the live ones, we've seen 25% increase in their revenue ex-TAC. So clearly as we're expanding our portfolio of products, as we're expanding our inventory; our existing clients are spending more and more with us. It's a pretty clear trend that we're seeing.

Richard, just to cover the Domestic Filer situation. It's not the choice of the Company. The SEC rule is that if you get to the point where more than 50% of your shareholder base is U.S., you have then to comply with U.S. domestic filing requirements. Even if we're not certain, but we are anticipating that we land up in this situation before the date of the measurement and that measurement takes place every year on June 30. So if by June 30, we have more than 50% of our shareholders who are U.S. citizens, we would be in a situation where on January 1, 2016, we would have to report not anymore as a foreign private issuer, but as a domestic issuer which would mean that we'll have to report in U.S. GAAP and that slightly more developed disclosure at that point. So, we are getting ready for it. We are not certain yet, but it's going to happen. With respect to the increase in guidance, no, it is not linked to a better forecast with respect to DataPop. I mean the dilution indication that we gave you in the last call are still valid for this year. It is the direct consequence of an improved outlook on the revenue ex-TAC and as I mentioned, we have planned as part of the EBITDA guidance to reinvest part of this better outlook in revenue ex-TAC into expenses.

And maybe just one other follow-up. I mean you've been sitting now for any number of quarters on EUR280 million of net cash. I mean at what point does that become just revenue or capital you're not employing in the business given that as you mentioned the sector seems to be consolidating around you as opposed to you having to drive consolidation on your own?

It's clear that it gives us a lot of financial flexibility to have nearly EUR300 million of cash. I mean the fact that we've done an acquisition in the quarter and that despite this acquisition, we were still generating an increase in our cash balances is a good illustration. So, we've been always very clear on the fact that the natural use of cash for the Company is smart acquisitions and we are doing acquisitions in a very selective manner. It's not because we have relatively material cash balances that we would do any type of acquisition, we are very selective. The purpose of having this cash is financial flexibility in order to seize opportunity of acquisitions.

Okay. Thank you.

There are currently no further questions in the phone queue. (Operator Instructions)

I think we are getting to the end of the call. So if there is no last question, we'll probably wrap up, Edouard.