Good day, and welcome to the Criteo Q1 2014 Earnings Conference Call. Today's conference is being recorded. .
And at this time, I'd like to turn the conference over to Mr. Edouard Lassalle, Head of IR. Please go ahead, sir. .
Thank you, Sarah. Good afternoon, and good morning to all of you on our conference call, and welcome to Criteo's financial results for the first quarter ended March 31, 2014. Joining us on the call today are JB Rudelle, Criteo's Co-Founder and CEO; and Benoit Fouilland, Chief Financial Officer. .
Please note that this call is being broadcast live on our Investor Relations website at ir.criteo.com. A replay of the call, along with the earnings release issued before the U.S. market opening today, will also be available on our Investor Relations website. .
Before we begin discussing our earnings, I'd like to remind you that some of our discussions today will contain forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion, anticipated market demand opportunities and other forward-looking statements.
As always, these statements are subject to risks, uncertainties and assumptions. .
Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance.
Further information regarding the factors that could affect Criteo's financial results is included in the filings that the company makes with the Securities and Exchange Commission from time to time, including in the section entitled Risk Factors in Criteo's prospective filed with the SEC on March 21, 2014. .
Also, I'd like to remind you that during the course of this call, we will discuss non-IFRS measures of our performance. Reconciliations to the most directly comparable IFRS financial measures are provided in the tables in the earnings press release published earlier today.
Unless otherwise stated, all comparisons made in the course of this call are against the same period in the prior year and include contribution from the acquisition of Tedemis, closed during the first quarter ended March 31, 2014. .
Now with this in mind, let me turn the call over to JB Rudelle, Criteo's Co-Founder and Chief Executive Officer. JB, the line is all yours. .
Thank you, Edouard. I'm very pleased to share our first quarter results with you today. We closed a record quarter of profitable growth, but exceeding the high end of our guidance, both on revenue ex-TAC and adjusted EBITDA. In the first quarter, our revenue ex-TAC grew 76% year-over-year at constant currencies to EUR 62.7 million.
Our adjusted EBITDA grew 224% year-over-year at constant currencies to EUR 14.5 million. .
one, the continuing broadening of our client base across our geos and market segments; two, increasing our revenue from existing clients by driving more sales from them; and three, the continued strong traction in mobile, growing to 15% of revenue ex-TAC in March from 10% in December 2013 and 2.5% last September. .
On our first growth driver, broadening our client base, we added approximately 500 new clients during the first quarter, excluding Tedemis accounts, ending the period with a record of 5,567 clients, representing a 46% year-over-year growth.
As we continue to grow our client base, we see our business increasingly diversified and steadily less dependent on our top 20 clients. In markets where we have established a mid-market presence, our mid-market client base is showing strong growth, and we are particularly satisfied with this trend.
In the quarter, we continued to maintain our strong client retention rate above 90%, reflecting the stickiness of our solutions. .
As you know, one of the key attributes of our cost-per-click model is its ability to work directly with clients. And in Q1, our proportion of direct client relationships remained very high, at approximately 80%. In parallel to clients, our direct relationships with publishers also continued to be a healthy growing part of our business.
In particular, our Criteo Publisher Marketplace, targeting the mid-market publishers, demonstrates a truly global footprint, and it's very similar to the scale of the largest RTB platforms in the world. In the quarter, we also continued to be a very active buyer on the Facebook Exchange global market. .
On our second growth driver, revenue from existing clients, we're becoming more important to our clients by generating more sales from them and generating a larger share of their overall sales. Our clients work with us because of our performance, and many of them give us effectively uncapped budgets tied to first-click performance targets.
Therefore, if we include performance, we see an immediate improvement in our client sales and our revenue ex-TAC. .
We delivered significant improvements in performance this last quarter and, as a result, generated more clicks and more sales for our clients. Part of this growth was obviously mobile, but there was also a significant part that came from other technical improvements.
This quarter saw continued improvements in our prediction engine performance, as well as the rollout of enhanced banner capabilities. .
Our third growth driver was mobile. Criteo has now released a complete personalized mobile advertising solution across all leading browsers and app platforms. This is critically important, as our clients are seeing a rapid growth in their sales via mobile, especially through tablets.
As a result of this solution, Criteo is now generating over $1 billion in first-click mobile sales for our clients on an annualized run rate. We are seeing significant revenue and sales on mobile browsers from both smartphones and tablets. .
During this quarter, we also announced the beta launch of our solutions for mobile apps. We now had an end-to-end performance advertising solution across online, mobile web and mobile apps for both iOS and Android platforms. Our in-app solution is now live, with dozens of clients.
And we believe it's the first time anyone has delivered individually personalized, conversion-optimized, deep-linking ads. Initial results are extremely encouraging, showing that we can achieve on our clients' first-click cost of sales goals and leverage the full capability of Criteo performance engine. .
Where clients have meaningful ad traffic, our performance compares closely to what we deliver to them on the desktop. Our revenue from in-apps is not material this quarter, and we do not expect it to be in the near term. The vast majority of our clients are only just beginning to launch their own apps.
As a result, mobile browser will be the main source of mobile revenue for the rest of the year. .
Now let me update you on our performance by geography. Starting with the Americas. We continued to build momentum and strengthen our operations in this strategic region. In the quarter, our revenue ex-TAC growth accelerated 4 percentage points at constant currencies, from 62% in Q4 last year to 66% in Q1 this year.
Our growth in the Americas in the quarter was primarily driven by continued traction in up-selling existing large clients and a continued strong ramp-up with mid-market clients, where we continue to invest. We also signed new clients in the quarter in the Americas, including Crocs, Rent.com and Talbots. We continue to build our team in the U.S.
and are very satisfied with the progress we are making. .
Now in EMEA. EMEA is a good illustration of how our most established client relationships translate into deeper adoption of our full product offering. Our growth in revenue ex-TAC accelerated 20 percentage points at constant currencies, from 46% in previous quarter to 66% in Q1.
We are particularly satisfied with our strong performance in the U.K., Germany and France in the quarter. Overall, our growth in EMEA was driven by the continued growth in existing client spend and up-selling between products and an acceleration in new large clients, particularly in the U.K.
and in Eastern Europe and also an acceleration in the mid-market segment across the whole region. Some of our new client additions in the region included IKEA, Walbusch and Visa. Finally, we are also pleased with our success in France in verticals outside of retail, which are CPG, financial services and automotive. .
Moving now to APAC, Asia-Pacific. We continue to enjoy very rapid growth in this strategic region, as our revenue ex-TAC increased 120% at constant currency in the quarter, largely driven by our success on mobile.
Our growth in Q1 in APAC was driven by additional new clients across the region, in particular, in Korea and in Japan, including NTT Docomo Travel; the addition of quality inventory from new direct publishers; and our continued success in mobile, now representing 26% of revenue ex-TAC in Japan in March, up from 18% in December.
The recent launch of our publisher marketplace in Japan was also very successful, as it already represented over 8% of our revenue ex-TAC there in the quarter. As you know, we have also significantly deepened our relationship with Yahoo! Japan over the past year, and we continue to be very satisfied with this partnership.
Overall in APAC, we're excited about the opportunity to capture the massive growth potential in this very dynamic region. .
one, further investment in R&D; two, further broadening our client base; and third, capitalizing on our Tedemis acquisition to expand beyond display. .
the performance of our engine, a full mobile solution and our billing technology. Given the impact of our engine improvement in our growth in Q1, we intend to redouble our investment there in order to continue driving higher performance and generate more sales for our clients.
In mobile, we plan to increase our investment in our comprehensive solutions, including our in-app technology, our product team and our partner ecosystem. We recently also completed the acquisition of a Paris-based company called AdQuantic, adding state-of-the-art bidding technology to our engine, a key area for us.
We are excited to bring the very talented engineers' team of 7 onboard in Paris. .
one, expanding our mid-market presence; and two, geo expansions. In mid-market, we are growing the team and strengthening our internal processes to capture this very significant opportunity worldwide.
We are excited by our good progress there and believe our mid-market business is poised for further growth as our penetration of this huge addressable market is still at a very early stage.
On geo expansion, we are making good progress in building the infrastructure and business relationships in China to start operating locally in the coming quarters. In addition, to accommodate our growing team globally, we're increasing our investment in new facilities and new offices. .
Lastly, we are moving beyond display. As you know, Criteo has been successful since the start because we were able to disrupt all ways of doing display advertising and replace them with personalized, user-centric advertising, delivering in real time and charged on a cost-per-click.
While Criteo started actually into display, our clients have been pushing us to expand our user-centric approach across the other marketing channels. EMEA is one of the key channels for our clients, as you know.
By acquiring Tedemis, we're accelerating our plans here since it will allow us to roll out a personalized, real-time, cost-per-click e-mail product to our clients in our core markets this year and disrupting this e-mail space. .
We are very excited by the quality of the Tedemis team and the great alignment with Criteo culture, Criteo technology and Criteo business model. Furthermore, more than 2/3 of e-mail are not consumed on mobile devices. So this is also a big boost to our mobile plan.
In the coming quarters, we plan to roll out our new e-mail product to the U.S., France, Germany and the U.K. markets, leveraging our existing sales channels and direct relationship with clients on open budgets. .
Before closing, I'd like to run through our 5 key reasons why believe we are truly positioned to win. First, our cost-per-click pricing creates a truly disruptive model in digital performance advertising.
Second, our deep technical integration with our clients give us privileged access to very large volumes of granular and actionable shopping data at massive scale. Third, our fully automated end-to-end technology platform is highly powerful and, as you know, highly scalable.
Fourth, our direct relationship with both clients and publishers illustrate how we are differentiated and how our approach is sticky. Finally, our superior performance combined with volumes delivered at scale on all devices drive a very high client retention rate.
We believe these 5 key differentiators create network effects for our business, allowing us to steadily improve performance, which, given many of our clients had open budgets, automatically generate increased sales for our clients and more revenue ex-TAC for Criteo. .
In closing, I'd like to restate that we are very pleased with our record results for the quarter. We're excited about the progress we are making on our strategy to build a global multichannel performance marketing platform. We have enormous market opportunity ahead of us.
We are focused on executing on all our growth strategies and accelerating our investments to realize our full potential. I really look forward to you updating on our progress and activities all around the year. .
With that, let me turn the call over to Benoit, our CFO. .
Thank you, JB. I'm also delighted to report another solid quarter today. I will walk you through our quarterly financial performance in detail, including the contribution of Tedemis, as well as our guidance for the second quarter of fiscal year 2014. I will then open the call to your questions. .
We had a record first quarter of profitable growth, which exceeded our revenue ex-TAC and adjusted EBITDA expectations. Let me start with our revenue for the quarter, which increased 61% or 68% at constant currency to EUR 152.5 million compared with EUR 94.9 million in the first quarter 2013. .
As in previous quarters, our revenue performance reflects our continued focus on expanding our business across our geographies as we leverage our scale. In the Americas, our Q1 revenue grew 50%, or 62% at constant currency, to EUR 37.6 million. In EMEA, Q1 revenue increased 54%, or 54% at constant currencies, to EUR 83.9 million.
In Asia-Pacific, our Q1 revenue increased 101% year-over-year, or 131% at constant currencies, to EUR 31 million. .
As we have repeated in the past, while we review -- we view revenue as a useful indicator of our actual client spend, we consider revenue ex-TAC, or revenue excluding the traffic acquisition costs paid to our publisher, as the key financial measure to evaluate and monitor our business performance.
Our global revenue ex-TAC grew 68%, or 76% at constant currencies, to EUR 62.7 million in the first quarter compared with EUR 37.3 million in the first quarter 2013. Our revenue ex-TAC margin in the quarter was at 41.1%, consistent with recent quarters and increasing 1.8 percentage points over Q1 2013. .
Looking in our revenue ex-TAC performance from a geographic standpoint. In the Americas, Q1 revenue ex-TAC grew 54%, or 66% at constant currencies, to EUR 14.7 million. In EMEA, our revenue ex-TAC growth accelerated from 45% in Q4 2013 to 67%, or 66% at constant currencies, in Q1 to reach EUR 35.3 million.
In Asia-Pacific, Q1 revenue ex-TAC increased 93%, or 120% at constant currencies, to EUR 12.7 million. .
Before I discuss our profitability, let me say a few words on the impact of foreign currencies in the quarter. Overall, foreign exchange had an approximately 8-percentage-point negative impact on both revenue and revenue ex-TAC growth in the first quarter.
The main currencies contributing to this headwind included the Japanese yen, for 56% of the total impact; the Brazilian real, for 25% of the total impact; and the U.S. dollar, for 16% of the total headwind impact; while the British pound added slight positive tailwind impact in the quarter. .
Moving on to the profitability of our operations. We increased Q1 adjusted EBITDA by 218% year-over-year, or 224% at constant currencies, to EUR 14.5 million in the first quarter compared with EUR 4.6 million in Q1 2013. This strong increase in our adjusted EBITDA is principally the result of our strong performance in revenue ex-TAC in the quarter.
Offsetting this positive impact, we recorded some nonrecurring transaction expenses in the quarter related to the Tedemis acquisition, on one hand, and to our follow-on equity offering, on the other hand, for a combined amount of approximately EUR 1.1 million. We also incurred a slightly higher run rate in operating expenses than expected.
These additional operating expenses relate to accelerated investments we decided to make to capture our current and future growth opportunities. .
Looking now at our expense in greater detail for the quarter. Hosting and data costs increased modestly by 9% to EUR 4.1 million in Q1, excluding depreciation and amortization. As we noted last quarter, we are starting to capture some incremental economies of scale from the investments in our own equipment.
We plan to continue investing in our hosting infrastructure to support our current and anticipated future growth. .
Our Q1 operating expenses increased 58% to EUR 49.1 million. Excluding the impact of stock-based compensation, pension cost, depreciation and amortization and acquisition-related deferred price considerations, which we refer to as non-IFRS basis, our operating expenses increased 52%, to EUR 44.1 million in the first quarter.
Our year-over-year increase in operating expenses was fairly balanced across our 3 main functions in the quarter, research and development, sales and operations and G&A, as we continue to scale the old Criteo organization to support our growing business.
Our global headcount grew organically by 115 adds year-over-year and by 46 due to the acquisition of Tedemis -- let me correct, 115 adds at end of December 2013 and by 46 due to the acquisition of Tedemis, to a total number of employees of 971 at the end of March 2014. .
Looking now at our operating expenses by function. Research and development expenses increased 47% year-over-year, to EUR 8.5 million in Q1 on a non-IFRS basis, largely driven by headcount increase to 202 employees at the end of Q1 2014.
As we further develop our technology platform and enrich our product portfolio, we plan on continuing to invest in additional R&D talents during the year, particularly around our engine performance, our full mobile offering and our bidding technology. .
Non-IFRS expenses in sales and operations increased 50%, to EUR 24.7 million in Q1 2014, also largely driven by headcount increase to 570 employees at the end of the quarter, as we grew sales and account management teams in all of our regions, in particular in our mid-market organization.
As a percentage of revenue, our non-IFRS sales and operation expenses decreased by 1.1 percentage points over the period to 16% in the first quarter.
While this incremental operating leverage is a positive achievement, we intend to continue investing significantly in sales and operations in the current year, particularly in mid-market teams and in sales-related headcounts in new geographies. We also plan to move to new facilities to accommodate our growing teams globally. .
Finally, our non-IFRS expenses in general and administrative in the first quarter increased by 62% to EUR 10.8 million. Our headcount in G&A increased to 153 at the end of March 2014, primarily in our HR and IT organizations to support our various growth initiatives.
Our non-IFRS G&A expenses also included approximately EUR 0.5 million of one-off expenses in the quarter in relation to the Tedemis acquisition and our equity follow-on offering. .
Now talking about the Tedemis contribution in the quarter. We have consolidated Tedemis operations from February 20 to March 31, 2014. Over the period, Tedemis generated EUR 0.7 million in revenue ex-TAC and a negative adjusted EBITDA of approximately EUR 0.9 million, including transaction-related expenses.
With Tedemis, we are adding 46 talent on headcount. We expect Tedemis to be accretive to Criteo EBITDA in 2015. We do not intend to disclose isolated financial contribution from Tedemis in the future. .
With regards to AdQuantic, we view this addition typically as an acquirer, where we are on-boarding a very talented R&D team in bidding technology.
As a result, we do not expect any revenue contribution from AdQuantic this year and, as JB discussed earlier, we intend to incur additional R&D investments in relation to the development of our bidding technology. .
Moving on to our cash generation for the quarter. Our cash flow from operating activity increased by 149%, to EUR 11.4 million compared with EUR 4.6 million in Q1 2013. Our CapEx increased 52% year-over-year, to EUR 3.8 million in the first quarter, primarily as a result of our continued investment in hosting infrastructure..
Our free cash flow was EUR 7.7 million in Q1, growing by 266% year-over-year. This represents a 53% conversion of adjusted EBITDA into free cash flow and demonstrates the robustness of scalability of our financial model. .
Total cash, cash equivalents and short-term investments were at EUR 242 million at the end of March 2014, representing a EUR 7 million increase compared with December 31, 2013.
This is primarily the result of our free cash flow generation in the quarter and the EUR 16.4 million net proceeds from the primary portion of our equity follow-on offering in March, offset by the EUR 70 million cash consideration paid for the acquisition of Tedemis in February. .
I will now wrap up with our results regarding our guidance. I'll remind you that the following forward-looking statements reflect our expectation as of today, May 6, 2014. This outlook includes the contribution of Tedemis over the corresponding periods.
For the second quarter 2014, revenue ex-TAC is expected to be between EUR 61.5 million and EUR 63.5 million. Also, for the second quarter 2014, adjusted EBITDA is expected to be between EUR 6.5 million and EUR 8.5 million.
For the fiscal year 2014, revenue ex-TAC is expected to be between EUR 265 million and EUR 271 million, including approximately EUR 8 million for Tedemis. This represents a EUR 20 million increase compared with our prior guidance. This revenue ex-TAC range represents a 54% year-over-year growth at constant currency at the midpoint of the range. .
Foreign exchange is expected to have a negative impact of approximately EUR 8 million, including approximately EUR 3.5 million incremental headwind when compared to our previous guidance. Also, for the fiscal year 2014, adjusted EBITDA is expected to be between EUR 47 million and EUR 51 million.
This range is unchanged compared to our prior guidance despite a negative contribution of approximately EUR 4 million from acquisition after transaction-related expenses, respectively, EUR 3 million for Tedemis and EUR 1 million from AdQuantic, and a negative impact from foreign exchange of approximately EUR 4 million, including EUR 1 million incremental headwind when compared to our previous guidance.
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a euro-USD exchange rate of $1.38, a euro-Japanese-yen exchange rate of JPY 140, a euro-British-pound exchange rate of GBP 0.84 and a euro-Brazilian-real exchange rate of BRL 3.3. This guidance also assumes no business acquisition during the quarter ending June 30, 2014, or during the fiscal year ending December 31, 2014. .
Before closing, I want to reemphasize that 2014 is another exciting year for Criteo, a year when we will accelerate our investments across all of our growth initiatives, particularly in further strengthening our technology and product portfolio and broadening our client base across geographies and market segments.
As our 2014 financial guidance illustrates, we are pleased to reinvest our incremental revenue ex-TAC into our various exciting strategic initiatives to accelerate growth. .
In closing, we have entered 2014 with strong positive momentum, and I'm very pleased with the strength of our business and growth prospects. We have a very large market opportunity ahead of us, and we are only just beginning to roll out our new products across new screen and new marketing channels.
I look forward to continuing building long-term trust with our public investors and sharing our profitable growth story every quarter as we continue to realize our full potential. .
With that, I'll turn the call back to the operator now to take your questions. .
[Operator Instructions] And we'll move now to our first question today from Richard Fetyko from ABR Investment Strategy. .
First on the sales hiring. Just curious how many salespeople you plan to add this year versus last year. And then curious on the mid-market sales, particularly as a percentage of total revenues, where do we stand now perhaps versus last year. .
So with respect to our total salespeople, as I said in the call, we have in sales and operation -- the total headcount in sales operation is 570 people at the end of the quarter. As part of that 570 people, you have roughly 260 people who are directly involved in sales.
And we are planning to continue to invest in building that team in new geographies and in the mid-market throughout the year. Keeping in mind that we've added organically 115 newcomers into the headcount, excluding the impact of Tedemis, during the quarter.
With respect to MMS, or mid-market sales, as we call it internally, we currently generate, globally, 25% approximately of our revenue ex-TAC from the mid-market.
The level of growth that we are experiencing in mid-market, as we roll out this approach in the various geographies, is a level of growth, which is significantly higher than the growth of the total business at this stage as we are rolling out this new approach. .
And can you give us just some sense of which markets and geographies you've rolled out and which ones sort of are ahead of the pack versus which ones are... .
We started -- I can give you a sense there. We started to roll out successfully the mid-market sales approach in Europe first, out of London, where we're sitting today, covering all of the key European markets. And we've expanded that approach starting in 2012 in the U.S. And then we have been growing significantly the U.S. team by covering all of U.S.
out of Boston. And we have more recently started, out of Tokyo, to implement also the same approach in Asia. So that's roughly the coverage we have today. .
We'll now move our next question now from Doug Anmuth from JP Morgan. .
I just wanted to ask 2 things. First, on Tedemis. If you could just talk about the opportunity more there, how you think about the characteristics of the e-mail business relative to display in terms of open budgets, the ability to work directly with clients.
And are you talking about the same clients in most cases? And then, secondly, on mobile, good to see that it's up to 15%.
But can you talk more about what you need to do to move this over from browser-based toward apps as you go through this year and into '15?.
Sure, sure. So first on e-mail. E-mail, as you know, is a huge market by itself, and it has its own ecosystem.
We decided to enter the e-mail because we can do it the Criteo way, meaning we can apply the same success factor that made us successful in display, which is primarily a disruptive business model, a cost-per-click model, where we buy the inventory, in this case, e-mail inventory on a CPM, and we charge clients only when there is a click in the e-mail.
And the click rate in e-mails are very, very high, and first-click conversion rates are very strong also. So this is why we were really very excited by Tedemis because they really had fabricated [ph] exactly the Criteo model. Today, it's a much lower scale because it's purely in France.
But we should be able to leverage existing relationships in all our countries to expand the model. Really, the idea is that we are not selling to new type of clients, we are adding products to up-sell existing client base. .
Regarding your second question on apps. So we have a fully functional product. And as we said, with clients that have already significant app traffic, it performs very, very well, in a very consistent way to other channels.
There's one thing, which is, I would say, today limiting a little bit the expansion of our in-app business, is the maturity of our own clients regarding in-apps. A number of our clients either they don't have apps or their app is very new and they are still really in the ramp-up phase. So we're helping them to expand in this area.
And it's going to take some time, and we have to grow at the same pace as our own clients. But we think -- we believe that investing ahead of the curve, having a fully functional solution even if some of our clients, they don't have to apps to use it, it's very important to position ourselves as a truly multichannel global solution. .
We now move to our next question now from Ross Sandler of Deutsche Bank. .
I had 3 questions. I guess I'll just go one at a time. I guess the first 2 would be financial. So the net revenue or revenue ex-TAC to gross net revenue margin in EMEA and Americas both increased year-on-year, and that's kind of contrary to what you guys expected from -- back in the IPO road show.
So can you just talk about what's driving that? You've got a mix shift towards mobile, towards Facebook and towards middle markets.
Which one of those, I guess, is driving up the revenue ex-TAC margin?.
In fact, I mean, I would not characterize this as a major, I would say, event of the quarter because if you look, in fact, the 41.1% is very consistent with what we have experienced over the last 3 quarters. We have indicated, at the time of the IPO, that 39% to 41% was the range that we were pretty comfortable with.
So we are within that range, so there is nothing major to highlight in that respect that would explain a change. In fact, I mean, we have been quite stable in terms of margin, if you compare to the prior quarters. .
Okay, got it.
And then on the Asia business, can you guys give us a little bit of color on what's driving the growth in mobile? Is it fairly broad-based across your core kind of retail and travel customers? Or are you also participating in some of the rapidly growing mobile gaming categories as well?.
So your question is about mobile in APAC?.
Yes.
Where is the growth coming from? Is it just your core kind of incumbent verticals? Or is it some of these newer categories that have popped up?.
I would say APAC, being probably the most recent region for us, there is still enormous growth in our core retail categories. And so probably, there was less focus of the team on new segments, new verticals and more focus on retail. There is especially strong growth in APAC on mobile. As you see now, Japan is -- above 25% of our business now is mobile.
Japan is a very big business for us. So this really illustrates how big as a growth driver mobile can be for us. .
That's helpful. And then last one is on the AdQuantic acquisition. So this is a small kind of talent-driven acquisition, but these guys are, from what I understand, a search bid management tool provider.
So I guess, can you just talk about the strategic rationale? Is this about the data, potentially their customer list, their engineering prowess? Do you view search engine marketing as a potential new revenue area outside of display retargeting?.
Well, what we see is that what they've developed for search is something which has potentially very broad applications. And the logic of their bidding is really additive to our own R&D. The guys are incredibly smart.
And as we are also expanding our R&D team, we thought we could combine 2 things by accelerating R&D hiring [indiscernible] and at the same time, bringing a technology which is additive to our own. And there is still -- we think -- we believe there is still a lot of leverage and a lot of upside we can gain purely on the engine piece of our technology.
And what they developed is very complementary. It's going to take you several months or several quarters, really, to integrate it into our platform. So you won't see the benefit overnight. But once more, as we're committed for the long term, we think that in 2015 we should start to see the benefits of this AdQuantic acquisition in our numbers. .
We now move to our next question from Brian Pitz of Jefferies. .
Just a couple of questions. First, a follow-on to mobile questions. How are you guys thinking about Facebook's new mobile FAN ad network? I know you said you've done a lot of business through FB Ex already. I'd love to get your sense on how that's going to work out. And then just a question on uncapped budgets.
With over 70% of revenue ex-TAC from uncapped budgets, what is the, essentially, gating factor in terms of capping those budgets even deeper? And how has that number trended over time, if you could give us some context?.
So let me take the one on Facebook. So as you know, all our Facebook business today is [indiscernible]. We haven't tapped into their mobile inventory yet. The technical setup is a bit more complex because it's in-apps, as you know Facebook when it comes to mobile and that mobile browser, so it adds a new layout of complexity.
[indiscernible] when it comes to Facebook, it's specific. They have specific technical settings on their own. So we have our own marketing tool with our layout, so it would take a little more time to be live on the mobile piece of Facebook.
But overall, we are really confident that Facebook is going to be a very strategic partner for us in the long run. .
And just talking about the open budget. We are seeing the share of our revenue ex-TAC generated from open budget pretty stable, just above 70%, so it's a major portion of our revenue that is generated out of open budgets.
And what we see here is clearly an opportunity, when we bring new products like e-mail, to tap into those budgets, as we are pushing this through our existing sales force, leveraging on our existing relationships in the core markets where we want to push e-mail this year, we are definitely going to leverage that critical capability we have to work on open budget and generate 70%-plus of our revenue from open budget.
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Got it. And just really quick on the guidance. You're taking up revenue by quite a bit by maintaining EBITDA, obviously, investing more heavily in R&D and sales and op.
Any other additional color you could give us in terms of investment specifics?.
So, yes, as you noted, in fact, I mean, we are maintaining our EBITDA guidance despite, obviously, the impact of the acquisition. But also, you've noted that we are incurring still significant incremental headwind from FX.
So the area of investment that had been highlighted very much by JB is that we are going to invest into R&D, continue to accelerate our investments in R&D. And, obviously, AdQuantic is one illustration of that. But beyond the impact of the acquisition, we are going to continue to invest in R&D to make sure that we support this accelerated growth.
And also, we are making significant infrastructure investments, particularly in facilities, where we are growing our facilities in several locations, in our largest location in Paris and in London, in particular.
And we are also going to continue to increase our investments in certain operation in the MMS, mid-market sales, that we just talked about, as well as, obviously, supporting as a rollout in the new geographies. .
[Operator Instructions] We'll now move to our next question from Ralph Schackart of William Blair. .
If you look at revenue ex-TAC Americas, it followed the seasonal pattern we would have expected. However, Europe was very strong, at 20-plus percent growth sequentially. The first question is, why the big growth differences? And then, as a follow-up, maybe just on Europe in particular. You've had 4 quarters of accelerating growth.
Any color or context in terms of why you're seeing such strong growth there? And maybe you could talk about some products you've released in Europe and if those products will eventually be brought to other regions. .
So, yes, I mean, U.S. has been accelerating this quarter. So this is something we are really satisfied and is clearly a big focus for us. And what is really nice is it's coming from a combination of growth in client spend, MMS, which is, as Benoit mentioned, a big investment for us, especially in Boston. And there is also a lot of new clients coming in.
So this is obviously very, very important for us. .
When it comes to Europe, I mean, I think there are combination of different things. We are -- we have a strong position in Europe, where there is a strong dynamic, where -- with the visibility we have now as a public company, there are a lot of new doors opening.
And we have a lot of very strong wins in Germany and in the U.K., with new clients that before were close to us and now they are opening the door because we are recognized as a much more, probably, established company.
And in Europe, those tend to be perhaps a bit more conservative and working with a more established company is something that might be important for more traditional players than in other regions. One other reason why, with our increasing visibility in Europe, there is this kind of a snowball effect, which is driving the whole business up.
Now we see that the combination of this, with all that's mentioned regarding our new product suite, creates a very strong momentum. There is further momentum in -- specifically, to Q1 for Europe, which is linked to the -- there's a lot of sales, especially in France and the U.K., which creates also a boost in those regions in Q1. .
We now move to our next question which comes from Deb Schwartz of Goldman Sachs. .
Two questions. The first one is, I wonder if you could just give us a little bit more color on what you're seeing on revenue per advertiser. Given the fact that you've been adding a lot of mid-market clients, if you can kind of talk through what you're seeing from some of your larger, more established clients.
And then, secondly, any major publisher deals that you've signed in the quarter? And if you could give us a sense of what your inventory mix is from direct publishers versus RTB would be helpful. .
Yes. So maybe first on the dynamics with respect to the -- particularly the business from our largest -- our larger clients, that we continue to see an increased contribution of our larger clients.
So our large clients are continuing to increase their spend as we bring more opportunities to them, bringing more product to them, and that validates the strength of our model. So if you look at our overall revenue ex-TAC per client, we have a very nice evolution there, which is driven by the large customers -- the large clients.
And as we are adding, obviously, small clients, there is a dilutive effect that you see on the lower profits of the client because they come, obviously, at a lower spend but at a lower cost of service, obviously.
With respect to -- can you repeat your second question?.
Yes. So it was a question on whether or not there were any major publisher deals worth calling out in the quarter.
And then if you could give us a sense of what your inventory mix is between RTB and direct?.
Just to clarify, I mean, we buy everything in real time, so when you say RTB, real-time buying.
The distinction we make is between what we call public exchangers, which is the inventory available for anyone that's plugging into the many exchanges of the market, from the one where we have a direct privileged relationship with publishers that are most often either first link or better access to inventory than -- or sometimes, it can be even [indiscernible].
So it's fairly balanced, those 2 sources of traffic, and we've been growing the 2 in a fairly balanced way. .
On the -- what I would add is we have this direct relationship through our comp platforms, so our direct platforms, for the publisher marketplace. So from small publishers, we've added a significant number of publisher on that platform, close to 600 that we've added during the quarter. So continuing to develop that platform.
And we see a mix between exchange versus direct relationship, which is close to the 60-40, which is a slight evolution compared to prior quarters, but very similar in terms of percent. .
It's quite remarkable that building on our working platform, which -- our publisher marketplace, we have more than 7,000 publishers on this marketplace. And all aggregated, this is bigger than most exchanges on the market.
So the specific asset of ours, which is really truly unique, is really at the global scale where very few players have been achieving this. And for some of them, it's their unique business. For us, it's just a fraction of our business, but it's very important in terms of absolute size. .
Thank you very much. I think we are getting to the end of this call. Thank you very much for all of you and especially the ones that -- for which it is very early in the morning. .
I'm looking forward to update your next quarter. .
Thank you. .
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect..