Criteo SA (CRTO) 2015 Q2 法說會逐字稿

Thank you very much. Good morning and good afternoon to all of you and welcome to Criteo's conference call on our financial results for the second quarter ended June 30th, 2015.

The speakers on our call today are JB Rudelle, Co-Founder and CEO, and Benoit Fouilland, Chief Financial Officer. After our prepared remarks Eric Eichmann, President and Chief Operating Officer, will participate in the Q&A session.

Please note that the earnings release issued before the opening of the US market today, along with a live Webcast of our call are both available on our Investor Relations Website at ir.criteo.com. A replay of the Webcast will also be available later today on our Investor Relations Website.

As usual, before we begin discussing our earnings, I'd 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 opportunities, 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 we will discuss non-IFRS measures of our performance during the course of this call. Definition of such 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 gross comparisons made in the course of this call are against the same period in the prior year.

With this, let me now turn the call over to JB, Criteo's Co-Founder and Chief Executive Officer. JB, the line is yours.

Thank you, Ed. I'm very pleased to announce yet another strong quarter. As a matter of fact, for the seventh quarter in a row, we have exceeded the high end of our guidance on both the revenue ex-TAC and adjusted EBITDA.

In Q2 2015, our revenue ex-TAC increased 52% at constant currency to EUR110 million, while adjusted EBITDA grew 60% at constant currency to EUR22 million.

This quarter, we continue to execute consistently with our growth plan. Our performance was mainly driven by three factors: first, the continued rollout of our latest technology across all screens; second, an all-time high number of net client additions; third, the further expansion of our publisher relationships.

Starting with the first driver, technology. To increase the value we deliver to our clients, we continue to rollout new performance improvements across all screens. One performance improvement we are particularly excited about is our new-generation creative platform.

As you know, we have always had advanced creative technology that builds ads in real time for each user. However, our latest release takes this to a whole new level. We are now able to optimize each individual creative competence in all of our ads, such as fonts, color, or size and position of pictures, and adjust them in an almost infinite number of combinations. This new capability is particularly promising for mobile and native apps. In June, already 11% of our revenue ex-TAC was generated on this upgraded creative platform.

We continue to be pleased also with tracting of our multi-screen solution, which allows us to engage and convert users seamlessly across all devices, browsers, and apps. In Q2, 85% of our clients were using a multi-screen solution compared with 69% in the prior-year period.

At the same time, we further strengthened our in-app solution and the mobile measurement program that we announced last quarter. In Q2, we certified five new mobile app partners and started to launch in-app campaigns through those partnerships.

As you know, the more our clients benefit from our technology improvements, the more sales they generate. And as a result, they tend to increase their spend with us. So, clients that were live in both Q2 last year and Q2 this year generated 25% more revenue ex-TAC at constant currency compared to the prior-year period.

Now, moving to the second growth driver. The second growth driver was net client additions. In Q2, we set an all-time high by adding over 713 net clients while maintaining our 90% retention rate.

We ended the quarter with more than 8,500 clients. We added large clients in all regions. And our strong growth in the midmarket segment continued to outpace overall growth, a direct result of our investments in this area. We believe that our penetration of midmarket clients is still in the single digits and we plan to further invest there.

The third growth driver was our continued momentum in our publisher relationships. In Q2, we grew our direct relationships to almost 11,000 publishers, an increase of 42% compared with Q2 last year.

In Q2, we also made further progress on our dynamic product ads partnership with Facebook. Our solution now allows our clients to seamlessly utilize Facebook's new dynamic product ads to support performance advertising on Facebook mobile app inventory.

We continue to work closely with Facebook to enhance the performance of this solution and intend to further roll it out to a large number of our clients in the second half of this year.

While talking about inventory, I'd like to say a few words about ad blocking, a subject I've received questions about recently. Overall, we do not view this as a huge threat to the industry. Generally speaking, users are happy to access free content in exchange for advertising.

However, users also have clearly expressed their displeasure with intrusive non-relevant ads, such as pop-ups and non-skippable pre-roll videos. And indeed, industry studies and consumer feedback confirm again and again that poor user experience is by far the main motivation for ad blocking.

As you know, our entire business at Criteo is focused on delivering non-intrusive relevant ads to generate genuine user engagement. We are therefore actively working with others in the industry to further develop user-friendly advertising experiences.

Moving now to our performance by region. We are once again pleased with our strong execution across all geos, in line with our plans. In Q2, revenue ex-TAC at constant currency grew 81% in the Americas, 37% in EMEA, and 53% in Asia-Pacific. Midmarket growth momentum has been particularly strong, especially in the US.

Now, let me switch to the future. During our Investor Day this last June, we shared three big trends that are shaping our roadmap and our product priorities. First, the consumer journey is becoming more and more measurable in real time. And I'll come back to that. Secondly, mobile commerce is absolutely booming. Third, cross-device usage is now expanding very rapidly.

Let me explain how our technology platform is benefiting from these three major trends. Talking first about the consumer journey. Overall, more and more of what we do - as consumers - is becoming digital, and digital means measurable. This growing ability to precisely measure the impact of ad spend at the granularity of each user has a profound impact on the overall advertising ecosystem.

Probably the most visible impact is that all marketing activities are increasingly becoming focused on performance and therefore technology driven. In other words, as ad spend becomes more measurable, clients tend to optimize ROI and performance and increasingly make the decisions based on the strength of technology.

As I'm sure you understand, this new world suits us particularly well. Technology-driven performance is at the core of everything we do, as you know. We believe that continued rapid growth is the direct result of laser focus on technology that generates measurable sales for our clients.

And we are applying this philosophy to a growing number of strategic marketing channels for our clients. Our multi-channel marketing solution already covers display, native, social, and e-mail. And we're also exploring additional channels, in particular search engine marketing.

For all of these channels, our approach is focused on performance and relies heavily on cutting-edge technology. We truly believe that our ability to engage and convert users across all of these channels will make our solution even more valuable for our clients.

The second big trend I'd like to discuss or share with you guys is mobile commerce. Mobile commerce is growing very quickly and is a huge opportunity. We recently released our Q2 State of Mobile Commerce Report. In this report, we showed that advertisers who make the mobile app a priority are generating conversion rates on apps that are three times as high as on mobile Web and even higher than on the desktop.

Wow. Thanks to a series of unique technologies that rely on a scale across lines, our solution happens to be particularly strong on mobile. This is illustrated by our win rate on mobile inventory that are more than twice as high as on desktop on one very large US ad exchange. And this is very promising. As our clients increasingly focus on mobile commerce, mobile could become a source of increasing competitive advantage for us.

The mobile publisher advertising landscape is also quickly transforming into a more ad-friendly experience. In this context, we're excited about our plans to roll out the series of new mobile-specific creative capabilities, both in apps and in the browser.

Moving to our third major trend, cross-device. Our latest State of Mobile Commerce Report also shows that 40% of US e-commerce transactions now involve at least two devices prior to the purchase. This is a huge number and makes a cross-device solution absolutely critical for any digital marketing campaign.

And today, I'm excited to share that over 60% of our advertisers now participate in our new universal match cross-device initiative by contributing data points that enable the exact match of users.

Furthermore, our solution nicely complements the cross-device solutions offered by partners like Google and Facebook. Given our extensive footprints, both on the client and the publisher side, we believe our universal cross-device solution could become a major asset for the Company.

Beyond all of those three big trends that are shaping our roadmap, we are also expanding our global presence. We continue to experience significant growth in all major markets, like the US, and in our early-stage markets, such as Southeast Asia, China, Russia, and Latin America. We also have recently opened legal entities in three greenfield markets, Dubai, Turkey, and Canada.

Looking forward, we are committed to our vision of becoming the preferred partner of our clients for performance marketing across all channels and screens. In summary, I'd like to say our investments in technology are paying off, and our Q2 results continue to reflect our consistent execution on our growth plans. Overall, we're confident 2015 will be another exciting year for Criteo. We look forward to updating you on our growth plans as we progress through the year.

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

Thank you, JB. I'm equally pleased about another strong quarter. As usual, I will walk you through our quarterly financial performance, as well as our guidance for the third quarter and fiscal year 2015. I will then open up the call to your questions.

I will start with our revenue. In Q2, our revenue grew 64% or 51% at constant currency to EUR271 million. As you know, we use revenue ex-TAC as the key financial measure to monitor our business performance.

Revenue ex-TAC grew 65% or 52% at constant currency to EUR110 million. Our revenue ex-TAC margin was 40.8%, in line prior quarters.

Looking at our regional performance in the second quarter, I'll start with the Americas, which continues to outperform all other regions. In Q2, revenue ex-TAC grew 114% to EUR40 million. At constant currency, the Americas grew 81% compared with 78% in Q2 last year. Revenue ex-TAC in Europe, Middle East, and Africa grew 38% to EUR49 million. At constant currency, EMEA grew 37%, which represented a slight acceleration from 34% in Q1. In Asia-Pacific, we continued to grow rapidly with Q2 revenue ex-TAC growing 66% to EUR22 million or 53% at constant currency.

Changes in foreign exchange rates continued to be a significant tailwind in the second quarter and bolstered our revenue ex-TAC reported growth by over 12 percentage points. The US dollar contributed to three quarters of this tailwind.

Moving to the profitability of our operations, Q2 adjusted EBITDA grew 64% or 60% at constant currency to EUR22 million. Our growth in adjusted EBITDA was primarily driven by our revenue ex-TAC performance. As indicated on our last earning calls, we anticipated a EUR10 million sequential increase in expenses in the second quarter. In addition, we incurred slightly higher-than-expected operating expenses, primarily personnel-related cost in sales and operations.

Looking at our expenses for the quarter, our other cost of revenue, principally made up of hosting and data cost, increased 55% to EUR13 million in Q2. Excluding CapEx amortization, other cost of revenue grew 43% to EUR7 million in Q2, driven by continued investments in servers and hosting equipment over the period.

Our operating expenses increased 68% or 58% at constant currency to EUR90 million in Q2, as we further scaled the organization to support our growing business. In particular, we continued to expand our R&D and sales and operations teams over the period.

On a non-IFRS basis, operating expenses grew 67% or 57% at constant currency to EUR82 million in the second quarter. As in prior quarters, headcount-related expenses in Q2 represented over 75% of our operating expenses. We ended up the second quarter with total headcount of 1,638, an increase of 47% compared with Q2 last year. Overall, we are in line with our 2015 hiring plan.

Looking now at our operating expenses by function, non-IFRS research and development expenses grew 66% to EUR15 million in Q2. This continued to be largely driven by headcount, which grew 42% to 320 employees at the end of June. For the remainder of 2015, we plan to further invest in R&D.

Moving to sales and operations, non-IFRS operating expenses in Q2 increased 72% to EUR50 million, also largely driven by 48% growth in headcount to 1,037 employees at the end of the quarter, in particular in our midmarket organization.

In the second half, we plan to continue to scale our midmarket centers and to staff the tier one teams in new geographies, including in our new Dubai, Istanbul, and Toronto offices.

In G&A, non-IFRS operating expenses increased 53% to EUR17 million in Q2, while headcount grew 52% to 281 at the end of June. This continued also to be driven by the ramp up in our finance and HR teams, as well as the strengthening of our IT and facilities infrastructure.

As a percentage of revenue, non-IFRS G&A expenses decreased 0.4 percentage points to 6.2% in Q2. To support our anticipated growth and in gearing up to become a US domestic filer in 2016, we plan to continue to scale our G&A functions in the second half of 2015.

Overall, I want to reiterate our plans to continue to invest in the second half of 2015.

Moving onto our cash generation, our cash flow from operating activities remains flat at EUR11 million in Q2 compared with the prior-year period. As explained during our first quarter earnings call, the change in working capital was exceptionally positive in Q1. This has partially reversed in the second quarter due to a catch up in trade payables and less favorable working capital seasonality, as always in Q2.

Separately, our income tax paid increased significantly compared with both the prior quarter and Q2 last year. For the first half, cash flow from operating activities grew 110% compared with H1 2014 to EUR47 million.

Our CapEx for the quarter increased 58% to EUR17 million, primarily as a result of our investments in data center equipment. At the end of Q2, we opened a new Hadoop cluster close to Paris, which more than doubled our high-performance computing capacity. In line with our plans, we expect our CapEx program to grow to approximately 6% of revenue in the full-year 2015 from less than 5% in the full-year 2014.

As indicated in the past, 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 global infrastructure. We also continue to ramp up our investment in internal IT and facilities in all regions.

Our free cash flow decreased EUR6 million to negative EUR6 million in Q2. This is the result of the reversal in change in working capital that I just explained combined with an accelerated CapEx program in the second quarter. For the first half, however, free cash flow increased 133% to over EUR19 million. Over the last 12 months ending June 30, the conversion of adjusted EBITDA into free cash flow remains very high at 62% and reflects the robustness and scalability of our financial model.

Lastly, our total cash and cash equivalents reached EUR287 million at the end of June, a EUR3 million decrease compared with December 31st, 2014. This is primarily the result of our positive free cash flow generation and proceeds from capital increases over the six months period, which was more than offset by the cash consideration paid for the acquisition of DataPop in February, a change in other non-current financial assets, and the negative impact of foreign exchange on our cash position.

I will now wrap up with our guidance. The following forward-looking statements reflect our expectation as of today August 4, 2015. For the third quarter 2015, we expect revenue ex-TAC to be between EUR116 million and EUR118 million. We expect adjusted EBITDA for the third quarter 2015 to be between EUR21 million and EUR23 million.

For the fiscal year 2015, we now expect revenue ex-TAC to be between EUR470 million and EUR475 million. At the midpoint, this represents a EUR15.5 million increase on our prior guidance and would imply reported growth of 56% compared with full-year 2014 or 46% at constant currency.

Also, for fiscal year 2015, we maintain our current outlook for adjusted EBITDA and expect it to be between EUR120 million and EUR127 million. This assumes the continued reinvestment of our incremental revenue ex-TAC into strategic initiatives to accelerate our growth.

I would like to clarify one point about the timing of our adjusted EBITDA generation in the second half of the year. Our full-year guidance assumes a similar seasonality for adjusted EBITDA as last year, when over 40% of our adjusted EBITDA was generated in the fourth quarter.

Our Q3 and fiscal 2015 guidance assumes the following exchange rates for the main currencies: a euro-US dollars of $1.10, a euro-Japanese yen of JPY1.35, a euro-British pounds of GBP0.70, and a euro-Brazilian real of BRL3.5. This guidance also assumes no additional acquisitions are completely during the third quarter of fiscal year 2015.

Through increased investments, we continue to manage a company primarily to maximize our growth potential and are confident in the increasing operating leverage of our business model. I look forward to updating you next quarter on our growth story.

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

(Operator Instructions). Debra Schwartz, Goldman Sachs.

Great. Thanks, and congrats on the quarter. I have two questions. First, your client growth was strong in the quarter. In terms of the net adds that you added in Q2, can you give us a breakdown on how many of them were from tier one clients versus middle market?

And then secondly, it sounds like Facebook dynamic product ads have been operationalized. Can you give us a sense on what you're seeing from performance? And do you have access to enough supply to meet your demand, or are there constraints? Thanks.

Thank you for the two questions. Traditionally, we don't break down net client additions between tier one and MMS. What we signaled during our call is that MMS, midmarket, what we call midmarket, has been particularly strong this quarter, both in terms of contribution to our growth and in terms of contribution to our net client additions, which is kind of intuitive in the long run that, with the growing scale of our midmarket organization, we will see more and more of new clients coming from the midmarket.

When it comes to Facebook, I'm not sure I understand your question regarding access to inventory. Could you perhaps clarify exactly what you mean?

Sure. Yeah. First, I'm just curious what you're seeing from a performance standpoint from that inventory, and then just wondering if there are frequency caps or if they're putting any constraints on the amount of inventory that you can access.

The frequency caps is driven by performance. So, we adjust -- and this is not specific to Facebook. It's for any publisher we're working with. We have frequency caps that are automatically adjusted to ensure we don't overexpose users. As you know, our business model is to be paid only if a user engages and converts. So, we have no incentives to show too many impressions to a given user. So, this is something we've been embedding into our engine very early in the history of Criteo. And it's working the same way for any source of publisher. So, no, there is no specific constraint on Facebook in this area.

Eric, did you want to add anything on those two aspects?

Yes, Debra, that's a great question. As you guys know, we've been working with Facebook to make sure our solution works well with DPA. And I would say we've made great progress. But, we're still early in the deployment of clients onto the solution. I think we're at a couple hundred clients. And we're early in doing that. So, the general feedback is quite positive. But, I think it's too early to sort of have a good sense for the uplift.

And just as JB said, we -- because it is early, we have yet to find constraints from a sort of Facebook perspective that limit our ability to drive performance for those clients. I think we'll know more in the next two quarters. We've always said that we expected, by the second half of the year, to have a much better view on Facebook DPA. And I think we're certainly on plan to do that.

Great. Thank you.

Charles Bedouelle, Exane BNP.

Good morning, all. And again, congrats for the very strong results. Two questions, if I may, one which is actually related to Facebook and another one on the cross-device measurement. On Facebook, there's been announcement by Facebook of changes in the way they calculate performance in their performance model. And I just wanted to have your view on what does it change for you. Does it bring more advertisers closer to the performance, as you describe it? Does it bring more competition? So, just a view on this change.

And another question, more specific on the cross device, you talked about the advertisers embracing -- participating in cross device. Can you give us an idea, a similar idea of what's the publishers' involvement in cross device in terms of participation? And also, can you give us even a rough idea of how much of your addressable consumer base is today covered by a cross-device measurement? Thank you.

Thank you very much. So, the first topic is about measurements and specifically on Facebook. And measurement is always a very complex issue in the advertising industry. And a lot of players are trying to improve things. And Facebook is investing a lot in this area. And for us, this is very exciting.

There is one particular thing where I think a lot of our clients are struggling with, is -- and in a way, it's a good segue to your second question -- is regarding cross-device matching because we see -- as we explained, we see a lot of transactions involving multiple devices and where the click and the conversion are not necessarily on the same device.

And our clients are internally not well equipped to track this. And Facebook among others is developing a very interesting solution to better measure those cross-device events. And obviously, for us, it's very exciting because, if our clients can measure better, they will put more value into our service because, today, there is a number -- there is a fraction of the value we deliver to them that they don't measure, so they don't value.

So, we believe it's midterm an opportunity for our clients, as those solutions of Facebook and others getting -- are getting more and more mature for our clients to put more value into a service.

So, when it comes to cross device, the idea is to work with the whole market. That's why we call it universal match. And as I shared earlier in the call, we are very excited. I think it's the first time we're sharing this number. And for us, it's a pretty key metric that we're tracking that over 60% of our advertisers are now participating in this program and contributing to this program.

And this is absolutely critical because the whole idea, if you want to have a large footprint in cross device, cross device matters if you can get a large footprint, is to have the critical size in terms of partners.

And as you know, one of the characteristics of Criteo is that we have a very large base of clients. And it's a fast-growing base. And knowing that already 60% of our client base, so we're talking about thousands of partners already, are participating into this program, it's very exciting.

They tend to have more exact match data points than on the publisher side. But, obviously, there are some publishers that have also exact match. And we're working in parlay with publishers on the same type of program.

Thank you.

Ross Sandler, Deutsche Bank.

Great. I had two questions, first for Benoit, then for JB. Benoit, can you talk about the cadence of EBITDA guidance for 3Q and for 2015 overall? Your margins, at least EBITDA to net revenue, have been going up every quarter since the IPO. And I think you're guiding to, like, over 600 basis points of margin compression in the third quarter. So, is that just conservatism, or is there something else that we should be aware of that that's driving that compression?

And then I guess stepping back, as the business mix shifts towards midmarket, shouldn't margins be going up, not down? So, if you can clarify that, that'd be great.

And then, JB, just a quick follow up on the topic of ad blockers, so from what we understand, this is probably only going to be isolated to ads that show up on Safari browsers within iOS devices. So, how much of Criteo's inventory comes from that channel? And if that were to get cut back from some amount of users, can't you find other ways to target those users natively? Can you just explain that, please? Thank you.

Okay. Thanks, Ross. With respect to the adjusted EBITDA, the pace for Q3 and Q4, clearly, the indication I gave in the script is that Q4 is expected to be consistent with last year around 40%. Just over 40% of the yearly EBITDA is expected in Q4. And that is very consistent as a pattern.

With respect to Q3, we are in a continued investment, as described, in terms of continuous hiring in sales and operations, in midmarket as we ramp up our teams globally, as well as in new geographies for the S&O, sales and operations headcount. And we are also continuing to invest at a rapid pace in R&D. This is what you see reflected in the Q3 guidance and Q4 guidance, implied guidance.

With respect to your second question, can you just clarify your second question on midmarket? I'm not sure that I understood it clearly.

Just as the business shifts, as midmarket grows faster than the enterprise business, shouldn't your margins be going up? Is that a more profitable channel?

Now, what we've said always on this channel is that it's a channel that, once it reached critical mass, that should be at the same level of profitability than tier one. I think we are still in a fast investment mode, as we speak, if you look at the type of hiring that we have in MMS. So, we expect to have MMS for the time to get to the same level, if not slightly better, than tier one of profitability margin.

With respect to the rest of the questions, JB?

Yes, so, ad blockers, just to give you a bit more color of this, specifically on your question, so, first thing important is that the majority of our mobile business is derived from Android devices. Apple is meaningful, but it's really under weight. And Apple mobile device is probably in the low teens in terms of contribution to our business.

As said, ad blocker have been supported by -- on desktop Safari for years. And so far, we haven't seen any dramatic impact. So, we have to take this into (inaudible). And the second data point important is that this ad blocking [feature] is not a default thing about iOS or Safari. It will need an app to be download, which would require Apple approval on this. So, I think we have -- people have to be careful before over-interpreting some announcement that you can have read in the press.

Great. Thank you.

Brian Pitz, Jefferies.

Thanks. A few questions. JB, in the prepared remarks, I believe you said you're looking at new opportunities, like search engine marketing. Just hoping for a little more color on this opportunity and perhaps timeline.

Also, on crossdevice, why's it so hard for your competitors? You say it's a potential major asset for the Company and a nice complement to Facebook. But, just hoping for a between more color there.

And, Benoit, just a quick one on CapEx increasing to -- I think you said 6% from 4% of revenue. Just hoping for a little more background on that investment, basically where you guys going to be spending that. Thanks.

Thank you. So, first, on SEM, so, at this stage, we are doing some tests with selected clients. The one thing I can say at this stage is that I would qualify the first result of those tests as encouraging. Still, we are not -- in the guidance you have, it doesn't include any significant SEM numbers. So, there's still a lot of work before this can become a mainstream product. But, the first tests are pointing we think into the right direction.

Cross device, Eric, you want to add some color on this, why this is so strategic for us?

Absolutely. So, I think you heard JB talked a little bit about the State of Mobile Commerce Report that we did and we're now doing every quarter. And one of the significant findings is that, in the US alone, 40% of the transactions that are happening are happening across devices. That means that a user will have been on one device and then completed the transaction on another one.

And this is -- if you talk to marketers out there, given the proliferation of devices and the time that people are spending on their mobile phones and connected online, this is becoming one of the biggest issues or challenges that they have.

So, if you're able to match across devices, I think it's a significant asset, not just to drive performance, but also to understand the road that consumers are taking. And so, from our perspective, why do we think it's an asset that is quite unique is that we do have 8,500 clients plus that are willing to work with us. And they have a consumer base that connects through several devices with them. And there's not many companies that have that type of installed base of clients that are willing to share that information to build a cross-device database.

So, we think we're in a unique situation. And as JB mentioned, this is also something that combines very well with efforts from Google and Facebook in terms of their cross-device environments where we complement that quite well. And in the future, again, this is something that's going to become more prevalent as people continue to have cross-device transactions.

Okay. Just -- I think you had also a question, a clarification question, on CapEx. Just to be very clear, this is exactly in line with what we've said all along for 2015 is that our CapEx for the full year are expected to be around 6% of revenues, while traditionally, they have been on average closer to 5%.

Why is that? It's primarily because we have significant investments in data center equipment. And namely, we have equipment in redundancy capacity, one of the investments we've made and we talked about during the call on -- in the Hadoop cluster is one example of this. We invested in a redundancy, a second Hadoop cluster close to Paris, which is a redundancy from the primary cluster that we have. And we have significant investment in redundancy this year.

We also had investment in China that I think we've already discussed that we are in the process of rolling out in equipment in the datacenter in Shanghai. And we have also significant investment in new buildings and facilities. So, these are the main reason.

But, again, this is the same outlook with respect to CapEx versus total revenue than what we've expressed in prior calls for the full year.

Great. Thanks for the clarification.

Douglas Anmuth, JPMorgan.

Great. Thanks for taking the question. Two things I wanted to ask. First, just on APAC growth, can you just talk about the key initiatives there in terms of driving that business faster and talk a little bit more about China as well? I know you just touched on the datacenter buildout there, Benoit.

And then, also second, I may have missed it, but the bidding engine rollout, how broadly now is most recent technology and basket size in particular rolled out across the advertiser base? Thanks.

Thank you very much. On APAC, Eric, I know you've been traveling there recently. So, could you give us more color on the growth engines in APAC?

So, a couple of things in APAC, first starting with Japan, which is still our largest contributor in APAC, it's a geography that's growing quite well for us. It's still the major contributor to the growth. And what we're seeing there is that it takes us a little bit longer to implement the new enhancements to our engine and to our technology book. But, we're seeing a rapid catch up in that direction. So, that should be a good driver of growth.

And then there are new geographies that are quite exciting. We talked a little bit about Southeast Asia. There, we're seeing phenomenal growth granted from small numbers. But, if you include India in that, we have about -- I believe it's 1.6 billion people in that area of the world. And so, there's lots of exciting growth opportunities, not just because we haven't yet deployed and sort of gathered all the clients, but the inherent growth that is happening on the Internet and in e-commerce is a big wave that we will be riding. And so, we're very excited about that.

And then China, as a new geography, is a geography where we're investing quite a bit. So, we already have a team that is more than 20 folks. And then one of the key things that we need to do in China to drive more growth is to have a server data center within China, something that we expect to complete in the second half of the year in the Shanghai area. And we've been serving today from Hong Kong. And that has created some performance issues. And so, obviously, since we're all about performance, once we have the China datacenter, we think that's going to change dramatically.

And in China, too, there's a significant potential for an export business. The Alibabas of the world are interested in expanding their business outside of China. And obviously, we have a tremendous network that's global that's ready to go for these companies to work with us.

And I would say that the last thing on Asia is we have yet to fully set up our midmarket operation. That's something that we're now actively doing with a center in Tokyo, one in Singapore, and one to start later on in China. And so, I think that's also going to be a significant driver that, today, that's obviously quite small.

So, to answer your second question regarding the bidding engine, I think, by the end of Q2, we were at 25% rollout. Just to put this in perspective, we don't expect this version to roll out any time soon to 100% of our clients because, for some clients, optimizing on gross margin structure doesn't make sense. It makes a lot of sense for some clients, where we've seen very big improvements. But, as we explained during our last calls, it depends a lot on the structure of the catalog of products for our clients.

This said, something we share, I think it's for the first time this quarter, is this new-gen creative platform, which is also an engine improvement, but of a different flavor, which is focused on the look and feel of the banners that has a surprisingly positive impact on both click-through rate and positive conversion rate. So, and this is something we are aggressively rolling out across our client base.

Thank you.

Ralph Schackart, William Blair.

Good morning. Two questions, please. And the first question on EMEA, a more mature market for you, just curious what's driving the recent year-over-year acceleration that you saw in the quarter, any color on that.

And then secondly, with the announcement of Instagram opening up to third-party partners, any early reads on that inventory? And would you expect to be participating in that inventory source as well? Thanks.

Thank you. On EMEA, Eric, you want to explain -- give some color on this Q2 acceleration?

Yes, I think, well, the acceleration, first of all, even though it's an acceleration, which we're happy about, is not a dramatic acceleration in the sense that it's going from 34% to 37%.

There, I think the main sort of accelerator for us are twofold. One is our midmarket growth. We've set up a center in Barcelona. And we've been hiring frantically to get new people onboard. And those people get new clients onboard. And so, we've had a record number of clients that were signed up there. And that's across all geographies. So, that's a very exciting driver.

And the second driver that's also a growth driver in comparison to last quarter is, obviously, we're setting ourselves up in new geographies, like Dubai, like Turkey, like Eastern Europe, and our presence is increasing there. So, those would be the two big ones.

So, regarding -- you mentioned Instagram. So, just to make this a more general point, there is still a lot of very large inventories that are completely untouched for us, which in a way is very exciting because it gives us a lot of additional green field opportunity.

And we know that, each time we plug in new inventory, it's highly incremental for our business. So, obviously, any large source of inventory that today we are not tapping into, we are actively discussing with the different teams. And we'll keep you updated on those. But, I think it's a good illustration that there are potentially much more inventory we could go after. And we are [at the point] where we have maxed out our opportunity to increase our inventory.

Thank you.

Justin Patterson, Raymond James.

Great. Thank you very much. First, JB, you mentioned measurability within your prepared remarks. There's still a perception among some in the advertising community that you need to provide greater granularity to your clients to sustain long-term growth. With 25% same-client revenue growth, that doesn't appear to be slowing them down at all. Can you help reconcile that?

And then secondly, Benoit, stepping back a bit, it seems like a lot of this investment round, both in OpEx and CapEx, is really to build out the MMS segment, expand globally, and increase compute capacity. After this round of investment, how should we think about investment going forward? Should that taper back down to prior levels? Thanks.

Thanks very much. And this would probably be the last question because I think we're getting to the end of the session. So, first, on measurability, it's absolutely key for our business because, as I've explained in the first part of the call, as soon as you can measure things, in a way, we're in business because we can invest in technology and show our clients that, through technology, you can drive more performance.

And I think probably the best illustration of this is mobile. For a long time, people were saying mobile is very hard. It's a different way to measure things. In apps, you don't have cookies. So, people were questioning our ability to expand our business into mobile.

And as a matter of fact, the first thing we've been doing two years ago when we entered into mobile was to ensure we could measure ROI the same way that we could do it in desktop. And we've done a huge investment in technology to be able to measure things, not only in the mobile browser, but also in app.

And as today, mobile is a key driver of our growth. I think it's probably one of the best illustrations that measurability overall, that's the way to expand our market. And during our Investor Day, we spent a lot of time trying to size our addressable market, addressable opportunity. And more and more, you're going to see new ROIs where measurements are getting better and better, the more opportunity there will be for us down the road. And we'll keep you updated on this.

Yes, so, on the investment, let me just clarify. The source -- what are the main destinations rather than the source of investment? MMS is a big area of growth for us in sales and operations. It's true. So, we are ramping up our centers, both in Boston for the Americas. Now, in Europe, we've opened Barcelona. And we are going to continue throughout the end of the year to continue to invest. And probably we have a multiyear view on this. So, that will not continue -- that will not stop at the end of the year in terms of MMS.

But, I want to restate that our investment doesn't go only into MMS. We are also investing in new geographies in tier one. And we are continuing to strengthen our teams in existing geographies, where required. In the US in particular, where we have significant potential from the tier one standpoint, we've been strengthening the team and with addition of couple of senior resources there.

So, sales and operations is not only about MMS. And now, I want to also remind that we have significant investment in R&D. We have within the total R&D expense primarily of the year, you remember a EUR10 million impact of DataPop to the EBITDA for the year. And that goes primarily into R&D to build our future capabilities from an R&D standpoint, especially supporting some of the new segments that JB has been talking about. And we are intending to continue to invest in R&D through hiring in -- both in France, but also in the US on the West Coast.

And finally, I wanted also to add that we have the confirmation that we are going to become a domestic issuer. And I have mentioned what would be the consequences for us in terms of increased reporting requirements from the 1st of January 2016, so which means that we are having also investment on the second part of the year to prepare for those increased reporting requirements and transition to US GAAP for the next year.

And finally, taking -- stepping back and taking a longer-term perspective, during our Investor Day, we have also gave you perspective on our long-term operating model, which remains valid. And we see still the same opportunity for operating leverage over the mid-term to long-term in our model.

Thank you very much.

Great. Thank you.

Yes, I think that's going to close the call. Thanks, everyone, for attending today.

Thank you.

Thank you.

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