Criteo SA (CRTO) 2016 Q1 法說會逐字稿

Hello, and welcome to Criteo SA's First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions)

This conference is being recorded. I would now like to turn the conference over to Edouard Lassalle, Head of Investor Relations. Mr. Lassalle, please go ahead.

Thank you, Keith. Good morning, everyone, and welcome to Criteo's first quarter 2016 earnings call. With me today are CEO, Eric Eichmann; and CFO, Benoit Fouilland.

During the course of this call, management will make forward-looking statements. These may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment in expansion plans, anticipated market demand or opportunities, and other forward-looking statements.

These statements are subject to various 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. We do not undertake any obligation to update any forward-looking statements contained herein, except as required by law. In addition, reported results should not be considered as an indication of future performance.

Also, we will discuss non-GAAP measures of our performance. Definitions of these metrics and the reconciliations to the most directly comparable GAAP financial measures are provided in the earnings press release 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, I will now turn the call over to our Chief Executive Officer, Eric Eichmann.

Great. Thank you, Edouard. And good morning, everyone. I am happy to report another strong quarter of profitable growth for Q1 2016, my first quarter as CEO. Before I go into the quarterly results, let me take a few moments to explain Criteo's vision in a fast-changing advertising landscape.

We believe that data-driven, people-centric marketing that is held accountable to performance metrics is the way all advertising will be done in the future. The era of not knowing which half of a marketer's advertising spend is working, will be a thing of the past.

Three big trends are helping accelerate this transition. Number one, the continued digitization of offline activities, making offline intent data available; and offline sales trackable. Two, the increase in one-to-one marketing at scale, based on accountable metrics; and three, marketers' demand for optimization and coordination of marketing activities across channels and devices. We are well-positioned to help marketers make this transition and finally make all advertising work.

Through our products, consumers experience more relevant ads across channels and devices. Clients get unmatched performance. And with continued investment in core technology, mobile, and cross device; we are driving higher value for clients every quarter.

Turning now to Q1, our performance exceeded the guidance for the 10th consecutive quarter. We grew revenue ex-TAC 41% at constant currency to $162 million, and adjusted EBITDA 56% at constant currency to $49 million. We performed well across all aspects of our business.

We rolled out technology innovations across devices and platforms. We added our second-highest quarterly number of clients across regions. And we saw continued momentum in expanding publisher relationships.

Technology innovations drive more client sales. Q1 2015 clients generated 21% more revenue ex-TAC at constant currency in Q1 2016, consistent with prior quarters. A key contributor to this growth is the fact that more than 75% of our business comes from uncapped budgets.

Three elements here are worth mentioning. One, mobile commerce is playing a major role in driving more sales, and now represents 38% of our clients' total e-commerce transactions. For us, mobile generates over 50% of revenue ex-TAC, as virtually all clients are using our complete multiscreen solution. This positions us well to take advantage of the huge growth in mobile commerce.

Within mobile, in-application, or in-app, commerce continues to grow and enjoy strong momentum. Advertisers who make their app a priority, drive conversion rates close to 2x of those on desktops. Our in-app business is accelerating fast, growing more than 450% year over year, and now represents a meaningful driver of mobile growth.

Two, consumer spend is increasingly fragmented across devices, and cross-device commerce now represents over 40% of all e-commerce. Client adoption of our Universal Match technology is strong. About 60% of clients are sharing anonymized CRM data, helping us build a large-scale device graph. This graph, coupled with our scale, allows us to understand each shopper's journey across channels and devices to drive the highest-performing and most relevant ads.

Matched users are particularly valuable. We generated 40% of revenue ex-TAC from such matched users, a significant increase from 25% in the prior quarter.

Three, creating compelling ads is also an important element in driving sales. We now have completed the rollout of our first-generation dynamic creative optimization platform to close to 100% of clients. This improved performance through more engaging ads. We're excited about additional uplift opportunities, as the next generation of this creative platform is being developed and deployed over the next few quarters.

We just completed the transition to HTML5, and as such, are no longer running any dynamic ads in flash. This is a key advantage when working with browsers and devices that only support HTML5.

Moving to client additions, we added over 760 net new clients, ending the quarter with 11,000 clients, while maintaining client retention at 90%. As in prior quarters, we signed both large and midmarket clients across all regions. With current global penetration still below 15% of addressable clients, we believe midmarket is a huge opportunity.

We are making good progress in rolling out automation tools to accelerate the launch of campaigns. For example, the automation tagging module went live in Q1, and already half of new midmarket clients use this tool. Revenue ex-TAC from midmarket clients continued to grow over 80% in Q1, and now represents over 25% of our business. Average revenue ex-TAC per midmarket client continues to grow, a significant achievement as we continue to add many clients. This is another proof point of the scalability of the midmarket model.

Turning now to publisher relationships, we added a record 2,300 publishers in the quarter, largely coming from our publisher marketplace, bringing us to over 16,000 publisher relationships. Our publisher reach is leading the industry, providing a strong advantage.

On Facebook, we rolled out dynamic product ads to many new clients in Q1. Today, close to 5,000 advertisers are live on DPA on both mobile and desktop. Performance has significantly improved over the past few quarters. And DPA is now a mainstream product for our clients.

Native ads also continued to show very positive traction, now representing over 16% of revenue ex-TAC. Native formats are a major trend for publishers. Thanks to their immersive format, native ads drive high engagement and performance. They require a custom integration and dynamic creative capabilities, both Criteo advantages. Our Taboola relationship ramped up fast, growing over 50% quarter over quarter. We also signed several direct publisher deals in native.

We are making good progress in connecting to app inventory, in particular, in mobile-first and app-heavy markets, like Indonesia and Korea. We are excited to be live with Kakao, Korea's star multipurpose portal, reaching an impressive number of users. We signed and integrated several new RTB platforms in the quarter, including three in China.

Moving now to regional performance, we had consistent execution across all geographies. The Americas grew rev ex-TAC 48% at constant currency, and remained the main contributor to the year-over-year growth of the business. We saw solid growth from large existing clients, and signed several large clients in retail and travel in the US, which we expect to ramp up nicely over the next few quarters.

Midmarket continued its strong momentum across the Americas, growing close to 100% year over year. We are pleased with higher-than-expected growth in EMEA of 30% at constant currency. This was partly driven by strong performance with travel clients. Our established markets continued to grow fast. All our growth levers performed well, large and midmarket clients as well as new and existing clients.

In APAC, revenue ex-TAC increased 52% at constant currency. New business was strong in Japan and Southeast Asia, an area that continues to show triple-digit growth. Our Chinese export business accelerated, contributing to growth outside of APAC. We hired an executive with strong industry experience as managing director for India, as we launch operations in that critical market.

Looking to the remainder of the 2016, we remain focused on four clear priorities. First, innovate on our core product. With our Universal Match solution, we are building a large-scale user graph, and the infrastructure to leverage it within the core platform. We believe this user graph is becoming a strategic asset for Criteo. In the coming quarters, cross-device sales information will be made available to clients, which we believe will drive them to spend more with us.

Second, expanding to great sources of inventory. Social remains a growth opportunity for the coming quarters. In mobile, we expect to increase direct access to app inventory, in particular in China and Southeast Asia. In native, we are expanding our partnerships with existing platforms, and intend to work with additional large partners.

Third, strengthen our APAC position. We are investing in Southeast Asia to address the massive opportunities we see for midmarket and large clients. We are on track to set up our Indian entity in Q2, which will open a promising market for us. And in China, we continue to work on scaling the domestic business.

Finally fourth, develop disruptive new products. We are investing and making progress on disruptive new product opportunities. We continue to be very excited with search, and are making progress in building what we hope will be a disruptive product in the future.

In closing, I'm pleased with our strong Q1 performance, delivering both high growth and increased profitability. 2016 has started well, and I'm confident it will be another successful year for Criteo. We have exciting new products in the pipeline, and continue to execute on our growth plans. And as advertising evolves to become people-centric and performance-based, we believe Criteo is in an ideal position to drive this change in the years to come.

With that, let me turn the call over to Benoit, our Chief Financial Officer.

Thank you, Eric. And good morning, everyone. I'm equally pleased with our strong performance in Q1, in particular with our growing profitability. I believe high growth and expanding profitability remain unique features of our business model. I will walk you through our quarterly financial performance, as well as our guidance for Q2 and the full year.

Q1 revenue came in at $401 million, up 36% or 39% at constant currency. Revenue ex-TAC, the key metric we use to monitor our business performance, grew 37% or 41% at constant currency to $162 million. This was driven by a healthy growth in existing client spend, as well the impact of adding the second-largest quarterly number of new clients in our history.

Revenue ex-TAC margin was 40.5%, consistent with prior quarters. We are growing midmarket clients very fast, and are pleased with this momentum. With a growing share of midmarket, our client mix continues to evolve. We saw strong dynamics in the average revenue ex-TAC per live clients, across tier 1 and midmarket categories, with high-single-digit to double-digit year-over-year growth.

Compared with the assumption for our Q1 guidance, change in ForEx had a negligible positive impact of $0.1 million on reported revenue ex-TAC. However, compared with Q1 2015, ForEx represented a headwind of over 300 basis points to reported growth in revenue ex-TAC.

Moving to expenses, other cost of revenue, comprised of hosting and data cost, was $18 million, or $10 million on a non-GAAP basis, growing 45%. This remained mainly driven by increased hosting capacity across our data centers.

Operating expenses were $116 million, or $104 million on a non-GAAP basis, growing 30%. As in prior quarters, headcount-related expenses represented 75% of our non-GAAP OpEx. We added over 130 net new employees, closing the quarter with over 1,970 employees, a 30% increase compared to March 2015.

Looking at the non-GAAP OpEx by function, R&D expenses grew 50% to $23 million, largely driven by the 48% increase in headcount to 440 employees. Sales and operations expenses grew 22% to $59 million, also largely driven by the 23% increase in headcount to 1,190 employees. Quota-carrying headcount grew 26% to 540, with over 60% of the growth in midmarket. G&A expenses increased 37% to $22 million, while headcount grew 35% to 340 employees.

Adjusted EBITDA grew 54% or 56% at constant currency to $49 million. 60% of the over-performance in adjusted EBITDA or approximately $4.5 million, came from our strong revenue ex-TAC, while 40%, or approximately $3 million, relate to lower than anticipated expenses, primarily in hosting and data, as well as various other operating expenses. Approximately $1 million of such lower expenses represented savings. The remaining expenses are expected to be postponed.

Adjusted EBITDA margin for the quarter was 12.2% of revenue, a 140 basis points improvement compared with Q1 2015, including approximately 60 basis points resulting from delayed spending. Our growing profitability for Q1 is well in line with expectations for 2016, once adjusted for postponed expenses.

Financial income was $1.3 million loss. This was driven by a $1.2 million ForEx loss, primarily related to hedging cost for Brazilian intragroup positions. We have taken measures to remove earning volatility on cash hedging cost relating to intragroup position with Brazil.

Net income increased 36% to $19 million, as the strong growth in income from operations was partly offset by the quarterly financial loss. The effective tax rate was 30%, based on our estimated annual effective tax rate, which includes the recognition of deferred tax assets in the United States.

Cash flow from operations was $90 million, significantly impacted by a negative change in the working capital and increased income tax paid. The working capital pattern that we saw in Q1 2015 specifically on the payable side, was quite unusual, and has since normalized.

CapEx was $12 million, mainly driven by new data center equipment. This represented 3% of revenue, slightly below our initial plan for the quarter, due to some delayed server investments.

Free cash flow was $7 million, negatively impacted by the change in working capital. As working capital patterns normalize this year, we expect to see a positive impact on the cadence of our quarterly free cash flow generation in comparison with last year.

Finally, total cash and cash equivalents were $386 million at the end of March, up $33 million compared with December 31, 2015.

Before closing, I will walk you-- I will talk about our guidance. The following forward-looking statements reflect our expectations as of today, May 4, 2016. We expect Q2 2016 revenue ex-TAC to be between $158 million and $162 million. At the midpoint of the range, this would imply growth at constant currency of approximately 31%. We do not expect change in ForEx to materially impact our reported growth in Q2.

And we expect Q2 2016 adjusted EBITDA to be between $32 million and $36 million. From a business seasonality standpoint, Q2 is typically the lowest quarter of the year. In addition, we expect a sequential increase in expenses of approximately $12 million in Q2, due to A, one-time expenses related to Criteo Global Employee Summit; B, a catch-up in hosting and data cost that did not materialize in Q1; and C, the continued growth in headcount.

ForEx assumption underlying our Q2 2016 guidance are included in the earnings release we published earlier today.

For the full year, as I have said in our Q4 earnings call, we have taken a new approach to guidance. We now provide a growth range at constant currency for revenue ex-TAC and an operating leverage improvement range for adjusted EBITDA margin. This compares to absolute dollar ranges provided for both metrics previously. We believe our new approach provides a more stable guidance framework, helping investors better assess our operating performance against the mid-to-long-term outlook of our business.

As a result of this approach, we reiterate our financial outlook for fiscal year 2016 as provided on February 10, 2016. We expect revenue ex-TAC for fiscal 2016 to grow between 30% and 34% at constant currency. We anticipate changes in ForEx to have a negative impact of approximately 100 basis points on our reported growth for the full year. And we expect fiscal 2016 adjusted EBITDA margin as a percentage of revenue to improve between 60 basis points and 100 basis points, compared with fiscal 2015.

As indicated in our last earnings call, we expect CapEx for fiscal year 2016 to represent approximately 5% of revenue.

In closing, I am pleased with our continued solid performance in the first quarter, combining high growth with expanding profitability. And I'm excited about our outlook for the full year. With that, I will now turn the call back to the operator to take your questions.

(Operator Instructions) Heath Terry, Goldman Sachs

I was wondering if you could just give us a bit of an update on the trends that you're seeing in your Facebook relationship, particularly the access to inventory as they rollout some of the new products, and the level of demand that you have from some of your advertising partners, specifically for that channel and to the extent that there's any sort of difference in the ROI that you're achieving in that channel versus across your network.

Okay, great. Thank you for that question. This is Eric. So as we've I think described over the quarters, our relationship with Facebook is very strong. We're very excited about working closely with Facebook. We've been working with them to get access to DPA in a way that takes fully advantage of the Criteo engine. And we believe that a lot of that work has been accomplished. And as a result of that, we've seen significant improvement in performance through that channel.

And we are much more now in a deployment mode. So there are still some things that we're working with Facebook on to improve it. But generally, advertisers-- the advertisers we represent, are looking for performance. And Facebook is a very good channel for performance, in particular when it comes to mobile, given the presence that Facebook has.

I would say in terms of overall performance of the Facebook channel, it's comparable to other areas that we've seen. And what's most important, I think, is just the reach and the extent that Facebook can have. What's interesting also about the DPA platform is there's an expectation that the DPA platform will be used for other sources of inventory, potentially something like Instagram in the future. And so the access to additional inventory through the platform I think will definitely be attractive.

Great. Thank you.

Douglas Anmuth, JPMorgan

Great. Thanks. I wanted to ask you two things. First, it looks like good EMEA and APAC strength. But Americas was down a little bit more sequentially in 1Q relative to 1Q a year ago. So I think the numbers are like 13-14% in 1Q versus about 8% down. So I was just wondering if there's anything that you would call out there in particular. Or was it perhaps more of the Facebook relationship kicking in more in the fourth quarter with DPAs or macro or something else you saw intra-quarter?

And then just secondly, Eric, you talked about the product innovations. Can you talk more-- in more detail about search and when we might be able to expect something there, and what that product can look like, and then also just where you are with in-store and offline product? Thanks.

Great. Thank you, Doug. Great questions. So on the US performance, a couple of things. One is we had a very strong holiday season. And so we saw very strong numbers in terms of growth in Q4. And so when you think about it sequentially, and you think about Q4 versus Q1, it probably is not a fair comparison with Q1, given what we saw in Q4. But when we look at the absolute numbers for Q1, we still feel very strongly that we are getting great growth in the Americas with 48%.

The US remains the largest driver of it. Having said that, I think when you think about all of the Americas, we obviously have a little bit more softness in Latin America, given the macro conditions there. But overall, we feel very good there's nothing structural about the Americas that would make us think that there's not significant potential-- continued potential for growth.

So what I would add maybe, Eric, on the Americas, I think there are some pretty, pretty strong drivers that have played in Q1 also in the Americas. We've signed top-100 accounts, including some pretty large accounts in the retail in the US. And we've seen also a very strong growth from midmarket that has been growing close to 100%. So obviously Q4 was very strong. But we've seen some very strong drivers in Q1 as well.

Great. So that's regarding the Americas. Obviously, as you said, we're pleased with the growth in EMEA and APAC also.

In terms of product innovations, as you know, we're still in a proof of concept stage. With search, we feel quite good. And we have said that we expect to be able to say something about search in 2016, either positive or negative. But overall, the initial sort of concept of bringing performance to search by using people-based data or browsing is still there. And we still believe that it has good potential. So more news to come throughout the year on this.

And in-store, it's also quite early. And there we feel that there's increased interest by retailers to have beacons and mechanisms to see what activity happens in-store. And I think from our perspective as all this offline activity becomes digitized, there is going to be more and more opportunity for us to influence sales online. But I would say, there again, it's probably an earlier stage in search in terms of the development of opportunities around offline. But there's nothing structural that we think takes away from the opportunity that exists there.

Great. Thank you both.

Brian Nowak, Morgan Stanley

Thanks for taking my question. I have one on the midmarket initiative. Can you just talk about how much of the client growth came from midmarkets in the first quarter, and where are you now on mix between midmarket and larger clients? And just talk about the average spend per client, and how you think about that over the rest of the year between the two buckets, thanks.

So just to answer on the client growth, so roughly 85% of our client growth was coming from midmarket in the quarter. And with respect to contribution to the overall business, now we're at 25% in terms of revenue ex-TAC, just above 25% in terms of revenue ex-TAC in the quarter.

And we've seen some pretty strong dynamics in the midmarket, particularly if you look at the revenue per live account. It's continuing to increase fast in the midmarket, which shows that all of the actions that we take to increase productivity are paying off.

I think a couple of other things on midmarket that may be worthwhile mentioning; one is the growth in the Americas continues to be very strong, close to 100% in midmarket. And we're really starting our presence in APAC for midmarket. And that's a large opportunity that today really is not kicking in that much. The rest of the midmarket in the Americas and Europe is doing quite well for us.

Great. Thanks.

Mark Kelley, Citigroup

Hi. Thanks for taking my question. In terms of your full-year guidance, how much India and China is embedded into your outlook? And then can you talk just a little bit more about the delayed spending? How should we think about that as we progress throughout the rest of the year? Thanks.

Yes. So just for the guidance, with respect to India-- is we're putting no contribution into the guidance for the year. I mean we are just opening the subsidiary now in India. We are very excited about the potential. But obviously this is going to be just a start for this year.

With respect to China, as we've always said, China is a long-term investment for us. So we've been prudent in what we've baked into the guidance for the year. What we see is good momentum on the export business. That is now increasing every quarter. And we've seen a good contribution in the last quarter, so that is factored in the guidance. With respect to the domestic business, it's relatively minimal into the overall guidance.

Now, talking about the delayed expenses, those expenses are relating primarily to hosting, so to capacity that we put in data centers, as well as there are also elements also relating to data to feed our cross-device initiative. We will see those expenses being incurred largely between Q2 and Q3. And the largest portion will go into Q2, which explains partly the reason of the sequential increase that I've described between Q2 and Q1.

Yes. Thank you.

Rocco Strauss, Arete Research

Yes, hi. I have two questions, if I may. First one on your publisher relationships, I mean there's recently very-- there are many discussions around header bidding and that with the loss of the waterfall structure to sell inventory by publishers. Criteo's publisher relationships could be worth less, with many publishers implementing header bidding. Can you help us understand how that actually is influencing your inventory buying overall, as well as the impact that may have on the 40% take rate over time? And maybe also if that is actually less an issue with moving more into in-app buying, where header bidding obviously isn't a concern. And yes, then I would have one follow-up on that.

Okay. Thank you for that question, Rocco. Great question, and quite technical. So look, if you look over time, there have been many, many technologies. And we actually had three or four technologies to access inventory with publishers. And the ultimate objective that we have was obviously have access to the inventory with the right information and the right dynamics in terms of bidding. I think header bidding is a new technology. And it still allows us obviously to have access to inventory. It competes with some of our technologies. That has not had any particular impact for us, if you look at the metrics that we've talked about for the quarter. We added 2,300 publishers. We maintained a very strong relationship with publishers. We bring a value proposition to publishers that relates to obviously at the end, sort of bringing more money. And we bring demand that otherwise wouldn't be there for those publishers

So all of those things remain the same. And if you think about publishers using third parties, for us to access the inventory there's always a margin depression that comes from it. Because the third parties will take some of it. So one of the advantages beyond sort of us reaching and driving more revenue in absolute terms is also that you don't have to pay that additional margin.

So all in all, these changes have happened over time. And we don't expect header bidding to really have an impact on our relationships. It hasn't to date, meaningfully so.

Okay, thanks. And then maybe one quick follow-up, I mean I have recently seen Criteo is often ranked in Pixalate's Seller trust index. Just help us to understand why you're in there, and if that actually means that you have guaranteed inventory from some of your 16,000 publishers now that you resell further, when you can't use the inventory on your own anymore, due to frequency capping or converted users already. And actually does that expose you to inventory risk at all?

Rocco, I'm sorry. You mentioned-- if you could repeat part of the question. You mentioned that we appear more and more in Pixalate Trust ratings? I'm not sure--

Yes. Pixalate Trust Index. That's actually now showing all of the SSPs and how they're actually ranking across fraud and accessibility of ad inventory. So I was just wondering why you're actually ranked there, as you are generally not holding any inventory yourselves.

The fair answer is I don't know. We will investigate what the Pixalate Trust rating is. At a high level though, a couple of things from a fraud perspective. One, as you know, we have a CPC model. And so people, even though they pay us on click, they also judge us on sales. And so fraud itself is much smaller, and it's almost non-existent. So ultimately that's a protection for us-- or for the advertisers against fraud.

And just in general, the ads that we serve come from brands that are well-respected brands. Publishers are very happy to have those brands do advertising on their properties. And so generally what we have, not just from the publishers, but from consumers, is good feedback about the type of ads that we represent.

Okay. Thanks, Eric.

Ross Sandler, Deutsche Bank

Thanks, guys. Thanks for squeezing me in. Congrats on the quarter. Just one follow-up on the previous question on header bidding; can you guys just talk holistically about the nature of the publisher relationships that you have? I know that historically you had a lot of first-look relationships with various publishers. Did those come through direct agreements or did they come through exchanges?

And then big picture, as you now cross 50% in mobile; is the revenue margin from mobile at all different than what you're seeing in desktop? How should we think, years down the road, about revenue margin as the business shifts more to mobile?

And then the second question is I guess just for Benoit. The midpoint of the 2Q revenue guidance ex-TAC, as you mentioned 31% off of a slightly easier comp. So is that just conservatism, or is there anything you're seeing in April that points to the deceleration from the 1Q levels in the high 30s? Thank you.

Thank you. So let me answer the first question around the nature of the relationship with publishers that we have today, and then have Benoit answer the other two. But on the nature of the publisher relationships, it's still direct relationships. And so when we count-- when we have a publisher count that we provide to you, direct relationships we have with those publishers, those relationships give us preferential access to inventory that normally come in one or two ways.

One is sort of a first look, where we can bid on inventory before it goes to exchanges, or alternatively also access to inventory that doesn't go to exchanges, but that they're happy to share with us because we don't represent-- we represent a good channel that otherwise they would not have access to.

Generally those publisher relationships don't have any commitments whatsoever. So they might have in the way that the publisher thinks about it, some sort of floors in terms of how they're willing to sell the inventory. But we're buying this all on a very programmatic basis. So we're buying on the fly, real time, when the impressions come forward.

Look, the nature of the relationship with publishers over time hasn't changed. It's still a very strong channel for us. As you saw from the numbers, we continue to grow that channel. And it's a key differentiator for us against potential other solutions. Because we have more publisher relationships than anybody out there that has similar sort of competing products.

Yes. So just to take your question with respect to mobile on mobile margin that we generate out of the clicks that are generated on mobile banners. We see that as a very positive trend to that now 50% of our revenue are derived from those types of advertising.

Typically we have margins that are not differentiated between mobile and other types of ads. So we have the same type of margin, so we do not expect to see an impact on margin as a result of that transition that is going to continue.

With respect to guidance for Q2, we tend always to forget that Q2 is the lowest seasonality quarter in the year. Typically, as you know, Q4 is always the largest seasonality quarter for us, followed by Q1, where we see lots of traction from sales in Q1 in retail in particular. But Q2 is the lowest seasonality quarter. So nothing else than the regular seasonality pattern to read there.

Great. Thank you.

Brian Pitz, Jefferies

Great, thanks. Eric, in the prepared remarks, you noted the in-app mobile business is growing 450% year over year. Would you give us a sense of how much of this growth is driven by Facebook and Instagram versus other publishers? And also you mentioned DPA performance has significantly improved. And how has this impacted growth rates around advertising into the Facebook app? Thanks.

So a couple of things on the in-app business, obviously we have an in-app solution. And what's been happening just generally in the marketplace is that consumers are getting more and more comfortable transacting with commerce. And a lot of that is happening to apps. And so obviously that wave of growth is driving some of the growth.

Obviously one part of the in-app growth that we're seeing comes from Facebook. And as we deploy more and more of Facebook with clients, we're seeing that that's helping drive that number. But I would say that that's not the only driver. We're also connecting to more and more direct app inventory. And so that's also helping there.

DPA performance, we've talked about this over the quarters. And this has been a labor of love with the guys at Facebook, of creating a product that sort of works well and brings the demand that our advertisers represent onto Facebook. And I think we've gotten to the point where the performance is actually quite good, and has improved the last few quarters.

We expect to continue work on different things with Facebook. We will continue to improve the performance. But a big part of it now is deploying all the clients that we have onto Facebook. And that remains a big opportunity. And that's-- as you think about the future, obviously there are also opportunities with things like Instagram and other things that Facebook might put in place. So, there you go.

Great. Thank you.

Charles Bedouelle, Exane BNP Paribas

Thanks for taking the time, and congrats for the results. Actually, most of my questions have been asked. I would have just one. Can you help us think about how to think of the revenue conversion into profit, let's say, adjusted EBITDA? I mean if we look at your beat versus mid-guidance point of revenue, and we add the $3 million of deferred or saved expenses, we basically get to your EBITDA difference versus guidance. So is it a fair way to look going forward on any positive surprise in your revenues coming straight through the EBITDA? Or was that more of a coincidence? And just to think about the operating conversion, thanks.

Yes. So thank you, Charles, for the question. So clearly, I mean you need always to be careful when you look at this on a quarterly basis. Because you've got two types of drivers there. I mean clearly we had a performance beyond the guidance as you could see. But on the other hand, we had a slightly slower start from a spending standpoint on the items that I pointed out earlier. And we do not expect necessarily this pattern to happen every quarter.

So what's important when you look at the overall operating leverage is to look at it on a longer period, for the full year. And just to remind you what are the key drivers that we expect on the full year, we expect to see most of the leverage coming from G&A on one hand, through economies of scale that we see flushing through the P&L already. And we expect also equally the leverage to come from sales and operations, with a mix of higher productivity in more mature geographies, as well as increasing productivity in the midmarket, partly offset by obviously investment in new emerging regions like Asia-Pac.

So that's what you should see playing throughout the year. And we've seen the impact also of this playing out in Q1, since after taking into consideration the delayed expenses, our operating-- expansion in operation leverage in Q1 was well in line with what we've told you for the year.

Okay. That's very clear. Thanks. And then maybe just a quick one, a classic one, but you're now close to $400 million cash. So can you just remind us how you see M&A? And maybe more importantly, because you talked about that in the past is, at what point you think that the cash position becomes too big or there is no real position. You've been very focused on finding the right targets. Thanks.

I think I mean, give us--maybe just on the cash position, I would give you the floor, Eric, to talk more broadly about M&A. But on the cash position, I mean, it gives us a lot of financial flexibility, obviously, to have a cash position of close to $400 million, especially if you combine this also with the committed financing that we signed last year.

But we intend to continue to be as disciplined as we've been in the past in assessing opportunities. And we are very active at screening the market for the right opportunities, which could be more sizeable than what we've done in the past, given on the flexibility, the financial flexibility that we have.

And Charles, that's obviously on M&A, we've been quite active. Though that activity has not resulted in many, many acquisitions. But it's not for lack of trying. I think we're actively sort of looking at the market and looking at all the opportunities. Generally the threshold and the way we think about it is making sure that we find opportunities that will be new products for our clients or key technologies that reinforce our clients.

As we invest in new products, I think we will expand that view to see whether those new products from a deployment perspective, would be helped by acquisitions or any other things that could help sort of disrupt markets. So I think that we feel quite good about continuing to do M&A activity. But obviously we will only sort of take a stand or make purchases if and when we feel that the value is there.

Okay, very clear. Thanks.

Matthew Thornton, Suntrust

Yeah. Good morning, guys. Thanks for taking my question. I just wanted to come back to Facebook for a second. On the DPA side I guess, are you at a point yet where you can now measure the conversions that are actually happening in the Facebook environment? And then secondarily around Instagram, you mentioned I guess any timing as to when that could go live for you? And then I've got one follow-up. Thanks.

Okay, great. And thanks for that question. So on DPA, we can measure what happens within the Facebook environment. And one of the things that we're working with Facebook on is being able to see the sales that happen across devices. Obviously Facebook has a very strong device graph. And this one area where we're working with Facebook to be able to tell our advertisers sales that are generated beyond the Facebook environment. And so that's continued work.

On Instagram, it's really something that Facebook does. And it's really up to them to decide if and when they would do that. I think generally there's an expectation that it will be part of DPA. But it's really for them to confirm that.

Okay, terrific. And then just maybe moving over to the e-mail channel, just because we haven't talked about it, I guess. Is that getting to a size or a point where you might be able to kind of break out how much of contributor that is to revenue ex-TAC? Are we at 5% yet? Or I guess any color there would be very helpful.

Yes. I think email has different dynamics than display in the sense that you need to build the supply side. There are no exchanges for opt-in emails. And so that takes a little bit more time. And as we have said before, I think we had to rebuild a lot of the technology behind email to make it a global product. I think we're getting there. And as a result, we've deployed with success email in France. And it's doing well for us. And we're starting to deploy much more aggressively in the UK and the US, the next two markets for us.

And so our expectation is that that will evolve well. But you know, it's early still to give specific numbers on that.

Terrific. Thanks.

Andrew Bruckner, RBC Capital Markets

Thank you for taking the question. I'm wondering if you could just comment on the market for talent, both in France and in any of the other geographies where you operate, and how that's different from a quarter ago or a year ago? Thank you.

Okay. Great question, Andrew. So we do very well in terms of hiring, in particular in Europe, I think where we-- and we still do well. But where we feel a bit more pressure-- and I think most companies would say this-- is when we're talking about engineering talent in California, in our Palo Alto office, I think there's a lot of demand for folks. And probably the areas that see the most demand are data scientists.

But we've done quite well. And I think in France, in particular, where we have a large-- our largest R&D center, we're a magnet for talent. We generally are able to scoop the best in France for sure, and in Europe in general. Because they get to work on the key opportunities at Criteo. Whereas if you joined a very large technology company that's US-based, you don't get to work on those things.

So that's on the technology side, where probably there is more pressure. On the sales and operations side, I think we're doing quite well. And we're able to hire across the world quite well. I would say in geographies where we have very growth, we have a high demand for hires, so Southeast Asia, midmarket. But we're able to fulfill that. And so the numbers that we've given you are in line with the plan that we have in terms of hiring.

Thank you.

Tom Champion, Cowen and Company

Hi. Thank you. Just a couple of follow-ups around geographic revenue trend. So in the Americas, we saw a little bit of decel from 4Q to 1Q. And I'm just curious if you can comment on how we should think about that growth through the balance of the year, and whether that can rebound back up. I think you mentioned perhaps new clients in retail in the US, or whether that may be offset by maybe more mixed trends in Brazil.

And then just quickly on EMEA, it's a pretty mature market for you guys, and revenue grew sequentially it looks like. I'm just curious if there were any pockets of strength in EMEA that drove that growth.

So, thank you. So, with respect to the Americas, as I said, so the Q2 compared to Q1, you have to put that in-- the Q1 sorry, compared to Q4-- you have to put that in the context of a very strong Q4, where we had a very strong holiday season. If you remember, we had a 37% sequential increase, Q4 versus Q3. So it has to put into this particular context.

If you look at the fundamentals of what has driven performance in the Americas, it's clearly a good balance between new clients, where we see some good traction with respect large clients, and new large clients in tier 1, and very dynamic momentum in terms of MMS, midmarket sales.

It is clear that the situation in Brazil is much more challenging, even if we've done relatively well in Brazil in Q1. But it's much more challenging, given the environment, the overall macro environment. So what we would expect for the rest of the year in the Americas is to see as a driver of growth, midmarket to continue to be a very strong driver of growth, as well as continued growth from both existing and new clients in the large accounts.

So with respect to EMEA, we had a very strong quarter, as you noted, in Q1, which was in fact, slightly ahead of our internal expectations. What I would call as particular real strengths, we had a very strong travel demand in terms of vertical. We had also a very good contribution of midmarket in EMEA.

Thank you.

I think we have time for one more question.

Murali Sankar, Boenning

Yes, hi. Thank you for taking my question. I wanted to circle back to India, and wanted to get a sense how you think about the relative size of the opportunity, vis-a-vis, China. Maybe a difference in how you approach the market that's unique to India, and also how you think about navigating some of the e-commerce regulations, for example, about the recent pricing-related regulations that actually caused some disruption in India for e-commerce. I would like to get your thoughts on that. Thank you.

Great. Great question, thank you. So a couple of things, India and China obviously are different environments. China in terms of overall e-commerce sales is much more advanced than India. But what you're seeing in India that is different is India sort of is building infrastructure that's very much like the infrastructure that you see that we're more familiar with in other countries. So Google is very active. And access to inventory, we don't have to recreate a new ecosystem to get access. We already have the relationships.

And so from that perspective, India is an easier market to operate in, from our ecosystem infrastructure. However, obviously the opportunity today, if you think about e-commerce, is lower. Having said that, India's e-commerce is growing very, very rapidly. And so we see a real interesting opportunity for us to be a key player in India, and sort of drive that wave of growth.

In terms of the pricing regulations, frankly, I don't know the exact impact. But we are very much correlated to the growth of e-commerce. So if it has a significant impact on the growth of e-commerce, positive or negative, that's what the impact on the opportunity would be. However, we're so early that any impact that it has is still probably not noticeable from our perspective, given that we're starting from zero.

Thank you.

Thank you. And as that was the last question, I would like to return the call to management for any closing comments.

Well, thank you very much, everyone. The Investor Relations team remains fully available if you have any further questions going forward. Have a great day, everyone. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.