Q2 2020 Criteo SA Earnings Call
Welcome to the group's second quarter 2020 earnings conference call, all participants will be in listen only mode.
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VP of Investor Relations. Please go ahead.
Thank you call good morning, everyone and welcome to Korea second quarter 2020 earnings call.
Okay All states.
Wherever you are.
With us today, our steel, making Clark and that's it for Dave Anderson.
Please note that because of ongoing restrictions were all going joining just go from different locations today and as a result may space underwater technical challenges.
Of course of our coal management will make forward looking statements. These statements reflect kratos judgment and analysis only as of today.
Actual results may differ materially from current expectations based on a number of factors affecting Chris business.
Importantly at this time, the global probably not keeping them, it's still having a meaningful in the global economy.
That's what clients I was wondering pretty old business.
And Mr., then Pacritinib financial condition results of operations cash flows in the future.
No it's significant uncertainties around the duration extension of the pandemic.
Dynamic nature of these circumstances means that why they said on this call today could still materially changing anytime.
For more information please refer to the risk factors discussed you know earnings release as was our most recent form 10-K and form 10-Q somebody asked to see.
We do not undertake any obligation to date any forward looking statements disgusted I.
Except as required by law. In addition, during this call will also discuss non-GAAP measures of performance to fish definitions of such metrics and the reconciliation to the most directly comparable GAAP financial measures.
Included in the earnings release published on a one stop earlier today.
Finally, unless otherwise stated all growth comparisons made during the difficult or against the same buried in the prior year.
With that it's my pleasure to know handed over to Megan.
Thank you and why.
Thank you everybody.
It's a great pleasure to be with all of you.
Third coal together once again I'm joining you from safety in my House, a in upstate New York and I Hope everyone is.
Say says well I.
No cold today I'm going to cover five key topics number one current business context and Atlantic instrument.
To better than expected results in Q2.
And the street brief recap, although strategy, including executing on outsourced strategic pillars.
Number four.
Progress on online identification.
Five operational priorities going forward.
Now, let's start with the current business context.
Oh and the unusual times that we're living in the world is changing fast and it's really interesting trends shaping up.
Well I'm worried about sales shifting to economy.
Based on E market and.
E Commerce is predicted to grow from 16 to sense of total retail sales to date.
93 cents in 2023 heavily influenced by platelet consumption trends.
In the United States. The growth is partly driven by an increase in click and collect allowing consumers to make immediate contactless pensions purchases.
This strong Bryce benefits, many non lodge platform retailers and direct to consumer brands in particular and the Midmarket.
For example, according to a survey 81 cents of E Commerce touches says.
Good.
I tried new retailers during kind of but expect to continue to use them in the future.
And market isn't making moves to redirect the sizable amount of that trade budgets media and advertising impacting AD spend into the market and towards low a final campaigns, meaning targeting and re targeting.
Oh, that's clearly it's very encouraging for our business on all fronts.
[noise], it's nice to according to an outperformance.
Revenue ex Tac, that's 180 million and adjusted EBITDA of 39 million.
With respect respectively, 21% instead she million dollars above the high end about initial guidance at constant currency.
We achieved these solid results. Thanks to the contribution of all pretty I swim not missed a beat during I look down.
But from time situation I'm really proud incredibly proud of the team and outperformance.
In line with the Q1 trends our Midmarket business remains resilient it continues to grow, especially in retail thanks to healthy online retailers.
Direct to consumer brands.
Well the number of large large customers in travel classified some brick and mortar reach I remain deeply affected by try but we continue to sign new accounts by large and mid market segments.
And expect growing contribution from new business in the second huh.
I see economic asked him out of the pandemic progressively I'm Sawlogs, we believe direct response and targeted marketing remains key to help all clients whether the pandemic.
And accelerate their recovery.
For our retail media business specifically.
Same client revenue ex Tac growth was up close to 60% in Q2.
Strong acceleration from prior quarters.
In Q2, we also saw in the new agreement with what I'm very top U.S. retailers.
Well, hi, or E commerce usage trinkets bike does it create positive that's our retail meet your in Q2.
Celebrating the me the brand dollars online we believe this tailwind it's going to continue.
But at a slower types in Q3 and beyond.
Unlike consumption needs beyond the lock down during the period peak.
I want to say a few words about probably but the net impact of cards. They don't have business was lower than expected in Q2 and proves to be positive retail media markets. Yes, pandemic continues to be dynamic and business conditions remain incredibly fluid in particular and the you know.
States.
Our current views of the pacing recovery, maybe as much slower than originally anticipated.
So the travel and classified verticals.
As a result, we may not see school recovery before sometime in 2021 at the earliest.
I will talk more about this later.
Now moving to the third point out strategy.
We've discussed in the past our mission is to power the world's knocking isn't trusted and I'm tech so advertising.
In order to leverage the key trends I spoke about how strategy is to build and operate well Clos demand side platform would be a state specific way for E Commerce.
Yes, we want to and additional marketing budgets from existing clients.
And when you customers and the consumer brand in columnist space.
To succeed with the strategy, we're drawing on our strong and differentiated assets, how deep relationships with comments clients and retailers are rich comments tighter and lodge I.D. grass and how fast growing retail media platforms for brands and retailers.
Given the short and long term growth and E. Com estimate we believe a long lasting effects oppose it could be a position in the space provides an exciting opportunity.
Executing on this topic, we focus on for strategic pillars, especially strengthening the core.
It can expand the portfolio.
Said explore strategic game changes.
Last but not least strategic and operational excellence.
With respect to strengthening the core.
We continue to build out platform answered it to release the U.S.P. features as they become available. So for example, we now offer enhanced communist audience targeting allowing marketers to connect all product categories and brands, it's a powerful additional audience segments.
New reporting dashboards.
I'll now provide knock it is additional transparency on the performance measurement, but campaigns and transparency is critical requirement for marketers.
Turning to our client tree targeting needs well pushing up funneled to increase our capabilities beyond re targeting is our focus yet.
That's a minimum Sac global research 10 I'd see.
Recently named Christiana number one independent Ed Tech company for 2019.
With respect to about second pillar expanding our portfolio.
I'm pleased to report that our new solutions now represent 20% about business on a revenue ex Tac basis growing 67%.
In particular, the momentum around retail media or accelerate said to plus 84%.
More than twice as fast as in Q1.
He told me to your as you know helps brands to reach critical target consumers and retailers websites and apps.
In June we launched a unified retail media platform in the U.S.
This platform combines various retail media offerings, including sponsored products and other rich ad formats.
And provide self service transparency and control.
But they need us they manage and monitor that content and marketing campaigns.
We plan to launch the platform in Europe in Q4.
So that recently, we hides the prior CEO of Tri Ed reach how media.
Every smith to join our team and lead the U.S. retail media business and Sherri. It's a terrific. In addition to out team.
The other new solutions continue to perform strongly for example, our omni channel business, helping clients target and engage their offline or installed customers online.
More than 120%.
We expect this to continue to grow nicely, even after we get out of dependent Mike.
Not at consideration solutions continue to grow very nicely is locked down restrictions drive more use of time, perhaps driving more installs more traffic and more customer acquisition on apps for our clients.
With regards to exploring strategic game changes.
We continue to grow our partner networks.
Partnering with Yahoo, Japan since 2012 extended out reman to now include our consideration solutions, including web traffic and App install.
Enabling marketers to display ads for additional marketing objectives.
On Yahoo, Japan its inventory.
We also just signed a partnership with custom a day there.
Some sites.
Strengthen our custom audiences capabilities for online and in store talking.
We also important partnership with little or no.
Strengthened target is oh, sorry retirements targeting.
Oh offline keeps you Miss.
Customers, sorry, what's more relevant product recommendations based on whats available in local stores. We expect those two partnerships will further enhance our audience targeting success.
Support outside 'cause towards E commerce.
Last but not least with regards to driving operational excellence as discussed earlier, we're enhancing out platform and new D.S.P. features.
We're also working on strengthening of contextual targeting capabilities holding at building on our partnership with our who data cloud and enriching the pretty a engine to enable bidding on contextual signals. We continue to invest now and into these solutions I'll speak more about some second.
I'm also thrilled, but can you tell us that went bringing into <unk> strengthening the caliber leadership team. Most recently, we announced stayed Anderson's arrival.
Those you know Dave no that he brings a experience transparency and integrity with him.
He's a hardware king trusted partner to me I'm thrilled to have come on board.
David stocks.
Actually extended his role to Chief commercial officer.
David It's working tirelessly, bringing sales operations excellence and accountability infrastructure to up commercial teams.
I'm delighted to announce just now flat well Clos Chief product officer and taught Parsons joining from X.
Chief product officer role is a critical role for us and talent brings a proven track record as a product leader and deep expertise and advertising technology I'm energized by the team built in a short time, despite up when they're ready to go.
With regards to about cost containment program, we exceeded our plan and Q2 and remain well on track, but the targets that we shared with you.
As we sit now Q1 coal, we intend to implement further cost control and organizational measures.
Right size, the business, while maintaining investment and growth areas.
It gets me to my salts topic I'll focus on entity.
We see changes to online I density presenting a step forward for consumer privacy Kelway, though we stress the importance of industry collaboration and thinking street implications of some of the proposed changes and the why the ecosystem.
And the consumer experience.
Then the privacy challenges, including changes to crime affect the entire ecosystem, whether that be AD targeting supply monetization measurement attribution and others for al Todd.
We see this moment as an opportunity for us to apply our unique assets and went pretty open internet the advertisers and ultimately the can seamless.
We believe we have assets that no other tech company has and we're stepping up to use them.
<unk> recently put it online identity make a dock at some point that we have a powerful flush line.
Okay. So I started is built at scale.
Three capabilities test our ability to do contextual coal based advertising based on user profiles built on context and affinity.
Second lien once one advertising based on consumer identification data coming from third party integrations with over 20000 advertisers and 4700 direct publishes.
And thirdly.
And adding to that says two capabilities.
Massive I'd grass with 2.5 billion unique users globally of which 98% have consistent identifiers beyond cookies critical asset for online identification that nobody else has.
Namely market is to deliver the right message to the right tests right timing on the right devote device.
Whether an app CTV you name it is predicated on our ability to be the best knowing anonymized consumer identification and their shopping interests have three capabilities combined provide mass that headline well continue to set us apart as we move forward.
It's with expertise in confidence that we created that response Euticals tried to see sandbox on behalf of the industry, we call that steroids.
Or secure private advertising and monthly run on websites.
[laughter] could you see I only Ed Tech company alongside Facebook.
They have progressed its proposal to Google crime.
W. Threec group, so more formal group called web platform incubated community.
We propose methods related to consumer experience control and continuity of the ecosystem, while improving performance for advertisers. This work is ongoing and we recently published an extension to our original proposal that near real time reporting capabilities with positive industry feedback insight.
The CTO watch well respected supply side platform recently praised Sarah.
Called out pretty EXL, creating good hominy across the working group.
Most recently add weeks called Chris Yes, the number one re targeting company within the 15, most innovative and relevant companies an AD tech in Montana.
Overall, our work around density is deep and wide building, both inside and outside the sandbox and extends beyond Korea to the industry and consumer experience.
As you probably recall Apple announced that was I know, it's 14 expected later in Q3, all apps will need to obtain use it to mission before leveraging its anonymized identifier for advertising.
We believe it's a move into right direction based on respect of use a choice you control. Yes. We also believe this can be a big industry issue.
This unilaterally.
Hi, this unilateral decision.
No consultation and little time to adapt to create troubles with deep implications for the advertising ecosystem, especially on the supply side, but advertisers and publishers are looking to apps to help address the change in here again, we believe we have a powerful flashlight.
As I sit in the last earnings call we're building <unk>.
Bookable identification system, allowing users to build their own privacy profile and easily it that that as their preferences, though.
This personal purcell wouldn't be available across all web apps environments.
And not be owned by any commission entity.
No limited to a self where operating system will device, we working with the industry to make a widespread use of the I'd solutions is very promising and of course will update you down the road.
That leads me to my Laski topic for the day.
We remain focused on the five priorities for the short and mid Chan that we indicate that's now Q1 endings test.
Sure employee safety and business continuity.
It can.
Support our clients with direct response marketing through their business recovery said further align our organization around cost structure to support our strategic plan also investing for growth.
Develop enduring industry, leading solutions for online identification instead execute against a full stack DSP strategy.
Organically and by a partnerships or staying nimble and said landscape unfolds and you trends image with that I'll hand, it I've, it's Dave to go back Q2 performance and <unk> and our financial outlooks. Thanks, a lot that.
Yeah.
Thank you Megan.
Can you hear me okay.
Great.
Yes, because you Megan and.
Thank you very much for those who those very kind words, a good morning, everyone. Let me Echo what they've been said, we was everyone safety and this time and also a appreciation.
There are joining our call today.
I'd like to start with our quarter true performance, and then I'm going or close with discussion or third quarter guidance and give you also some perspective.
About how we're thinking about the outlook for the remainder 2020.
To start Q2 performance was obviously a lot better than we originally expected with about two thirds.
Over improvement compared to our April guide attributable to lower cobot about.
And one third to better underlying performance, including several positive onetime items I'm going to explain that and just a few minutes.
Revenue for the quarter was 438 million.
<unk> the revenue.
Declined 18% at constant currency to 180 million.
We estimate that the net negative impacted cobot on the revenue ex Tac during quarter was about $41 million, we're about 19 points of growth.
So if we exclude the estimated net impact revenue ex Tac growth was slightly positive, which was published a concurrent drug.
Now the cobot headwind more than entirely impacted large clients using marketing solutions in particular travel classified and of course, the brick and mortar retail, it's some clients temporarily pause or even reduce their campaigns during the quarter.
Travel, which they deeply affected contributor to over 50% of the net cobot headwind with remaining 45% to 50% of the impact evenly spread between cloud supplies and other verticals.
Well the impact on retail was overall close to zero. It was very contrasted between large clients and the mid market that spending by the mid market and direct to consumer brands remain resilient was actually supported by cobot retail media also benefited.
From a cobot tailwind.
We estimate that about 4 million of this tailwind for retail minute media benefited Q2, only from a cobot tailwind.
Excluding this positive onetime tailwind.
For retail media and the 3 million favorable technical items related its client rebates that traffic acquisition costs in the quarter, we view the normalized level of read the retail revenue rather ex Tac was about $173 million in Q2.
No changes in foreign currency in the quarter provided a 3 million dollar headwind compared to Q2 last year, but a $2 million tailwind compared to our guidance assumptions.
The revenue ex Tac margin on a quarter was 41% in line with the prior quarter in or X and our expectations.
Let's look at some of the operating highlights I'm just going to tick through the is a road to book quickly.
Our new solutions doubled their contribution to revenue ex Tac from Q2 last true to 20% of our total business.
Obviously, the solid growth retail media was a significant driver here.
Excluding cobot re targeting only declined 7% of constant currency compared to 27% unadjusted.
Net client additions were flat in the quarter ended March with close to.
20400 clients, which is a 3% growth year over year, despite client retention declining to close to 80% for all solutions.
Covered had a significant impact on same client revenue ex Tac, which declined 14% at constant currency.
Of which 21 points were attributable to the pandemic seven points the positive contribution from quite sticky minutes across marketing solutions and retail media.
On the supply side more than 47 under a direct publishers are now conducting to one of our Creo direct bidders oneweb and up and that's a real nice growth on a year over year basis.
Turning now to regional performance revenue ex Tac in the Americas grew about 2% at constant currency.
You exclude and estimated Kobe the impact of 14 million, mostly on large customers and the broader class of drugs vertical.
Retail media's strong momentum continued to accelerate in the U.S.
For economy today.
Revenue ex Tac grew about 1% constant currency.
Excluding an estimated at 16 million cobot impact it was largely driven by the travel weakness.
And our new business was healthy across EMEA I was success across both direct clients and AD agencies were also seeing a few large clients adopt more stringent banners for obtaining user consent in some markets.
And in Asia Pac revenue ex Tac declined about 3%.
Constant currency, excluding an estimated 11 million could impact on travel the classified verticals well. We told saw continued shift from offline to online, especially in the mid market.
So shifting to expenses, we reduced total expenses by $34 million on a GAAP basis 27 million on a non-GAAP basis, or 3 million better than our Q2 target before $4 million of unplanned bad debt accrual and a lot of good accrual.
As you would expect was it related to U.S. customers.
Cost favorability was driven by a number of initiatives the Megan and from what I've talked about last quarter.
Operating expenses declined 22% on a GAAP basis, 20% on a non-GAAP basis head count related expenses represented 72%.
GAAP Opex.
In line with last years, we reduced expenses across all areas of the business.
And as we indicated owner first quarter call, we're being very disciplined and all of our expenses in our headcount.
If you look at the non-GAAP expenses, but function. We also had favorable year over year expenses across R&D.
Sales and operations as well as GNS.
No adjusted EBITDA for the quarter reached 39 million.
Which is significantly 37 million oh guidance rates $30 million above our original guidance for the second quarter.
This drove the adjusted EBITDA margin to 22% of revenue ex Tac.
Hi, lighting or increased focus on cost control in light of the current economic.
Challenges.
<unk> expenses decreased 5% as result of fully amortizing some technology intangible assets in our office Rightsizing policy you recall, we implemented in late 2019.
The effective tax rate for the quarter was 30% thanks to the positive effect to the French patent box regime.
Net income was 6 million down 51% adjusted diluted EPS diluted earnings per share were 27% only down 43% due to the positive impact of the share buyback program on the share count over the period.
Cash flow from operations declined 37% to 33 million almost entirely driven by the negative changes in working capital due to a poor day higher do you have so reflecting continued impact to co bid on client payment terms and despite the payment mentality of some are clients, including in the U.S.
Our team stay focused and they've done a tremendous job.
Collecting payables in a timely fashion.
Capex declined 43% as result of cost control, including through optimized server usage and 15 million free cash flow came out solid things to reduce capex.
And resilient collections during the period and pre cash flow importantly, free cash flow conversion for the first six months came in at a strong 61%.
Adjusted EBITDA.
And finally cash and cash cash equivalents on the balance sheet.
Good at 570 million as of June 30, after spending 15 million on share repurchases in Q2 and also includes.
A preemptive draw of 157 million in on our 350 million Euro revolver.
We purchased about 1.3 million shares under the program buyback program that average price of $11.70.
Course financed really through our free cash flow generation in the quarter.
Let me know a shift from the quarter and provide a little bit of guidance and perspective on the third quarter 2020.
Oh, the CLO polling obviously forward looking statements reflect our expectations as of today July 29.
No. Its Megan explained earlier, our current view is that the pace of recovery from the pandemic, maybe much slower than I probably.
Most everybody anticipated.
In particular for travel and classified clients.
Now the lack of international travel remains extremely complicated protease all the clients and the travel space. This is obviously going to negatively impact third quarter traditionally our most heavily heavy quarter for travel.
With continued uncertainty around could we expect continued impact also on the brick and mortar retail clients.
In the global situation on the job front and the real estate spec sector will continue to be detrimental to clients and classified ads in particular in Japan.
As a result of the still highly uncertain economic situation, we don't foresee a full recovery happening before sometime in 2021, and obviously the the guts still very much a judgment.
Going into Q3, we've seen our July performance decline a bit below the 20% year over year on a global revenue ex Tac basins.
And as the data this call we expect August and September who show slightly more positive momentum. Despite the weak expected contribution of travel in a more muted back to school season. This year as result of the current restrictions.
We estimate that that could impact.
On our Q3 revenue ex Tac to be just below 40 million in.
In addition, we accounted for some headwind for early adoption of iOS 14, and also advertisers and publishers increased adoption of more stringent more stringent consent banners in some European markets.
Well they expect side, we expect Q3 non-GAAP expenses to be approximately 17 million were 9% at constant currency.
Below Q3 last year inline with our prior indication.
Ticking if you take all of this into account and as of the July 29. The we expect revenue ex Tac for Q3 to be between 171 million and 173 million translating into a year over year decline of 20% to 21% at constant currency with four.
Our next with foreign exchange expected to be a headwind of about 150 basis points of growth were more than $3 million.
That's important to say few words about the Q3 sequential growth so Q2 to Q3 <unk>.
As we discussed earlier, our normalized revenue ex Tac was 173 million in Q2.
And the midpoint of our Q3 guidance, which assumes a 3 million headwind from iOS 14, and stricter consent banners in Europe would be 175 million on a Q2 comparable basis in other words, we see slight sequential growth on a normalized basis in Q3. This is.
Before highlighting the expected weakness and travel in what has traditionally our largest quarter of the year for travel for reference.
Revenue ex Tac of about 25 million was done with travel clients in Q3 last year.
On the profitability side, we expect the still meaningful that cobot impact on our topline.
To translate into an adjusted EBITDA for Q3 in the range of $31 million to $33 million as usual the poor Rx assumptions supporting the guidance can be found in our earnings release.
Now importantly, with respect to the business outlook for the rest of the year, you'll recall that we've been through our guidance for fiscal year 2020 on April 1st.
I mean, given how uncertain the situation still remains we believe that we're still not in a position to reliably quantified the covered related impact on our financial results beyond the third quarter.
Therefore, we continue do not provide guidance for revenue ex Tac and adjusted EBITDA for the full year fiscal year 2020.
Let me, though share some of our current thinking for the fourth quarter.
As of today, we're currently modeling little economic recovery from the aftermath of Kogut and based on this macro backdrop, coupled with the assumptions around the early impact of Iowans 14 through mid September and the increased adoption of explicit consent Euro LIBOR, we believe the year over year decline of around.
Revenue ex Tac in <unk> core could remain in the high teens to low twentys percentage range on a year over year basis.
On the expense side, we obviously, we're being very focused on managing the expense base and delivering favorability in 2020 compared to 2019.
This includes more moderate assumptions for the second half in terms of bad debt Reserve and we also will continue to obviously quote closely monitored the cost base and look to further opportunities to ensure that our cash flow generation is strong in both 220 20 and beyond.
So with those highlights Megan let me turn it back over to you.
Thanks, Dave So in closing we delivered solid performance in Q2, a in highly unusual times.
And while that pandemic remains dynamic in the business context, very volatile retail continues to hold up well and to a enjoy a rising E commerce sales.
Then market remained strong for us and retail media proves counter cyclical and helping brands accelerate shifted that trade marketing dollars on E commerce sites.
We've got unique assets went direct response marketing and identity resolution to help market is getting the performance they need a financial position is strong and we'll stay very disciplines and our capital allocation.
Leadership team is onboard employee focused on building out.
Sector U.S.P.S. strategy for the future.
For a future E commerce to catch a large opportunities across the consumer brand and come as stay somewhat that I'd like to open the floor now take questions [noise].
And we will now begin the question answer session to ask the question. Please press Star then one if you're using a speakerphone. Please pick up your handset corporate keys.
Withdraw your question. Please press Star then too.
The time, we'll pause momentarily to assemble the roster.
[noise] [noise] and our first question today will come from Rocco Strauss with.
Please go ahead.
Ah Records across your line is open.
Sorry, I wasn't mute.
Hey, altogether, Megan I think you touched on idea face more the changes coming with iOS 14, if they'll wait to size the share of inventory today to transact on idea of Ace.
And the call Retargeting business, that's why Doesnt app install business within your solutions and how quickly I advertisers actually you know like I'm able to shifts targeting towards other ideas and secondly, with the hiring off off top from open acts the I.D. initiatives the growing number awful publish integration it seems you're aiming more and more to come.
Caught out D.S.P. subjects changes 40 from the equation I kind of becoming your own SSP I asked the question, yes, its stuff I'm thinking of opening curtailed direct bidder two other third party dsps to enable like campaigns onto a third party dsps to be enhanced by curtails I'd.
Cortez ideograph. Thank you.
Thanks broke out you always thought would not want good feeling good to 50. He idea fight it's difficult to size just because it.
It actually it it's not necessarily something that we've seen the effects of before so it's a little little news in terms of you know how fast.
Hi, that's come up to speed with getting consents and.
Everything that goes along with the we we've sized it enough to be able to make some assumptions around the headwinds at it causes us incentives out revenue full costs for the rest of the end, where it impacts us and they went through that before I'm happy to have some share those numbers again, if he has some handy.
But again, what I, what I was talking about Oh, Ilya was how our plans to to wait for the industry to actually get in front of this through some of the technology that went building out.
In order to put in an I'd system that allows the can seems to be in control.
And Ah directly at uses that tops data across two asset we can use to continue to run out business. So we do see yeah. We do see an impact for this year sizing. It is complicated were focused on getting a solution unplaced stuff to get passed as soon as possible in something that we can utilize.
Across the industry and help the ecosystem out.
On that Todd Parsons or.
Well coming into him joining out of business I'm I'm thrilled with that look I don't nothing on top of these terrific I'm extremely talented we have a strategy in front of us to go full stack DSP, it's an exciting nuances now that I'm sitting in the center of that because of the strong performance at retail and the crisis E comments, So I haven't.
Fully focused on that's with that clearly will become other opportunities to expand out that capacity to go into other areas, but in terms of its its peas, and and becoming assess peas and going beyond what we had some tends to have stride.
John type of today I I don't have anything until he's he's looking at it and you can tell us which is the right direction to go and we have a lot on out flight and the the number one party for me is that the team remained extremely focused.
Thanks Megan.
Our next question will come from Dan Salmon with BMO capital markets. Please go ahead.
Alright, great morning, everyone.
Thanks for the comments on I'd say and trying to size and as you noted that it's complicated Megan and.
I think we'll we'll we'll probably not try to dig anymore on sizing for but some of Dave's color on before Q impact.
It was helpful. I guess, what what I'd like to dig in and said you elaborate it off the top on.
The retail media business, which.
Understandable why Retargeting has gotten most of the focus with your business is the largest piece of the business, but but retail media is really coming on strong and what I'd like to ask a little bit more about is I think the role of use of an outsource AD Tech stack. It's always made sense for small and midsize players, who who don't have the resources to build them.
Selves, but I'd love to hear you just talk a little bit more about how the conversation works with larger retailers, who may have some of their own resources, but also what's happened to your offering and how you maintain strong relationships there. Thanks.
Yes, Hi, Dan Thanks to the question, it's its or it's a really good one.
As you know, we do have relationships with some of the large retail itself some of them use our tech to offer some of the solutions and started there on tech stack. So so a pull up white labeling for one of the bit attend a seventh what we do.
And as we go into a out the next round about strategy and I've been out spring up more I suspect that that's going to be a lot more than that so that you will hear from us in terms of what we've done with the larger larger retailers. One one thing that excites me [laughter] about what we're doing here is.
If you think about mid market being you know such a superstar during this time and ER and retail E.
E Commerce.
Being up things I strong.
There's a stat that says I'm just looking at it now that in terms of.
People searching out by new products, whether they stop as such.
And the the areas of retailer web sites and other marketplaces has grown from seven to sense to cheering <unk> Ah Ah code that 28 attend.
And and then you double that wouldn't that be called before that's that that we called out before in terms of 81% of can seem intuitive, let's switch switched products will now state with those products plus kind of that.
There's a whole marketplace, yeah, that's a appearing for the midmarket the mid bucket retailers, which is exciting.
And so what I think we have just what I know we have here in terms of retail media plus the house the whole suite of the marketing solutions product does an offering that helps and say, but large retailers plus isn't growing.
Midmarket range Midmarket retailers.
They are looking for an underlying platform like ours to be able to move advertising across from products to people to sites and quitting retailer sites using <unk>.
<unk> privacy driven identity everything that we have today, so putting that all into those blocks into place or what I see as being sort of the massive opportunity for us and just a single back to your question I think the large retailers that already have.
[noise] presence art gun to utilize some of that as well.
[noise], that's great and just if I could up one follow up you spoke of course about the high level strategy around identity.
Downtime you come from from Nielsen, where where the whole idea of the single source. The truth is the foundation has always been the foundation of the business.
And Dave obviously spend some time there as well.
My questions here do you think that there can be a single source of truth in digital and and if not what do you think the most important differences are and how an ecosystem works with multiple consented identities versus a singular one thanks.
Yeah [laughter]. She does this morning, [laughter], alright, so I'm going to.
I will I put my Nielsen had on at the moment and and respectfully answer the question.
I think a single source of true renaming said somebody has it somebody.
It's a provided that has that like if everybody rallied around one provider that and identity. Then you might get to a place where you have a single source of trade and the same way that Nielsen.
Measurement is the single source of trade, let's say say television because everybody rallies around it and says okay. This is what we're going to train on.
So your point, we're in a world where everybody has identity everybody says they have the best identity grass I truly thing from my experience when I look at pretty identity graph its best I'd have to see.
And at the end of the day, it's about how you use that firstly you get it by having relationship with the sell side by side and ultimately with the consumer and when you have relationships you get trusted access to.
The information to do a better job of knowing to the consumers and targeting that consumer and if you do a better job. That's then you you may call at the single source of tree Kinda doesn't really matter. It's about you. You provides you provide the service you get to the right people at the right time on the right device.
In the right place and you don't anoint them, because it's a contextual add or something.
Contextual content that you that you've said adopt and they appreciate getting it. So it's more about how you use it and the quality of the data that you have.
And this notion out a single source of traits for identity, because you know I agree with you and <unk> and I I happened to think that what we're sitting on here. It's just stuff is gold.
That's great. Thank you for a library on it and congrats on hiring Todd.
Yeah. Thanks.
Our next question comes from Nick Jones with Citi. Please go ahead.
[laughter] could take you up for taking my question just this one more on the Io S. 14 update.
It sounds like you want to create are pretty ought to create a a solution that due to the users kinda control over tracking a board I think that's what I always for kids tried to do but the idea that they go out with are going to opt outs I guess could you maybe paint the picture of how you think.
Yeah, the user engagement should be that I guess, ostensibly would result in more opting in I know what that solution.
It looks like in comparison to what what Apple is doing.
But we we come from a place by the way Hynek [laughter], we come from a place that we believe can seem it should be in control a and so.
You know there's this this.
The operating systems.
Our trying to.
Admirably trying to put privacy restrictions in place that sum that up you know protect themselves some from.
Sitting on information or or the notion that they may be using can seem as information.
And in the wrong way.
[noise] can she was done mine their information used if it's used for the right reasons and if it's used by a trusted a trusted partner and so instead of Oh notion is give that right. So given that control back to the consumer so they can sit up their own out way in which they want to be treated how that day there is to be used.
What they like and what they don't like and so everything we're doing around around the.
I'd system. The vocal I'd system is to set up structure much consumers can have that control and we believe that if you give keeps humans back that control and they feel comfortable about how their how the data is being used and they may see.
That makes the that they can turn it off and on at any time or or break it down and say you can use this but don't use as they have control. We think that there that they will more likely be willing to opt in on a system like that and just have one choice of opt in opt outs and.
Trust that their experience is gonna be a good one which it wasn't such long long way of saying, we want to give control back to the consumer anything we can do to build tech to do that will do.
And our next question will come from service I mean with the bird. Please go ahead.
Oh, Yeah, hi.
Questions that's one.
Oh meet client retention, Dave you mentioned it went down.
Can you talk about the causes of that I mean, you think that basically K. There then classified and travel device to be not spending anymore or do you think that.
No materiality, we need we need to be thinking about.
The second one was really funnel point can you just a reminder, and what was the 4 million kind of one off revenue do you were talking about I think catch explanation and then as we think about you know the 4700 publishes he's directly integrated with what's the gating.
I mean I'll leave that gives you first party data it addresses a lot of these people have around crime and cookies. So what's sort of holding back that number presumably most publishes would want to integrate with.
So any any kind of thoughts on how you speed that prices Apple or why you wouldn't want to would be helpful. Thanks.
Well, maybe I could go quickly with the the point about the a bench in the <unk>, 80% on the client retention.
And Sir we think that is significantly related to cope with it and it goes back to.
Clients that were particularly brick and mortar retail clients.
That were significantly impacted.
Bye Bye Oh good so.
That number is it's something that I think is gonna be you'll have more color about as we go forward. We're obviously get more insights as we progress through the third quarter, but that's I think that's the significant issue there regarding the 4 million what I explained what is the normalized revenue or two but for the second.
Quarter, you know the reported when he and I said.
If you look at though a normalized spaces. We had some if you will technical items are just really.
Related to the the revenue accounting if you will all related to a better than you would expect performance.
In the second quarter that was 3 million in the 4 million, it's really our best judgment or better insight into what really was a call a tailwind for the retail media business that occurred.
In the second quarter that really benefited exclusively the second quarter it sort of the phenomenal flipside of some of the headwind.
We experienced on the marketing solution side, the flip side about.
Was an estimated $4 million or if you will good guy that but we don't think it's going to repeat into Q3, so that phenomena together with a 3 million really represents our best judgment, taking 180 recorded hundred 80 million robotics to recorded.
And creating a more realistic view or both the actual performance as well, it's better for comparative purposes looking at Q2 into Q3.
They could do you want to take the third element.
Sure well Hey, Sarah.
The publishing so so we are you referring to 4700 publishes and getting first party data from them.
Let me flip to the to the to the buy side, where we have.
The 20, thousands appetizers and we get says probably data from Ben.
On the publisher side, the trick and as you know is certainly we want more one as much as we can get the trick is how did they get it.
So you know.
It's the way to get first party data of course is.
Having a relationship whether that be.
You know us assign on a subscription based model promotional something whereby you can get something on the back of consumer and it's difficult for publishers to workout with their strategies out to actually.
I get that some of some have done a fantastic job others are still trying to get to a place where they can offer something to get something back and we'll we'll have to as much as we possibly can I think I think we'll see as that will increase over time.
It's still that as you know regardless of the publishing side being being slower than the sell side. That's an enormous manifest study data that we that we have access to which is a very good place for us to be.
Okay. So they basically you decide to say that you try and D. These integrations model with those publishes how fast but first party data.
The not or would you be trying to drive Doc integrations, regardless, because obviously there the economics of had a bidding to take into account as well.
Yeah, we try to we try to drive them, regardless and data just gets tight it just gets better and say both it's correct.
Perfect. Thanks.
Our next question will come from Andrew with Jay and pay for JMP Securities. Please go ahead.
Good morning, Thanks for taking my question.
Megan or some other people in the industry believe that Google eventually not pull cookies can you talk about jure your personal opinion, there and how you see that that kind of playing out just given the impact on publishers. The open ecosystem Covet and then secondly, you guys talked about contextual targeting and the data.
As well as in the prepared remarks can you help us better understand your capabilities there.
And any degradation and performance as compared to kind of cookies. Thank you so much.
Yeah, Okay number one Google and.
Look I hope that's rights I.
Oh, we have a good relationship with Google their bomb Thera have had been on PAMA for some time of respect what they do for.
For the ecosystem, Oh, Google well, Google that trying to do clearly is to said responds to.
The notion that they called a lot of private private information.
And particularly as it relates to CTP A. I think.
They want to make sure that they can they came to the right thing in terms of C.C.T.I. inside they've got their billing because they're going after that and down and none of us can blame them, it's not about what they're doing it's about how they're doing it I think I suspect it for some time that they it 'cause it might slow them down.
I still suspect that clear that might slow them down not because there and they don't lose fastest because the ecosystem needs time to catch up and all of us have had a bit of adult.
[noise], what I will say is that it doesn't matter to us because this stay is coming or whether it be.
Third party cookies or a pass and due date and size for us it's prudent to.
Don't worry about that timeframe, but think about how we how we get access to the information that we need going forward. So <unk> personal information will not go dock it'll be about your relationship with the consumer and how you can get access to it in a way that it's safe and private and they feel comfortable and they feel good stuff.
Using it for the benefit of their experience online so I'm I'm sort of less focused about the timeframe around Google then I might have been before I'm more focused on the traction with nine to.
Take us helps out sort of fights pegs ahead of where we might have thing with Google, but yeah, that's not answer to that.
Contextual targeting has been around for us for a long time, so which we've been doing it for a.
How long time, it's not it's it's never as good as third party or or first party or actual I'd based one to one type targeting but sense of purpose in terms of giving [laughter] out that can seem at that your that your that you're trying to get in for.
<unk> because you can see them you can see their relevance of your message to what you're picking up that they're looking at you just explaining and terrible layman's terms that it's.
It's a it's a great full back for <unk> for us at probably [laughter] <unk>, because it's it's such an old concept, it's not out it's not abscessed port of Cold. It's just something that's absolutely there when and if we need it and we do contextual targeting today, that's nothing new for us.
And Ah am I would look pretty good at it.
Thank you.
And this will conclude the question answer session I'd like to turn the conference back into management for closing remarks.
[laughter] ethical dropped.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay. Thank you.