Q1 2025 Criteo SA Earnings Call
Good morning, and welcome to <unk> first quarter, 'twenty 25 earnings call.
Participants will be in a listen only mode should you need assistance. Please press star followed by zero.
Speaker Change: After the prepared remarks, there will be an opportunity to ask questions to ask a question. Please press Star then one to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Melanie Danbury, Vice President Investor Relations. Please go ahead.
Speaker Change: Good morning, everyone and wiped out your credit was first quarter 'twenty 'twenty five earning score.
Speaker Change: Joining us on the call today, Chief Executive Officer, Mike could come after you have kids and Chief Financial Officer, Sorry, Glickman are going to share some prepared remarks.
Regina: So for ourselves, our chief product officer, Regina for the Q&A session.
Regina: As usual I'll read you may find our investor presentation on our Investor Relations website, now as well as our prepared remarks that transcript after the court.
Regina: Before we get started I would like to remind you that our remarks will include forward looking statements, which reflect kudos judgment assumptions and I know you said suddenly has upset.
Regina: Our actual results may differ materially from current expectations based on a number of factors that that can create a fitbit.
Regina: Except as required by law, we do not undertake any obligation to update any forward looking statements discussed today.
Regina: For more information please refer to the risk factors discussed in our earnings release as well as our most recent Form 10-K, and 10-Q filed with yet.
Regina: We will also discuss non-GAAP measures of performance.
Regina: Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today.
Regina: Finally.
Otherwise stated all growth comparisons made during this court are against the same period in the prior year.
Regina: That doesn't mean, though kind of it over to Mike.
Mike: Thanks, Molly and good morning, everyone. Thank you all for joining us today.
Mike: To be here for my first earnings call as CEO of <unk>.
Mike: I see tremendous opportunity to lead the company forward with focus and ambition.
Mike: Over the past two months I've had the chance to meet with many of our teams across regions, along with clients and partners.
Mike: I want to start by sharing a few reflections on why I took the role.
Mike: What I've observed in my first couple of months and how we're thinking about the road ahead.
But before I do that I want to address two important recent developments.
Mike: The first one is related to Google's recent decision to keep third party cookies, which has positive near term and long term implications.
Mike: In addition to a modest benefit this year, we now operate from a position of strength and with greater clarity.
Mike: We're bullish about the long term prospects of our performance media segment.
Mike: Our investments and address the ability of led to significant AI innovation that will continue to pay off across all environments.
Mike: With the future proved approach to privacy protecting address the ability where.
Mike: Moving full steam ahead to execute tailored full funnel cross channel campaigns that drive measurable outcomes for our clients at any scenario and for the long term.
Mike: The second development impacts us in the near term and is related to our largest retail media clients.
Mike: Been a long standing partner.
Mike: This client unexpectedly notified us this week that while they will continue to use our industry, leading retail media technology platform under our multi year committed contract.
Mike: They will discontinue our managed services and curtailed the remaining brand demand sales services in November of this year.
Mike: Instead of a natural and gradual evolution of the support we provide them with this is a sudden change that will result in a significant impact on the growth rates of our retail media business for 12 month period, starting in Q4 2025.
Mike: However, this near term change does not affect our substantial opportunities to continue to grow faster than the market across the rest of our retailer base and for the long term.
Mike: More broadly it is important to highlight that <unk> is a leading an independent AD Tech player has built something unique.
Mike: A robust AI powered performance media business.
Mike: Bind with leading capabilities in retail media one of the fastest growing segments of digital advertising.
Mike: It's right at the center of Commerce, and media and that combination is powerful.
Mike: We have deep commerce data advanced AI capabilities, a large and diversified global client base impressive talent in a strong position across the digital advertising ecosystem.
Mike: <unk> is increasingly viewed as a must have agency partner in the evolving advertising landscape.
Mike: I saw firsthand that our relationships with leading global agencies are growing more strategic every quarter.
Mike: For my first couple of months I can see that <unk> hasn't yet realized its fullest potential.
Mike: My key priorities are to reaccelerate growth and improve its durability.
Mike: Fortify our leadership position in retail media.
Mike: Reenergize our performance media business.
Mike: And amplify the power of our platform all with a sharp focus on maximizing shareholder value.
Mike: The opportunity ahead is to intensify our focus Gail our strengths and double down in a few core strategic initiatives to deliver durable strong and profitable growth.
Mike: First we have early momentum behind our platform strategy, we've elevated our positioning in the market and we have a major enterprise clients like office depot, and ODP business solutions now utilizing our comprehensive Comverse media platform.
Mike: They leverage our demand side capabilities with commerce growth in Commerce, Max and our supply side solutions through Congress grid in Congress yield.
Mike: This demonstrates the value of our integrated approach.
Mike: We're also expanding our global agency partnerships to activate more of the overall platform.
Mike: These strategic partnerships will continue to be a key growth lever for us moving forward.
Mike: As a multi product platform company, we have many synergies across our products, there's a real opportunity to amplify these connections and enable our flywheel.
Mike: Second we're focused on driving more demand to our platform.
Mike: That's key to re accelerating growth.
Mike: After establishing a strong foothold in retail media supply.
Mike: We're deepening agency and API partnerships and expect to incorporate more demand sources moving forward, including through Microsoft and other partnerships.
Mike: In performance media, we're excited about the rollout of Commerce go our new AI powered automation and optimization tool set to launch high performing campaigns, and just five clicks and onboard more advertisers faster.
Mike: Third we're leaning into brand performance.
Mike: <unk> brands build awareness that is actionable and linked to measurable outcomes.
Mike: Our reach across multiple buyer types and our unique ability to deliver performance across the buyer journey gives us optionality.
Mike: No one else delivers performance everywhere like we do and it is powered by a rock solid foundation and sustained innovation.
Mike: That's our strength, we plan to build on with new product extensions for the second quarter in a row, we've seen success in capturing budgets from traditional upper funnel, dsp's, which reinforces our growing relevance across the full funnel.
Mike: Underpinning all of this is our AI innovation.
Mike: We have world class capabilities, including the right training data and we intend to continue to accelerate the pace of our innovation.
Mike: And performance media.
Mike: It delivers greater automation and performance breakthroughs.
Mike: More broadly.
Mike: AI agents become a new interface for consumers, we see opportunity for <unk> to play a central role in helping brands show up where it matters in real time with measurable outcomes in.
Mike: In retail media AI as a key enabler for our full funnel relevancy and holistic page optimization strategies.
Mike: As we look to the future here's what you can expect from us.
Mike: We intend to continue to lead in Commerce media and maintain our disciplined approach to growth through our build partner and buy framework.
Mike: Hold ourselves accountable aligning ambition with execution.
Mike: We're shifting from transformation to scale with continuous innovation and disciplined execution that means further expanding across multiple channels, including retail media open web and social to serve the full buyer journey we're.
Mike: We're investing in new formats, such as outcome based native display onsite video and CTV all expanding our Sam.
Mike: Importantly, we are evolving from a largely managed service model to a more scalable self service platform.
Mike: We're excited about this new chapter and we have a world class team to execute.
Speaker Change: For my part I lead with transparency operational rigor and a focus on measurable impact.
Speaker Change: They take a hands on approach to understanding the business dynamics, enabling smart decisions to turn high ambitions in the tangible results.
Speaker Change: Now turning to our first quarter performance.
Speaker Change: We delivered solid results, reflecting continued execution and momentum.
Speaker Change: Starting with retail media, we activated $335 million in media spend up 21% year over year from over 3800 brands globally.
Speaker Change: Our media spend growth was primarily driven by our multi year partnerships with leading agencies with a year over year increase of approximately 50% in U S agency spend again this quarter.
Speaker Change: At the same time, our growing relationships with independent agencies are fueling the expansion of our small and mid sized brand roster.
Speaker Change: With the transition of retailers from Microsoft advertising to our platform, we now partner with 70% of the top 30 retailers in the U S. An increase from 65% previously and our pipeline is strong.
We're expanding globally with new wins across all regions, including Dick's Sporting goods in the U S endeavor in Australia, the shopping in Japan Cooperative you in France, and Al Schopp, our first retailer in the Nordics.
Speaker Change: We're also expanding our collaboration with <unk> in France.
Speaker Change: Additionally, we're building from our success with sponsored ads to expand into newer formats, including onsite video, which we recently launched into general availability in our outcome based native onsite display offering coming later this year.
Speaker Change: <unk> video is a powerful addition to onsite advertising.
Speaker Change: Spanning inventory boosting engagement and elevating the overall shopping experience.
Speaker Change: For retailers and unlocks new revenue streams, while enhancing how shoppers discover and interact with products for.
Speaker Change: For brands it raises awareness at the point of sale and drives purchases all backed by closed loop measurement.
Speaker Change: We're excited to see early adoption of onsite video from several key retail partners, including Albertsons companies and Costco and we look forward to rolling this out over the next several quarters.
Speaker Change: Overall, we're confident that our comprehensive full funnel onsite advertising capabilities, combining video display and sponsored product ads formats in one unified platform can increase our market share gains.
Speaker Change: Retail media Offsite represents a complementary opportunity for retailers and brands to expand their reach across the open web.
Speaker Change: Most recently, we launched off site with office depot, ODP business solutions, and Costco, Canada in our Congress Max DSP.
Speaker Change: A recent campaign with HP at Costco showcase the power of our full funnel retail media strategy.
Speaker Change: Shoppers exposed to both onsite and Offsite ads.
Speaker Change: 855% uplift in conversion rates and over 10 X increase in revenue per user and a 58% lift in click through rates all a clear demonstration of how our integrated approach drives measurable business impact.
Speaker Change: In addition, we now have several retailers running off site monetization through our commerce grid SSP, enabling brands to access retailer audiences by a third party the Sps.
Speaker Change: This demonstrates our platform synergies and further expanded the scale and flexibility of our retail media offering.
Speaker Change: Moving on to performance media.
Speaker Change: We're encouraged by the sequential increase in media spend growth excluding AD Tech services.
Speaker Change: Our growth was led by Congress audiences are set of precision targeting tactics that leverage our large commerce dataset and best in class AI to help advertisers acquire and retain customers.
Speaker Change: We've successfully capitalize on cross selling and increasingly benefit from third party demand by our commerce grid SSP.
Speaker Change: We're now focused on expanding beyond these initial levers to unlock even greater scale and opportunity.
Speaker Change: We believe our ability to drive performance for clients is the strongest it has ever been and will continue to expand.
Speaker Change: We're focused on unifying the buyer journey at a single independent platform for advertisers to drive brand performance and reach shoppers wherever they are.
Speaker Change: To this end, we further expanded our social offering in the first quarter, enabling advertisers to activate Facebook and Instagram inventory at the SKU level for their commerce audience campaigns globally, while still early days. This led to a 40% sequential increase in social campaigns this quarter.
Speaker Change: Our value proposition is resonating and we're pleased to announce a new preferred partnership with Tenuity one of the largest independent full funnel agencies in the U S to leverage our performance media solutions.
Speaker Change: More broadly our goal is to deliver an end to end self service streamlined workflow with commerce go, allowing advertisers to plan buy and optimize across AD formats and channels, all while onboarding clients faster and reducing our cost to serve.
Speaker Change: Our advanced AI automates decisions around audiences channels AD formats, and creatives to maximize results.
Speaker Change: While we're still in the early stages of the rollout we're.
Speaker Change: We're seeing steady adoption from small clients and lower churn.
Speaker Change: We've grown Congress go campaign volume by 45% quarter over quarter predominantly coming from small clients. We are focused on our go to market efforts to build on this progress over the next several quarters.
Speaker Change: To summarize we believe <unk> is well positioned with many growth factors in front of us our diversified global business and robust financial Foundation gives us a strong position and our focus on performance enables us to be resilient.
Speaker Change: By staying focused in operating with rigor we're confident in the long term potential of our platform and are firmly committed to driving sustained value for our shareholders.
Speaker Change: In performance media, we have gained greater clarity and have been even and have even more confidence in our long term outlook.
Speaker Change: In retail media, the fundamentals and momentum of our business remains strong despite the near term challenges.
Speaker Change: Overall, we have momentum behind our holistic platform strategy and we anticipate growth in our business we.
Speaker Change: We will pull cost and productivity levers as needed to maintain 2025, adjusted EBITDA margins in the 33% to 34% range and generate industry, leading cash flows.
Speaker Change: <unk> sits at the heart of Congress media uniquely powered by cutting edge AI and unmatched commerce data at scale.
Speaker Change: We're firmly committed to driving shareholder value and we intend to continue our share buyback underscoring our confidence in our strategy and financial strength and our belief in the intrinsic value of our shares.
Speaker Change: We know there is more to do and the management team and board continue to explore all ways to enhance value for our shareholders.
Speaker Change: With that I'll hand, it over to Sarah who will provide more details on our financial results and our outlook.
Sarah: Thank you Michael and good morning, everyone.
Sarah: First quarter performance reflects strong execution and financial discipline.
Sarah: Revenue was $451 million in contribution ex Tac increased to $264 million. This includes a year over year headwind from foreign currency of $6 million.
Sarah: At constant currency Q1 contribution ex Tac grew by 7% year over year, representing growth of 24% on a two year stack basis.
Sarah: We're lapping a tough comparison with significant AI driven performance enhancements in 2024, as well as the prior year quarter, including each day and Easter.
Sarah: Client retention remains high at close to 90%.
Sarah: Starting with retail media revenue was $59 million contribution ex Tac grew 18% at constant currency to $59 million.
Sarah: Growth was driven by continued strength in retail media on site and continued traction for upside campaigns.
Sarah: We benefited from the contribution of newly signed retailers.
Sarah: Growth from existing clients remained strong with same retailer contribution ex Tac retention at 120%.
Sarah: On the supply side, we continue to win new retailers globally, including former Microsoft advertising, we tied it.
Sarah: As expected and as previously communicated we also benefited from higher tiered fees in January preceding fiscal year volume thresholds.
Sarah: On the demand side, we saw a significant expansion with TPG and smaller brands and we on boarded 300, new brands this quarter.
Sarah: There was continued momentum with our agency partners.
Sarah: Expect US 3800 global brands to continue to prioritize retail media as a key channel, but the advertising investment given the proximity with the point of sale.
Sarah: During the first quarter, we experienced strengthening price right, while we saw lower growth in beauty.
Sarah: In performance media revenue was $392 million in contribution ex Tac was $206 million up 4% at constant currency.
Sarah: This was driven by our commerce, Gratulation, which leverages, our large scale commerce data and AI powered audience modeling technology despite in market shoppers.
Sarah: We also benefited from the growth of our commerce Great S. S. P. A.
Sarah: <unk> continued to be negatively impacted by lower spend by a large client in our media trading marketplace.
Sarah: We benefit from our global diversified client base.
Sarah: The region, we delivered double digit growth in media spend in Asia Pac and low single digit growth in Europe, and the middle East, while we saw a lower budgets in the U S.
Sarah: By vertical travel remains our fastest growing vertical up 44% qualified classified marketplace is performing well.
Sarah: Broadly that with lower spending in retail and fashion was down 6%.
Sarah: We delivered adjusted EBITDA of $92 million, I think Q1, 2025 up 30% year over year, mainly driven by operational leverage from topline growth and cost discipline, and creating a slower pace of hiring and lower bad debt expense.
Sarah: non-GAAP operating expenses decreased 3% year over year, reflecting a rigor on resource allocation.
Sarah: We in fact in our growth areas, while optimizing our operating model to enable scale and operational efficiencies.
Sarah: We continue to streamline our processes to work better and faster and enable increased productivity with AI driven tools.
Sarah: Moving down the P&L depreciation and amortization increased by 3% in Q1, 2000 $25 million to $26 million and share based compensation expense was $16 million, reflecting a normalized run rate compared to $27 million in 2024.
Sarah: Our income from operations was $48 million and our net income was $14 million in Q1, 2025, an increase compared to $9 million last year.
Our weighted average diluted share count was $57 2 million, which resulted in diluted earnings per share <unk> 66 cents compared to 12 <unk> last year.
Sarah: Adjusted diluted EPS was <unk> 10 in Q1 2025.
Sarah: 38% year over year.
Sarah: Operating cash flow was $62 million and free cash flow was $45 million in Q1.
Sarah: <unk> improved working capital and lapping last year's calendar impact.
Sarah: We benefit from a strong financial position and pristine balance sheet with solid cash generation and no long term debt, we had $810 million in total liquidity as of the end of March which gives us significant financial flexibility to execute on our strategy.
Sarah: And enabled disciplined and balanced capital allocation.
Sarah: Our priorities are to invest in high ROI organic investment in value enhancing acquisitions and to return capital to shareholders via our share buyback program.
Sarah: We are confident in our business strategy and we are committed to driving shareholder value.
Sarah: We could do it $56 million of share repurchases esports at which included the repurchase of one and a half million shares and we will continue to actively buy shares as part of our buyback program.
Sarah: Turning to our financial outlook, which reflects our expectations as of today may 2nd 2025.
Sarah: We have taken a prudent approach given the uncertain macro environment and the reduced scope of services related to our largest retail media clients.
Sarah: It is important to emphasize that our strategic priorities remain unchanged at a strong pace cuts on top line growth delivering for our clients and ensuring strong operational rigor on cost and cash.
We also have greater clarity around Google's planned for third party cookies, giving us even more confident in the long term outlook of our performance media segment.
Sarah: The 2025, we now expect contribution ex Tac to grow low single digits, Yeah, I think yeah at constant currency with growth in each of our segments.
Sarah: We now estimate Forex changes to drive a positive year over year impact of about 10 million to $12 million on contribution ex Tac for the full year.
Sarah: In retail media, we have a scaled to Hudson, a 50 million dollar plus revenue based.
Sarah: 2025 retail media growth is now projected to be in the low to mid single digit range at constant currency.
Sarah: The downward revision contemplates a more challenging macro environment driving delays at certain retailers Tech roadmaps.
Sarah: This position also reflects the scope changes for our largest retail client and for food delivery client in the U S.
Sarah: We expect the reduced scope for these two specific clients too.
Sarah: To result in a 25 million negative impact in 2025, largely related to Q4, 2025, and approximately $75 million for the third.
Sarah: 10 months of 2026 until you annualize it.
Sarah: We haven't seen it most prudent view and our updated outlook and do not anticipate any significant changes.
Sarah: Excluding these two clients are underlying growth for 2025 is expected to be in the ballpark of 20%.
Sarah: In performance media, we expect contribution ex Tac to be up low single digits in 2025. This.
Sarah: This reflects continued traction with advertisers to drive performance throughout the buyer journey and less tough comps from the significant AI driven for him as he helps us in 2024.
Sarah: We and our clients are excited about our platform innovation and look forward to the continued ramp up of Commerce Guy.
Sarah: We also expect potentially lower AD budgets in a challenging macro environment, especially in discretionary categories.
Sarah: All AD budgets are likely to face greater scrutiny.
Sarah: Overall, we continue to anticipate an adjusted EBITDA margin of approximately 34% to 34%, 33%, 34% for 2025.
Sarah: Q1, adjusted EBITDA had some phasing benefits at some expenses shifted from Q1 into Q2.
Sarah: We intend to maintain managing margins and generate strong cash flow, while continuing to invest in the growth of our commerce media platform.
Sarah: We anticipate that the investments we are making this year will position us for continued top line growth and strong cash flow generation for the coming years.
Sarah: We expect a normalized tax rate of 22% to 27% under current rules.
Sarah: This little Capex is expected to be approximately $100 million and we now expect a free cash flow conversion rate of about 45% of adjusted EBITDA before any nonrecurring items.
Sarah: The Q2 2025, we expect contribution ex Tac at $217 million to $278 million down, 2% minus 2% to flat at constant currency.
Sarah: Our range takes into account the volatility in the macro environment.
Sarah: Its impact on consumers and all clients and so April trends.
Sarah: As previously communicated this includes a sequential decrease in our retail media growth in Q2, mainly due to lapping a tough comparison and the tiered fees in January.
Sarah: We estimate Forex changes to drive a positive year over year impact of about $10 million to $12 million contribution ex Tac in Q2.
Sarah: We expect adjusted EBITDA of between 60 million and $66 million and as previously communicated they think it's a one time plans companywide intend on the bench.
Sarah: It also reflects continued high ROI growth investments in our platform.
Sarah: Annual employee Merit increase effective in April.
Sarah: Burn rate exchange rate headwinds on our European cost base, we have.
Sarah: Anticipate a slower pace of hiring and less discretionary spend for the remainder of the year.
Sarah: As a reminder, in Q2, the 'twenty 'twenty four we benefited from a reduction in bad debt expense due to lower DSO for retail media and at one time.
Sarah: Stone payment related to one of our large partnerships.
To conclude our strong Q1 results demonstrate the underlying strength of our commerce media platform.
Sarah: While we are facing near term challenges in creating uncertainty in the macroeconomic environment, we expect to continue to deliver right healthy profitability and solid cash generation.
Sarah: We have a resilient business with robust a phone case at the performance capabilities and a broad and diversified client base.
Sarah: We have strong conviction in our strategy and our business model and we have the access to plummet stated the fuel's AI models to enable fulfillment and relevant at scale across the buyer journey.
Sarah: And with that I'll hand, it over to the operator to begin the Q&A session.
Sarah: Thank you to ask a question. Please press star one if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press star two.
Sarah: At this time, we would like to pass to assemble our roster.
Speaker Change: Your first question comes from Eke out every union with Citigroup. Your line is now open.
Speaker Change: Hey, good morning, guys and welcome Michael.
Speaker Change: So I guess first not surprisingly on retail media.
Speaker Change: Yeah.
Speaker Change: The past few quarters.
Speaker Change: You guys highlighted the competitive environment, a credo has been getting stronger within that competitive environment and a pretty meaningful way.
Speaker Change:
Speaker Change: And the combined impacts here that we're talking about are roughly a third of what it would be roughly a third of your retail media contribution ex tax.
Speaker Change: In 2025, so that's a pretty meaningful impact and it was.
Speaker Change: I just wanted to kind of expand on a whats your largest retail partner why maybe what why do you think this is happening again.
After what's happened a year and a half ago.
Speaker Change: Why they are pulling back further.
Speaker Change: Given.
Speaker Change: Given the support you offer.
Speaker Change: Maybe a little bit on Uber eats also what why that's happening and the confidence that your competitive positioning remains.
Speaker Change: This plays out is there further risk of in housing and just how we think about that and then follow up just on maybe if.
Speaker Change: We could expand on the comments around April and the softer macro a little bit more detail on what you're seeing there. Thanks.
Joe: Thank you Joe.
Speaker Change: Start the first question and then I'll ask Sarah for some extra commentary.
Joe: We can terms of the in housing question.
Sarah: We see some retailers willing to own the sales and demand front end their retail media network, but continuing to use our technology.
Sarah: But not every retailer I can tell you that on the cardio demand generation is differentiated.
Sarah: And as is our technology, which we don't see any risk to in housing from.
Speaker Change: So no I don't we don't we don't see this as a continuing trend this client being one of the larger ones in the market was probably overdue to start to adopt this operating model and in fact, we had contemplated that for some time, so let Sarah talk a little bit about.
Sarah: Yeah.
Sarah: Thanks for the question just in terms of debt situation Festival this year.
Sarah: Is oh, that's very long standing partner for Us and obviously, it's all logic.
Sarah: Retail media clients.
Sarah: Well, we have seen as it is is that they have they've had changed their arrangement with us.
Sarah: He is back as you know in this situation. What has happened is that they have has removed services, which relate to two specific items one relates to.
Sarah: Services that we used to pool, and bringing in new clients and demand generation services as well as other studies, including billing and collections and that is now will now be can tell starting November yeah that being said, we have incredible long term relationship with them and they will continue to use our tech for running.
Sarah: Retail media, so there will be no other change that but it is a significant impact, especially given that we have done I would say again, a struggling job for them as well as the other clients across this year and into 2025.
Sarah: And we do expect strong growth across the rest of the base and for the long term.
Sarah: We expect to continue to get leverage from a tech across this customer and all our customers for the long term.
Sarah: Specifically to the U S.
Sarah: They left food delivery clients. This was a choice by them simply for the U S market, we are continuing to manage all the business for them globally.
Sarah: As you know was announced externally.
Sarah: Overall, we do not expect this to be impacting us for other clients. This is a I would say unique situation.
Sarah: And we managed through it and we continue to service all our clients and we continue to drive all tech roadmap as well as the value that we deliver for them.
Sarah: Okay. Thanks, and then maybe just on the macro trends in April and what you're saying there.
Sarah: Oh, Yeah, Yeah, I mean, we did see yourself to macro in April I mean, we came off a fantastic team for a strong traction into Q1, I would say in Q1 and as I said, we saw a mixed quarter beauty being being went down a fashion down our U S retail.
Sarah: <unk> also down, but offset with very strong growth travel up 44% classifieds.
Sarah: And similar trends in April, but we did see I would say a flat Easter year on year and it was self to across the board I think just given some of the news in the macro environment, we saw a softening.
Sarah: That being said, we always see that we have an incredibly resilient performance business.
Sarah: None of all categories are down more than 10%.
Sarah: So either up or that down to the kind of it.
Sarah: Mid mid single digit range.
Sarah: Okay. Thank you so much.
Speaker Change: Your next question comes from Mark <unk>.
Speaker Change: Which with benchmark your line is now open.
Michael: Thank you and welcome Michael.
Speaker Change: I just wanted to get a sense.
Appreciate the color shera on on the verticals that you saw weaker.
Speaker Change: April but in terms of spending patterns across income demographics, I know you see a lot of data.
Speaker Change: Just curious if you're starting to see any weakness at the upper income levels relative to the low to mid <unk>.
Speaker Change: That would be interesting and then.
Speaker Change: In terms of the.
Sara: Opex leverage Sara that you saw.
Sara: Across all line items in the first quarter I'm just curious how.
Sara: That should trend into Q2 and.
Sara: And through the year, I think you'd have a better picture perhaps of.
Sara: The top line this year, but.
Sara: But it would be interested in just getting a sense of how you plan to manage that and then.
Sara: Just additionally, how we should be thinking about.
Sara: The 12 months revenue impact that begins in fourth quarter from your large client.
Sara: Thanks.
Sara: Okay, Yeah, Yeah, I'm happy to take that and thanks for all the questions. I mean first of all the macro we do look at it it's a I would say in many ways and actually.
Sara: That reads information.
Sara: On our website regarding I'm kind of marketing trends I did not say that in demographics, what I would say is that we have seen them.
Sara: We said fashion down like broadly.
Sara: Beauty, which is including in the fragrance category are in I would say that the nicest stores down U S department stores, and not doing as well and wake Fannie very focused on the retailers as they announce in the coming in the coming months, but in terms of brand spend it really is.
Sara: Brands are more resilient than others and more discretionary categories I would say across income across income bands with seamless things just in general, but we clearly keep a close eye on what the banks are published it as well.
Sara: In terms of the operating.
Sara: Leverage.
Sara: You know we saw terrific operational leverage in Q1 were really keeping a close eye. This is I would say well trained muscle for us at this point.
Sara: Q1, you had very strong EBITDA leverage coming from the top line.
In Q2.
Sara: We actually are included within our Investor materials, a walk of Q1 to Q2. So you can see the dynamics, there's some of it relates to comps.
Sara: Some of it relates to a specific.
Sara: One time.
Sara: <unk> says there's also an FX headwind in that for our European cost base that we expect to continue to see this year, but it's a very I hope I can say it will be that we included in the materials.
Sara: But as a rule of 40, yeah, Yeah, we're focused on ensuring that we deliver on the top line as well as on the bottom line and we're going to continue to focus on all on all cost levels largely related to the I would say pace of new hires.
Sara: In terms of the retail media client, we have a 215 million dollar base.
Sara: For our retail media client, it's a scaled basis across say the 200 clients.
Sara: 1100 brands year on yeah, Yeah that continues to grow this impact relates to two specific client situations.
Sara: Of course, let you know within a year, but it is a significant headwind to us.
Sara: Largely because I would say we've done a good job to ensure that we deliver services to our clients, including demand generation services for the long tail of brands and.
Sara: Yeah that is the piece that will be curtailed, but overall for all our client base comment Max is going well our high spend from agencies that want to get across retailer across the network and so our focus is to continue to ensure that we deliver value to all that is base and of course youll see the uptake in our new clients as well.
Sara: On new capabilities coming in and we anticipate that will be more in the end of may of this year, but likely more to start ramping up in the beginning of next year, just given the uncertain macro.
Speaker Change: Okay. Thank you sure appreciate it.
Mark Kelley: Your next question comes from Mark Kelley with Stifel. Your line is now open.
Great. Thank you very much good morning, everyone Hello, Michael a couple of just quick ones Unsurprisingly on retail media just starting with your largest.
Mark Kelley: Retail media client any way to give us a sense for what percent of the demand.
Mark Kelley: You were generating versus what they were doing in house.
Mark Kelley: Before the change.
Mark Kelley: And then second just on the Uber relationship can you just walk through what that process was like.
I can see who the competitor is that starting to work with them in the U S. But.
Mark Kelley: Was there like an RFP process that were they were testing you against other solutions in the other solution went out I'm just trying to get a sense for.
Mark Kelley: Just the dynamics of diverse thank you.
Mark Kelley: Yeah, I'll I'll just address the question on the largest retailer our first are we do know.
Mark Kelley: I'd say generally come in.
Mark Kelley: All of.
Mark Kelley: Specific clients, but we and we also do not give our information.
Mark Kelley: What's being driven between ourselves and our clients well, we have said and what continues to be the case is that 80% of brand spend the large brands is being driven by most of our large retailers, but we are doing is a very good job of increasing the number of brands globally and that tends to be the mid to long tail that we do serve it.
Mark Kelley: For this client, but also for other clients in that.
Mark Kelley: It will be shifted in kind of at the end of this year. So that would be I would say that the dynamics for this client.
Mark Kelley: In terms of concentration of clients. We do include all client concentration within our 10-K. So you can see the specifics within that.
Mark Kelley:
Mark Kelley: Yes, yes, thanks <unk>.
Mark Kelley: Hi, Mark I can address the <unk>.
Our next question.
While we are disappointed with the change I think it's worth reminding everybody. We continue our global partnership with your graph Uber advertising and remain focused on deepening our collaboration and driving shared success.
Speaker Change: Like Sarah.
Speaker Change: No I think your comment in detail about how clients make their decisions, but well I guess.
Speaker Change: What I can tell you there was not a head to head.
Competition of some kind that we lost out on we were driving significant demand for that client.
Speaker Change: They've made a decision that they think that there'll be some maybe stronger synergy with another provider.
Speaker Change: About the best I can surmise that this current state.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you both.
Speaker Change: Your next question comes from Richard Kramer with the REIT Research. Your line is now open.
Richard Kramer: Thanks, very much Michael you mentioned.
Speaker Change: And then Sarah as well you mentioned the Onboarding of the Microsoft clients.
Speaker Change: Capturing budget from upper funnel D. S piece, and you talked about the growth rates in agencies, both larger and midsized agencies, but we're not really seeing that come through our numbers. This year and Sarah It seems like you were mentioning more 'twenty 'twenty six figures can you talk through what you could do to speed up the ramp of these both new cohorts of clients and all.
Speaker Change: These new channels.
Speaker Change: It does seem like Youre, calling out a lot of areas, where you're winning share you've got a big pipeline, but again, it's hard to see that flowing through our numbers this year.
Richard Kramer: Yes, Richard.
Speaker Change: Michael Hey, how are you. Thanks for the question and I will start that and then probably kicked us the thought for a little extra commentary.
Speaker Change: But I mean in general.
Speaker Change: There is a solid strategy here and a strong roadmap and its kind of back to my overall remarks that our focus here in the near term the focus on product delivery scaling products in the market and making sure that we execute commercially.
Speaker Change: In the in the near term for performance media and we need to ramp Congress go and make sure that that is positioned to have an impact on the business in 2026.
Speaker Change: To leverage our AI investments, but I think longer term make sure that we can continue to move up the funnel to be more of a full funnel cross channel product on performance side.
Speaker Change: In retail you know near term I think it's about.
Speaker Change: Driving solutions towards holistic page optimization.
Speaker Change: And making sure that we scale new offerings like onsite video right.
Speaker Change: That's contemplated in the plan, but.
Speaker Change: But we need to deliver against.
Speaker Change: And then long term, it's really about solving the equation for efficient buying retail media, but I'll, let Todd comment on maybe a couple of the product.
Speaker Change: But we can also focus.
Todd: Thanks, Michael.
Richard Kramer: Good day or Premier Richard I would just add one thing, which is retail media is still maturing into into.
Richard Kramer: Into trading that pulls together onsite search display and off site and the full funnel Cross channel set up that Michael was measuring.
Richard Kramer: That's why we talk about the longer term implications of partnership with Microsoft and other demand platforms.
Richard Kramer: Because we have to make sure that all of those things trade in the full funnel cross channel setup in an efficient manner and that's something that just doesn't exist across retail media today, and we are leading the charge to design it and to put it into place for the whole ecosystem.
Richard Kramer: That's why we talk about it long term and that's why you're not showing it seeing it show up in the immediate term, but we're very confident that we're ahead of the charge there and we have a footprint that is enviable.
Richard Kramer: As to any level across the ecosystem to make that true.
Richard Kramer: So that that's just the one thing to add.
Richard Kramer: We're very bullish about the opportunity as we move into this space, where retail media transact full funnel Cross channel.
Richard Kramer: And then just can I say.
Richard Kramer: Alright good.
Richard Kramer: Please.
Richard Kramer: Just to add to the to the forecast I mean as you've seen we've.
Richard Kramer: We've moved to more prudent view on the forecast some of that is related to the macroeconomic we're winning clients and win rate is strong.
Richard Kramer: We do anticipate some of those will be later.
Richard Kramer: That is largely due to the client, but it's the I always say appetite to get going so it it's more that it's just a slower transition and a slower.
Richard Kramer: Hi.
Speaker Change: Okay, and maybe a quick follow up for Todd and Sarah since you have the history, there with respect to privacy sandbox does re targeting somehow revive itself down the road or has this sort of third party cookies ship already sailed in and maybe Sarah what sort of incremental testing costs, where you're wearing in the past year or two too.
Speaker Change: To make the transition to privacy sandbox had made now no longer be needed.
Speaker Change: Let me take the first one and Sarah can jump in after.
Speaker Change: It's pretty simple equation I think Michael mentioned earlier.
Speaker Change: We have.
Speaker Change: Made our investment in hybrid addressable and privacy sandbox specifically.
Speaker Change: Well before now we're four years into that.
Speaker Change: Google's policy.
Speaker Change: It is only helping us expand re targeting another direct response pools.
Speaker Change: And making them perform at greater scale, so that's upside for us over time.
Speaker Change: And in terms of the investment again, just to reinforce what Michael said earlier, we've already made our investments in privacy sandbox most of those were accretive broadly.
Speaker Change: Because it took us in the world of deep.
Speaker Change: Deep learning.
Speaker Change: For our audience setups for bidding for.
Speaker Change: For our product recommendation and for our optimization in new ways. So we're going to carry those long term.
Speaker Change: And there are definitely upside for the company, we will not have to continue to invest in privacy sandbox AP is as we were before so that does look very slight amount of resources for the product roadmap. Yeah. Yeah. I mean, just to add to that I would say this it's been actually a great ROI invest.
Speaker Change: For us across the board, we understand signal, we understand data, we're putting those teams right alongside all the well, we I mean, I would say TV and the R&D team alongside all the the charge to really expand on how do we use data and AI signals into the best way. So I would say no not significant savings there because these are.
Speaker Change: These are team members just understand this cold and are excited about the innovation that this will drive so from our standpoint, we see blue skies ahead to just clarity on the driving that roadmap food cost.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from Justin Patterson with Keybanc. Your line is now open.
Speaker Change: Great. Thank you.
Speaker Change: Sure you mentioned.
Speaker Change: Managing expenses during this period, while still investing for growth.
Speaker Change: Give us just how much of a sense on how much flexibility there is around.
Speaker Change: <unk> management this year and.
Michael: Maybe stepping back for Michael.
Michael: And a lot of interest on our retail media more so from.
Michael: On the video side is connected TV ramps up.
Michael: Hughes on just how you might approach a channel like that and where that could fit on a long term roadmap. Thank you.
Speaker Change: Yeah, and just to a desk on the cost side I mean, we clearly had a eight value mapping and invest including I would say in a studying and operational resources that was a focus on maybe a different macro environment at the beginning of this year. Most of this would relate to you know not hiring.
Michael: I would say more discretionary.
Michael: Yes.
Michael: Second I would say that Oh focuses on our self service platform and the commerce Guy would be one great area, where it's a new segment for us it's more back to school clients. Its self service capability kind of end to end and clearly that's a more efficient operating model.
Michael: Those would be the two items that we're focused on we are no stopping any investment on high ROI investments.
Michael: We have seen is that we need less people to do that given AI innovation just given some of the discussion. We just had on the Eva I resources and engineers are able to do more with less though are all.
Michael: All in all it's across the board, but ultimately it's a it's doing well, what we do well, which is ensuring that the operating model and the resources are focused on ensuring that we get full speed ahead on where our clients are going and on the efficiency that we can drive in the productivity.
Justin Patterson: Yeah, and Justin Hi, Thanks for the question I'll take the one on C. T V.
Justin Patterson: It all starts with our goal to serve the full buyer journey across multiple channels in CTV is the second fastest growing area of digital advertising and I think in terms of what it offers is a format.
Justin Patterson: It supports brand building with the added benefit of being measurable having closed loop attribution and we think even can be a robust performance channel. So we're in the early stages of assessing how it would fit for us.
Justin Patterson: And how we would build connections between kind of living room commerce and other channels so to speak.
Justin Patterson: So it's early days, but it definitely could help us achieve more scale.
Justin Patterson: By capitalizing on again in the second fastest growing segment of the video landscape.
Speaker Change: You're going to offer to help out stock.
Justin Patterson: Our early hypotheses.
Speaker Change: Yeah, I'd, just reinforce something Michael said, we're looking at CTV and video across the full funnel cross channel landscape.
Speaker Change: And it's not just something that we're considering we are in the process of testing the.
Speaker Change: The dimensions of how it is used for both performance in the direct response context as well as all the way up to the top of the ball in discovery advertising. So we have two dimensions of work that we're doing there product wise.
Speaker Change: <unk> that we can manage performance and deliberate or our clients across that full funnel stuff.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Alex <unk> with Wells Fargo. Your line is now open.
Alex: Yeah, Hey, thanks, so much maybe one for sour and one for Michael Cera.
Speaker Change: Could you maybe help us think about the percent of retail media contribution ex Tac after backing out the 100 million from the largest customer.
Speaker Change: It's generated.
Speaker Change: Do you add sales or I guess demand generation services I'm trying to think about like how much of the business pro forma is on the supply side, which seems a little bit safer more defensible versus on the demand side and then maybe for Michael I guess could you help us think about early impressions of curtailed with self service tools, how would you rate the sophistication of self service.
Speaker Change: Setup and management of curtailed right now relative to maybe like embedded advantaged posture of Google performance, Max and how do you think about maybe pushing the capability gap over time. Thank you.
Speaker Change: Yes.
Speaker Change: Yeah, I mean, just to address 26, clearly, we're not going to give long term guidance.
Speaker Change: So I think you know 26 guidance.
Speaker Change: What I have said is that we are building off a strong base of <unk>.
Speaker Change: 200, plus plus growing customers they are growing faster than the market and we all see we do expect that to ramp up.
Speaker Change: Especially within 2026, and I would say in a more normalized macro.
Speaker Change: In terms of the service like.
Speaker Change: This well.
Speaker Change: The curtailment largely relates to services, which.
Speaker Change: It was about 20% of our base, but this is the only significant client that has services. So I guess I would say that it's just a slower ramp up of the services layer.
Speaker Change: In generation, we see coming through E Commerce snacks, we see the agent steep growth 50% year on year, we see the continued focus on on in mid.
Speaker Change: Mid and long tail brands as well as large brands across the base and a tough one I mean, I'd say our agency partners and brands in particular do you want to buy cross retailer.
Speaker Change: So we don't we don't.
Speaker Change: Necessarily see this as being a key driver for us in terms of supply of fees, which are I would say all in it's quite fixed relating to the tech and the demand side fees and the demand piece.
Speaker Change: <unk> side of the business is where we do see scaling up without agency and brand partners.
Speaker Change: Oh, Hi, all calibrate thanks for the question I'll take the one on the self service capabilities.
Speaker Change: Look I would say that Korea was on a journey.
Speaker Change: As it pertains to that but we are very excited about the rollout of Congress go.
Speaker Change: And I think we have the benefit there.
Speaker Change: And what has worked in terms of what's come before us and frankly what happened.
Speaker Change: I'll tell you from my agency background.
Speaker Change: Really what agency partners are looking for in a solution like that is the ability to manage parameters that actually enjoy AI automation, but certainly want to have hands on the key critical levers you wanted to understand placement they want to have a good understanding of the measurement component.
Speaker Change: Congress goes designed with all of those in mind right, we referred to it as our gray box solution because it offers those types of parameters and transparencies that other solutions in the market, though and so we think that we potentially will be differentiated with that as we roll it out.
Speaker Change: We're excited about the potential that that has for the business.
Speaker Change: Perfect. Thanks, so much.
Speaker Change: Your next question comes from Doug Anmuth with Jpmorgan. Your line is now open.
Speaker Change: Great. It's Brian Smith on for Doug. Thanks for taking the questions just thinking about the 25 guide can you just help parse out the trade off of contributions from new clients specifically Microsoft.
Speaker Change: Macro headwinds that are factored into the guide.
Speaker Change: Lee by vertical overall to social continues to grow well and you're obviously integrated at the SKU level on Facebook and Instagram. Just curious can you help us think about the demand there and the cross selling opportunity with the new channels such as social over time. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah, Yeah, I can address just in terms of the growth rates of 25, the way that we still the revision downward with I would say about 50 50 about 50% related to the macro some of that is general macro trend. Some of that is it's now starting to see that.
Speaker Change: Starting soon enough I would say and the other the other part relates to the specific the two specific clients.
Speaker Change: I can jump in on the on the social piece.
Speaker Change: I'm glad that you asked about specifically.
Speaker Change: Our intent the entire way has been to simplify workflows and guarantee performance is returned.
Speaker Change: Our clients are looking across channels and reaching that pull funnel that we talk about before and that's working quite well with matters. So far.
Speaker Change: Obviously, we look to take that further out into the social platforms. So that our clients are not only getting reach but they're also getting workflow efficiency and performance.
Speaker Change: Hughes us as their solution their overall solution rather than using a variety of point solutions that are available in the market. So we're very excited to continue down the path that we started and the early returns show that we're being successful on both performance.
Speaker Change: And reach for our clients.
Speaker Change: Great. Thank you both.
Speaker Change: There are no further questions at this time I will now turn the call over to Melanie for closing remarks.
Speaker Change: Thank you Mike our Sorrento that concludes our call for today. Thanks, everyone for China. If you have any follow up questions. That's a ratio debated purchase it but I'd say.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.