Criteo SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Company Transformation: Megan Clarken announced her retirement, with the board conducting a thorough CEO search. Criteo has transformed into a Commerce Media powerhouse with Retail Media at its core, leveraging AI-driven optimization and a unified commerce experience.
• Segment Details: Retail Media targets high-intent shoppers on retailer sites, while Performance Media targets high-intent shoppers for direct-to-consumer brands. Commerce GO! tool set streamlines campaign setup, showing lower cost to serve, lower client churn, and increased activated media spend. Examples include Xirena achieving a 23% increase in ROAS and Danone's Oikos brand seeing sales lifts.
• Financial Results: Q3 revenue was $459 million, and Contribution ex-TAC was $266 million. Adjusted EBITDA was $82 million, up 20% year-over-year. The company had $711 million in total liquidity at the end of September, with strong cash generation and no long-term debt.

Segment Performance

• Retail Media: Revenue was $61 million. Contribution ex-TAC grew 23% at constant currency to $60 million, with growth driven by clients in the U.S., Germany, and the UK. Existing client retention was strong with same retailer Contribution ex-TAC retention at 120%, and benefited from newly signed retailers. Activated media spend grew 29% year-over-year worldwide. The client base expanded to 3,100 global brands.
• Performance Media: Revenue was $398 million. Contribution ex-TAC was $207 million, up 5% at constant currency. Commerce Audiences targeting grew 30% year-on-year, and Retargeting grew 2% for the third consecutive quarter. AI-driven performance optimization contributed to a double-digit million uplift in Contribution ex-TAC.

Guidance

• 2024: Contribution ex-TAC expected to grow 10%-11% at constant currency. Retail Media Contribution ex-TAC is towards the high-end of the 20%-22% range. Performance Media expects mid to high single digits growth. Adjusted EBITDA margin is projected to be 32%-33%. CapEx is expected to be between $80 million and $100 million. Free cash flow conversion is approximately 45% of adjusted EBITDA before non-recurring items.
• Q4 2024: Contribution ex-TAC is expected to be $327 million to $333 million, growing 3%-5% at constant currency. Adjusted EBITDA is expected to be between $114 million and $120 million, with tougher comparisons and a shorter holiday season, but the team is ready for the holiday push.

Risks

• Isolated Client Impact: AdTech services were affected by one large client, requiring efforts to normalize and address issues with that client.
• Macro-Economic Uncertainties: Impact on consumer spending and retailer strategies, with some retailers waiting due to political cycles affecting ad spend decisions.
• Regulatory Changes: Uncertainties around Google's Privacy Sandbox and potential divestitures, which could affect supply and bidding in the ad tech market.

Q: Mark Zgutowicz asked about Microsoft progression and Retail Media take rate following largest client transition.

A: Megan Clarken discussed no significant incremental OpEx for Microsoft setup, and Sarah Glickman mentioned Retail Media take rate expected to scale with performance despite potential move down.

Q: Mark Kelley asked about AdTech services and retargeting.

A: Megan Clarken explained AdTech services miss due to one client and plan to normalize, while Todd Parsons discussed retargeting being resilient with commerce go and beta benefits.

Q: Ygal Arounian asked about guidance and Retail Media offsite opportunity.

A: Sarah Glickman talked about Q4 guidance factors and Megan Clarken highlighted offsite as a growth opportunity with various use cases.

Q: Bryan Smilek asked about AI monetization curve.

A: Todd Parsons discussed AI investments in targeting, experience optimization, and internal operations.

Q: Alec Brondolo asked about Microsoft demand side timeline.

A: Megan Clarken and Todd Parsons discussed ongoing implementation and rollout in 2025 for connecting Microsoft demand to Criteo supply.

Q: Brian Pitz asked about verticals and Albertsons.

A: Sarah Glickman mentioned monitoring consumer categories and strong relationship with Albertsons, with more to come.

Q: Tim Nollen asked about retargeting and cookies.

A: Todd Parsons discussed Google's Privacy Sandbox improvements and Criteo's strategy not tied directly to cookies, focusing on addressability across the buyer journey.

Q: Justin Patterson asked about Google regulation and divestitures.

A: Megan Clarken and Todd Parsons discussed uncertainty around potential changes but noted opportunity for Criteo as market equalizes