Edouard Lassalle - Head of Investor Relations Eric Eichmann - Chief Executive Officer Benoit Fouilland - Chief Financial Officer.

Douglas Anmuth - JPMorgan Mark Kelley - Citigroup Richard Kramer - Arete Research Brian Nowak - Morgan Staley Heath Terry - Goldman Sachs.

Good morning, and welcome to Criteo Q4 and Fiscal Year 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions, although media members will be on a listen-only mode.

[Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Edouard Lassalle. Please go ahead..

Thank you, Keith. Good morning, everyone, and welcome to Criteo’s Q4 and fiscal 2016 earnings call. Eric Eichmann; CEO and Benoit Fouilland CFO are with us today. During this call, management will make Forward-Looking Statements.

These may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion plans, anticipated market demand or opportunities and other forward-looking statements. These statements are subject to various risks, uncertainties and assumptions.

Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements. We do not undertake any obligation to update any forward-looking statements contained herein, except as required by law.

In addition, reported results should not be considered as an indication of future performance. Also we will discuss non-GAAP measures of our performance. Definition of such metrics and the reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release issued earlier today.

Last, unless otherwise stated, all growth comparisons made in the course of this call are against the same period in the prior year. With that, I will now turn the call over to our Chief Executive Officer, Eric Eichmann..

Thank you, Edouard; and good morning, everyone. I am pleased with the successful execution against our plans in 2016 and the significant progress we made towards our vision. We continue to innovate and expand our core business, we made significant advances to becoming a multi-product company and we opened exciting new avenues for growth.

Before diving into 2016, let me talk about the trends that are shaping performance marketing. Increasingly marketers demand relevant advertising that is held accountable to performance metrics and provide seamless experiences to consumers. Three trends are driving this demand.

First, the rapid growth in data rich ad buying providing more opportunities to drive performance. Second, the disjointed online shopping consumer experiences across-devices creating strong demand for seamless and integrated marketing.

And third, the continued digitization of offline activities, thanks to the ubiquity of mobile devices opening new opportunities for performance advertising. In 2016, we bolstered our position in performance marketing for commerce and brands, while keeping a strong focus on relevant, accountability and seamless experiences.

We used our scale to grow a large user graph, helping e-commerce companies optimize the consumer journey across-devices. We launched Criteo Predictive Search a disruptive product bringing precise, predictive optimization to drive sales on Google Shopping a critical and growing e-commerce marketing channel.

And we expanded our business with Criteo Sponsored Products from HookLogic to bring performance marketing to brands on e-commerce site. These three products further differentiate the Criteo in the marketplace and with our core offering provide a broad portfolio of performance solutions.

Our scale and state-of-the-art technology bring retailers capabilities that allows them to compete on equal terms with the largest e-commerce players. These new and future performance products for brand and retailers address a growing set of marketing needs and strengthened our overall ecosystem.

2016, was another phenomenal year for Criteo, the unique strength of our model allowed us to further solidify our market position. We grew our top-line 36% to $1.8 billion and our adjusted EBITDA 57% to $225 million. We added over 4,000 net clients. We maintained client retention on 90% while increasing our client base 42%.

We added two new products, Criteo Predictive Search and Criteo Sponsored Products and continue to innovate the core platform with our kinetic design creative capabilities with new features in the engine and with a stronger universal mass solution. We cross the 50% share of our business on mobile and closed the year at over 60%.

And we grew the number of Criteo employees to 2,500 while growing R&D capacity over 50% to more than 600 engineers in France, California and Michigan. Let me now turn to the Q4 result. For 13 quarters in a row, we have exceeded quarterly revenue ex-TAC an adjusted EBITDA guidance.

At constant currency and including Criteo Sponsored Products, we grew revenue ex-TAC 41% to $225 million and adjusted EBITDA 55% to $83 million. We performed well across the entire business. We continued to innovate on our core product, we have broadened our publisher relationship and we added a new record number of clients.

Starting with innovation, our technology drives more client sales every quarter. In Q4, the growth of same client revenue ex-TAX accelerated sequentially to 20% at constant currency. Having close to 80% of our business fueled by on cap budget continues to drive these growth. Let me highlight three areas of innovations, engine, cross-device and mobile.

Within the engine, we rolled out kinetic design, which optimizes creative elements of any kind, shape and size resulting in 17 really in combinations while maintaining brand consistency to generate the one ad that drives a highest engagement for an individual shopper. This is a key innovation and drives improved performance across clients.

We also started to rollout the value optimization feature of our engine, which optimizes on the growth margin target that advertisers set by product. On the cross-device front, our investments continue to pay-off with now 73% of our clients embracing Universal Match, we saw users match through this technology and generate 60% of revenue ex-TAC in Q4.

In addition, all advertisers can now measure the impacts on their online sales by tracking their cross-device sale through the Criteo dashboard. Overall, our cross-device initiative drove a 6% uplift to revenue x-TAC in Q4. We expect this to improve as the user graph continues to drive more demand from the web into mobile app inventory.

In other words, our user graph bridges the gap between mobile web and mobile app, two separate and disjointed environments. Mobile commerce continues to enjoy rapid momentum across our client base over 64% of revenue ex-TAC is now generated on mobile devices, a significant increase over the prior year.

Within mobile, demand from in-app advertisers continued to be very strong, growing revenue ex-TAC by 460% year-over-year. Overall, we now generate close to 25% of total revenue ex-TAC on app inventory, representing over 2.5 times what app inventory generated in Q4 2015.

This is a great achievement and demonstrates how our scale provides us with additional competitive advantages.

Moving to publisher relationship and the supply side of our business, Native continues to be a significant driver, close to 500 publishers are live with our direct major offering launched in Q2 an increase of more than 20% quarter-over-quarter.

Rex-TAC generated on Native inventory excluding Facebook grew close to 60% quarter-over-quarter and our total share of business from Native included Criteo Sponsored Products grew to 30% of total revenue ex-TAC at the end of Q4. Our flexible integration and dynamic creative capabilities continued to core competencies in Native.

We continue to test an early version of our own header bidder that connects directly to publishers’ ad servers. We are currently connected to the 10 large publishers with our beta product. We expect a broader deployment in Q2. Our partnership with Facebook continues to be fruitful, driving over 16% more sales for Criteo clients on average.

Our ad blocking solution has been adopted by approximately 400 publishers driving revenue ex-TAC growth of 70% compared to Q3. And with Criteo Sponsored Products, we signed several new large retail publishers including Zulily, Toys R Us UK, Lazada, Morrison Supermarkets and Melissa & Doug.

Let’s now take a closer look at the demand side of our business. We set another record in Q4 by adding close to 1600 net new clients including a 1,050 client additions without Criteo Sponsored Products.

In the quarter, we also added many brand advertisers using Criteo Sponsored Products including Garmen, Netgear, Drone Company, Parrot and smart toy manufacturer Ozobot. Altogether, we ended 2016 with over 14,400 commerce and brand clients, a growth up 42% compared to 2015.

Clients of all-sizes across all regions decided to work with Criteo, we maintain strong momentum in mid-market, which grew 75% worldwide and represented over 30% of revenue ex-TAC. In Q4, we launched the creative module of our self-service platform for mid-market.

The complete range of these tools from registration and tagging to product-feed, creative and payment will be available by the end of Q1. Turning to regional performance, our business saw healthy growth in all three regions.

The Americas revenue ex-TAC year-over-year growth accelerated sequentially to 35% at constant currency excluding Criteo Sponsored Products. We had another very successful holiday season. We shorten the time we take to sign new clients and launch several key items. Enough advertising increased significantly and the U.S.

is now our largest app market globally, it’s notable that one app only client increase our top 10 client lift in North America. We saw strong interest for Criteo Predictive Search in the U.S. and started signing new client. Client satisfaction and retention remain high. Criteo Sponsored Products formerly HookLogic is seeing significant growth momentum.

We now spent two to five times more on ad placements on several key U.S. retail publishers compared with Q4 last year.

In EMEA, growth in revenue ex-TAC excluding Criteo Sponsored Products accelerated growth sequentially and year-over-year to 33 % at constant currency, all established markets such as Germany, France and the UK grew between 20% and over 30% with strong performance across large and new market clients.

We signed many new clients including Thomas Cook, Turkcell and a large Chinese e-commerce pure player operating in Europe. In parallel, we grew our business with existing clients especially those expanding campaigns outside of their home markets. Lastly, APAC revenue ex-TAC grew 29 at constant currency despite a challenging comparable last year.

We continue to deliver solid growth from both existing and new client in Japan and Korea. In-app advertising is on a row across the entire region especially in Japan and Korea. We increase the cadence of new client wins in Southeast Asia, including a central and Adayroi. And we signed new key clients in India such as Shopclues and Flipkart.

Looking ahead in 2017, we remain focused on a clear set of operating priorities. First, continue to innovate on our core product and drive worldwide expansion of our core business. Second, scale Criteo Sponsored Products across existing and new geographies, and integrate it with the Criteo Engine technology.

Third, launch Criteo Predictive Search in key markets. Fourth, build and leverage our powerful pooled assets across our product portfolio and partner ecosystem. In particular, our large user graph, our Universal Catalog, and the ability to attribute sales for brands across all retailers.

And last but not least, develop great new products along the customer lifecycle, such as customer prospecting; new capabilities, such as CRM on boarding; and additional marketing channels, such as video. In closing, I’m very pleased with our success in 2016. We continue to innovate and grow our core business.

We became a multi-product company, addressing broader marketer needs. And we opened significant new avenues of growth. Overall, we continued to strengthen our leading position in performance marketing for commerce and brands. I look forward to updating you on our growth plans as we progress into the year.

With that, I will now have Benoit, our Chief Financial Officer, walk you through our financial results in detail...

Thank you, Eric, and good morning everyone. Just like Eric, I’m very pleased with our success. In 2016, we continued to deliver rapid growth, expanding profitability and increasing free cash flow while investing in innovation. We believe this attractive combination remains unique in our space.

I will walk you through the quarterly and fiscal year performance and share our guidance for Q1 and full-year 2017. Q4 Revenue was $567 million, up 43% at constant currency. For fiscal 2016, revenue grew 36% at constant currency to $1.8 billion.

Revenue ex-TAC, the key metric we use to monitor our business performance, grew 41% at constant currency in Q4 to $225 million. Excluding Criteo Sponsored Products, Revenue ex-TAC grew 33% at constant currency to $213 million.

This sequential acceleration was driven by our largest quarterly addition of clients to date as well as the continued growth of existing live clients. Revenue ex-TAC our equivalent to same-store sales. Revenue ex-TAC margin in the quarter was 40%, or 41% excluding Criteo Sponsored Products, in line with expectations.

For fiscal 2016, Revenue ex-TAC grew 37% at constant currency to $730 million, and 34% at constant currency excluding Criteo Sponsored Products to $718 million. Revenue ex-TAC margin for fiscal 2016 was 41%, both including and excluding Criteo Sponsored Products.

Compared with guidance assumptions, changes in ForEx had a negative impact of approximately $3 million on reported Revenue ex-TAC excluding Criteo Sponsored Products in Q4, mostly driven by the stronger Japanese yen.

However, compared with prior year periods and excluding Criteo Sponsored Products, changes in ForEx had virtually no impact on Revenue ex-TAC growth, in both Q4 and the fiscal year. Shifting to expenses.

Other cost of revenue, comprised of hosting and data costs, grew 37% to $24 million in Q4, mainly driven by increased hosting capacity across data centers. For fiscal 2016, other cost of revenue also increased 37% to $85 million. Q4 operating expenses were $148 million, or $139 million excluding Criteo Sponsored Products.

Non-GAAP operating expenses grew 32% to $128 million, or 25% to $122 million excluding Criteo Sponsored Products. Headcount-related expenses continued to represent approximately 75% of OpEx, both including and excluding Criteo Sponsored Products.

We added over 290 net new employees in Q4, including 190 from Criteo Sponsored Products, and closed the year with over 2,500 employees, a 36% increase compared with December 31, 2015.

On a Non-GAAP basis by function, which excludes depreciation and amortization, equity awards compensation expense, pension service costs and acquisition-related costs and deferred price consideration.

R&D expenses grew 44% in Q4 to $31 million, and 45% in fiscal 2016 to $104 million, largely driven by the 51% headcount growth to over 600 employees including 90 from Criteo Sponsored Products. Excluding Criteo Sponsored Products, R&D OpEx grew 30% in Q4 to $28 million, and 41% in fiscal 2016 to $101 million, in line with our plans.

Sales and Operations expenses grew 33% in Q4 to $73 million, and 21% in fiscal 2016 to $258 million, also largely driven by the 32% increase in headcount to 1,490 employees including 86 from Criteo Sponsored Products. Excluding Criteo Sponsored Products, S&O OpEx grew 27% in Q4 to $70 million, and 20% in fiscal year 2016 to $255 million.

Quota-carrying headcount excluding Criteo Sponsored Products grew 25% to 660, with over 80% of the growth coming from mid-market. On a full-year view and excluding Criteo Sponsored Products, Sales and Operations OpEx decreased by 150 basis points of revenue and 430 basis points of Revenue ex-TAC, well in line with our operating plans.

Finally, G&A expenses increased 18% in Q4 to $25 million, and 31% in fiscal 2016 to $97 million, while headcount grew 29% to 410 employees including 14 from Criteo Sponsored Products. Excluding Criteo Sponsored Products, G&A OpEx grew 16% in Q4 to $24 million, and 30% in fiscal 2016 to $96 million.

When excluding exceptional items of $1.3 million in Q4 and $2.7 million in fiscal 2016, which related to legal and tax fees, G&A expenses excluding Criteo Sponsored Products only grew 10% in Q4 and 27% in fiscal 2016. Moving now to profitability.

Q4 adjusted EBITDA grew 55% at constant currency to $83 million, or 45% at constant currency excluding Criteo Sponsored Products to $78 million. This increase was primarily the result of our strong Revenue ex-TAC performance across all regions in the quarter.

Excluding Criteo Sponsored Products, Q4 Adjusted EBITDA margin was 15% of revenue or 37% of Revenue ex-TAC. Adjusted EBITDA for fiscal year 2016 grew 55% at constant currency to $225 million, or 52% at constant currency excluding Criteo Sponsored Products to $219 million.

Adjusted EBITDA margin excluding Criteo Sponsored Products increased by 170 basis points of revenue to 12.5%, or 370 basis points of Revenue ex-TAC to 30.6%. Our expanding profitability remains well on-track with our long-term operating plans and demonstrates the scalability of our model.

Financial income improved by approximately $1 million in Q4 and $4 million in fiscal 2016. This increase was primarily driven by the much lower foreign exchange loss compared with last year, mainly as a result of converting our Brazil intercompany position from debt-to-equity in Q2 2016.

This was partly offset by interest expense on debt from drawing on our revolving credit facility in Q4 to finance 30% of the HookLogic acquisition. Net income increased 5% in Q4 to $41 million, or 40% in fiscal 2016 to $87 million. In the quarter, the growth in income from operations and financial income was largely offset by higher income taxes.

In Q4 2015, income taxes represented a positive income as a result of recognizing deferred tax assets in the U.S. Net income in Q4 2015 was also inflated by a non-recurring reversal of $2 248 million acquisition related deferred price consideration. The effective tax rate was 24% in Q4 and 28% for fiscal year 2016, in line with our expectations.

Adjusted EPS on a diluted basis increased 16% in Q4 to $0.84, or 51% in fiscal 2016 to $2.8. Cash flow from operations grew 7% in Q4 to $72 million and 12% in fiscal 2016 to $153 million.

Excluding Criteo Sponsored Products, cash flow from operations improved 15% in Q4 to $77 million, as a result of increasing profitability and a positive change in working capital, in line with expectations. For fiscal 2016, cash flow from operations excluding Criteo Sponsored Products grew 16% to $159 million.

This represents a 72% conversion of Adjusted EBITDA into cash flow from operations for the year. CapEx increased 20% in Q4 to $23 million, driven by a sequential catch up in our hosting program, and only grew 4% in fiscal 2016 to $77 million, representing slightly over 4% of revenue, a decrease of 130 basis points of revenue compared to 2015.

Free cash flow increased 2% in Q4 to $49 million, and 21% in fiscal 2016 to $76 million. Excluding Criteo Sponsored Products, Free Cash Flow increased 15% in Q4 to $55 million and 31% in fiscal 2016 to $82 million.

This translates into a 70% conversion of Adjusted EBITDA into free cash flow in Q4, and a 37% conversion rate for fiscal 2016, consistent with the prior year. Finally, total cash and cash equivalents were $270 million at the end of December, after paying $175 million in cash for the HookLogic acquisition in Q4.

I will now provide you with our guidance for Q1 and fiscal year 2017. The following forward-looking statements reflect our expectations as of today, February 22, 2017. Please note that the contributions of Criteo Sponsored Products as well as Criteo Predictive Search are included in our guidance for Q1 and fiscal 2017.

We expect Q1 2017 Revenue ex-TAC to be between $200 million and $205 million. At the ForEx rates provided at the time of our Q4 2016 guidance, this would equate to between $208 million and $213 million. On a year-over-year basis, this would imply constant currency growth of 25% to 28%.

We assume year-over-year changes in ForEx to have a negative impact of approximately 180 basis points on our Q1 reported growth and, we expect Q1 2017 Adjusted EBITDA to be between $47 million and $52 million. At the ForEx rates provided at the time of our Q4 2016 guidance, this would equate to between $51 million and $56 million.

For fiscal 2017, we expect Revenue ex-TAC to grow between 27% and 31% at constant currency. We assume changes in ForEx to have a negative impact of 320 basis points on our reported growth for the full-year.

And, we expect fiscal 2017 Adjusted EBITDA margin as a percentage of Revenue ex-TAC to 283 improve by zero to 50 basis points, compared with 30.8% in fiscal year 2016. Finally, with respect to investments, we expect our CapEx program for fiscal 2017 to increase to between 5% and 5.5% of revenue.

As usual, the ForEx assumptions underlying our guidance for both periods are included in the earnings release that we published earlier today. In closing, I’m pleased with our strong performance in Q4 and 2016, combining rapid growth, expanding profitability and increasing cash flow generation.

We continue to execute on our plans and see exciting new avenues of growth ahead of us, for 2017 and beyond. With that, let me turn the call back to the operator to take your questions..

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Douglas Anmuth with JPMorgan..

Great, thanks for taking the question.

I have a couple, first just wanted to ask about the Predictive Search rollout, if you guys could talk in a little bit more detail about how it’s going so far, what are some of your early learnings and then also how are you thinking about the margin profile going forward there? And then secondly, just from the 2017 guidance, can you help us understand a little bit, how Search is being built in there as well as sponsored products? Thanks..

Great, thank you, Doug. This is Eric, I’ll take the first one and give the second one to Benoit. On Predictive Search, at context we have launched the product late last year and we are really starting to put it into the market.

There is a couple of things around search that are important to understand, one is, it is an established market, we are coming in with a disruptive products, our expectation in the test that we have run have us sort of running performance uplift of up to 49%.

So the value is there, what I think is a bit harder in Search is to improve the value, because there are no clear A, B or head-to-head testing mechanism. So that’s taking a little bit more time and because it is an established market, I think we are going after people using a solution already.

Having said that ,we are very bullish on our ability to introduce these products, though the expectation is that the roll out will not be as fast, because the head-to-head b protocols are not yet in place. We are working to put some of those, we believe that Google will ultimately also provide some mechanism to do that.

The margin in Search as you know we have been sort of indicating that we are going to have a 10% to 20% margin, when you take costs into account in Search the way we price search is really as a percentage of revenue. So it varies depending on the advertiser.

That's also disruptive, because the market has half or a third of the margin; however, none of the marketplace offer anything in terms of performance that we drive.

Our expectation is that, we are trying to price this from a value perspective and we deliver significant declines and we take some portion of that as value for ourselves to continue to invest in the product. We continue to be bullish, but for 2017, I think the expectation is that it’s not significant or a material element of our guidance.

With that, I don’t know if you want to add anything..

So just a quickly on the driver for the 2017 guidance, from a retrospect prospective we expect to add a significant number of new clients in particular in the mid-market and in the underpenetrated Tier-one market including in the U.S.

We also expect to continue innovation and the core platform on access to broader inventory is going to yield results and continue to drive growth of the same client revenue ex-TAC.

With respect to Criteo Sponsored Products, it will contribute to the growth in line with a perspective that we have shared with the market at the time of the acquisition, middle single-digit at least to our core business that’s what we expect for the year.

With respect to Criteo Predictive Search as Eric just said, we expect that the contribution would be quite minimal for the year, it would be around, I mean just less than 2% of the overall retrospect to the year with a ramp up during the course of the year..

I mean most important to us is that we see real momentum as we go into the year as what to generate in significant revenue this year, so..

Got it. Okay that’s helpful. Thank you guys..

Thank you. And the next question comes from Mark Kelley with Citigroup..

Hi guys, thanks for taking the question. I just want to follow-up on the last one on the Search margins. I know 10%, 20% margin is how you bill your clients, but doesn’t as closer to P&L as only net revenue and no gross revenue? That’s the first one.

And second one is, on the adjusted EBITDA guide for Q1, it's kind of a bit of a step down and then you are guiding rest of the year as either flat to up a little. So just curious if there is anything maybe one-time in nature that impacts Q1 and then we should view that kind of reverses as we go throughout the year? Thanks..

Yes. So with respect to the Search, you are right, I mean we are accounting for the net revenue. So in term of the margin that is presented in our financial statements is going to have a slightly positive impact on the margin.

But because the contribution is not going to be very material in the year in 2017, we don’t expect to have material impact on margin, as a result of Search ramp up in 2017.

With respect to the Q1 guidance, there are few items to keep in mind, when you look at the adjusted EBITDA for Q1, the first aspect is obviously the FX headwinds, there is a very significant FX headwind and we think the full impact of the FX headwind in Q1, because you have the full differential affright that you are taking in Q1.

That has approximately $4 million negative impact compared to the Q4, in Q4 guidance rate. So that’s one aspect. The second aspect is a full quarter impact of the Criteo Sponsored Products expense base, so it's approximately 200 employees.

And we are going to continue hiring in the core business, in particular in mid-market, but also it is important to [indiscernible] new products in Search, I mean in Criteo Sponsored Products. With respect to exceptional items, yes there are a few exceptional item in Q1 around $2 million of exceptional item that’s really primary [Indiscernible]..

That’s really helpful. Thanks a lot..

Thank you. And the next question comes from Richard Kramer with Arete Research..

Hi, thanks very much. A couple of questions please. First of all, Eric, could you give us a bit more insight into both the growth acceleration in the Americas that we saw in Q4, how much of that was product mix shift to sponsored products and a few other things or currencies or mid-market segments.

And then I think the second really big question, especially with respect to guidance for top-line going into the first quarter is that we saw average revenue per client actually turn positives in fourth quarter, despite this growth in mid-markets and adding more clients.

Can you give us a bit more sense on how penetrated this mid-market segment is and we really can’t get to your guidance without seeing a very large decline in average revenue per client and maybe talk us through the dynamics of that and one other maybe further follow-up if I may afterwards?.

Sure. Thank you, Richard. Let me take your first question regarding Q4 for the Americas. A couple of aspects that were important there, one is the fact that we have very strong holiday season and as you know that’s quite seasonal and so that was a big driver for us.

I think the second thing is obviously, the CSP business or the Criteo Sponsored Products formerly HookLogic business, started integrating that around November 10, and so we caught the best part of the year from that business.

They have a strong seasonality of about 40% of 50% of their business happening in Q4 and so you are seeing reflection and because most of their business or almost all of their business is in the Americas that was all represented in the Americas.

And then I would say that the last thing that I would add is we also are getting the benefits of - I don’t know if you remember it, but a couple of quarters ago, we talked about some sort of the concerns that we had around the management team in the Americas and we have sort of that situation around and we are seeing the benefit of having a stronger team and signing stronger or bigger clients in the Americas.

So all of those things are sort of combining to see a very good Q4 in the Americas. So that was great.

In terms of the guidance in Q1, I think there is a number of things that are different this year than what we had last year and they are worth noting, because I think it will help understand the dynamics in Q1, we are feeling quite good about Q1, I think there is no worries anywhere in terms of Q1, but there is a number of things that are different as I said.

The first one is that Q1 is a bit more difficult to the comparable versus last year for a couple of reasons, one, is we had one less day in Q1, so that sort of shaped if you will one percentage point of growth and the second thing last year we had a particularly strong travel quarter, where we had sort of the ski and the Easter holidays happening within Q1, which is not going to happen this year.

So we would expect that that would be this year more sort of the - between Q1 and Q2. So those are two things they are very particular to this year versus last year and then in addition to that and I mentioned this in the acceleration for the Americas 40% to 50% of the business Criteo Sponsored Products formally, HookLogic is in Q4.

And so we didn’t have that dynamic in the past years, we did have and we do have seasonality on our core business, but not to that extent and so as we move forward, I think we will see more of a sort of decrease from Q4 to Q1 just based on the fact that Q1 is a much bigger quarter for us and will become a bigger and bigger quarter as we go forward.

And the last thing is we do have significant foreign exchange headwinds compared to Q4 and fiscal year 2016 and the estimates from our end is about an $8 million negative impact on the Q1 guidance. So when you combine all of those things together, Q1 is actually a strong quarter for us and we feel quite good about it.

Do you want to add something?.

Yes, what I wanted to build on is with respect to your question Richard specifically on the revenue ex-TAC that clients, so I think you right and we see very positive momentum in Q4 which was very much driven by the underlying existing client growth as you noted is accelerated to 20%, and there are several factors that have ultimately produced such results in Q4 especially the impact of the cross-device drop, the impact of the in-app activity growing in-app activity has contributed to this.

With respect to the year, our assumption for the year is slight decline of per client, as a result primarily of the growing mix of mid-market. So mid-market is still very much underpenetrated, if you look at the global opportunity. And it's a good area of growth for us in which we continue to invest. So we have built in our plans as slight decline.

With respect to the combined average revenue per clients, while seeing still good dynamics in each of the two categories of clients..

I would add one last thing on this, if you look at the guidance for Q1 and then compare that or put it in context of the guidance for the year.

The guidance for the year from a growth perspective had higher sort of top range of the guidance, because we expect some of these new business in particular Criteo Sponsored Products to grow faster and to continue.

And you will have some of those dynamics as we introduce new products that will represent a small part of revenues, but as they get deployed represent bigger and bigger and product revenues..

Okay. And one more quick one if I may.

I mean there is a lot of discussion about measurement and attribution and can you give us any thoughts about the incrementality of the sales that you are generating via retargeting versus the purchases that might happen anyway, are you getting closer to being able to measure that for clients and is that something you will be able to share with us during the course of 2017?.

Yes, attribution is an exciting and rich area, discussion has been for the last 10 years and will continue to be. As I have sort of stated in prior calls, the best attribution mechanism is to really do a head-to-head of sort of having user exposed and users not exposed to your campaign.

One of the complication lately and that’s why incrementality testing are not as sort of reliable as you would expect, and in the past we said we have people at cross-devices and so if you can't identify the same person into devices and they might have been influenced on a one device by an add and they purchase on the other.

It creates a lot of noise with these incrementality tests. So we have done incrementality tests, some of the clients asked for it and it’s been an area where we feel quite good, you remember that our engine looks at post click 30 days and generating a click is actually quite hard.

So it’s a very clear signal of engagement, which we still believe is good. But I think one of the biggest problems with incrementality today, which is a great measurement is the ability to see users at cross-devices and as along that problem is not faced, I think it’s not as reliable in areas.

In particular since more than 40% of e-commerce sales are happening at cross-devices.

If I can add one thing on attribution, one of the very exciting things that we are working on that is part of the offering that we bring with Criteo Sponsored Products from a HookLogic, is the ability for brands to place ads and see sale from third-party retail site on a real time basis and that ability doesn’t exists offline, it’s an ability the brands would love in particular since they spend about half of their money today on promotional activities to drive their sales without really a good feedback mechanism.

That’s one of the thing that HookLogic bring or Criteo Sponsored Products brings for us and as we have spend on network of retailers these ability to be able to place ads and see whether sales are resulting from those ad is unmatched and unparalleled and we believe that that will drive a lot of brand dollars, online promotional dollar online.

And so that’s if you think about attribution there is a bigger problems like for example for the brand being just being able to see the sales not even considering how you attribute sales just seeing the sales is a huge step forward. So a lot to be discussed, attribution I think will continue to evolve over time, but very exciting area for us..

Okay. Thanks..

Thank you. And the next question comes from [Lloyd] (Ph) [Indiscernible] with Deutsche Bank..

Thanks. So I’m wondering if you can just give us an update on how conversations around Criteo Sponsored Products has gone with your existing partners and kind of give us an update on how you feel about this relative to when you announced the transaction.

And a second one if I can more broadly, you do have a large set of new products this year, both in the core business and outlaid new products. Can you maybe just give us a sense for where you see the greatest scope for potential upside from these new products.

It sounds like CSP is the biggest one, but looking across the other ones, where do you see the most scope for upside? Thanks..

Sure, that’s a great question. So we are very bullish about Criteo Sponsored Products, I think sort of the tenants or some of the drivers for us doing the acquisition are still true and I think we are even more excited about the potential to combine the technologies of Criteo Sponsored Products with core sort of Criteo Technology.

And so as we do that we will be able to do two particular things this year, let’s say three particular things, one is the ability to sort of create scale and internationalize their platform, that’s going to be important as we span into Europe, we obviously have a global organization that’s helping do the deployment and that’s going to be very helpful for us to lock-in market for Criteo Sponsored Products outside of the U.S.

and so that’s one area. The second area is using the optimization technology that we have at Criteo to drive more performance of the ads that are placed on retailer sites by brands and so that’s also part of what we are trying to do this year.

And the third area is just using some of the commonly structure that we have developed over the years, I mean particular things like our universal graph can make a big difference.

You have just heard how much it helps sort of drive in-app purchases in Q4 and also uplift as you apply this to the Criteo Sponsored Products business, it would also help drive uplift and be more efficient in the spending that we do.

We do have other assets that we are developing that will help like a universal catalog that will allow us to identify products across retailers and that will help with attribution across all retailers under Criteo Network, but also with recommendation.

So I would say all-in-all we are very bullish on Criteo Sponsored Products and feel quite good about the progress. In terms of the new products, of course you have seen and I think you are hearing this correctly from us is we have a number of innovations that relates to new products now and this is part of the evolution that we intended to have.

I think for 2017, the biggest upside in terms of an individual sort of separate product is obviously Criteo Sponsored Products. It's an established business, it's been running on the core business, there is a number of things that we are excite about, we have mentioned some of that in the call.

Video is one area that we have been starting to test, it's an inventory that we don’t use today and that is very large online and I think that could be one of the ones that could drive significant value. We are also working obviously on a prospective product and there is lots of demand for that product, so it would be an easy sell there.

The key question there obviously the technology question and sort of from a performance perspective, what we can drive. And any of those product could sort of drive significant value on the core business.

But overall, the expectation now is we are creating a number of products to help retailers compete against large e-commerce platforms and so you will see a lot of these products and interestingly enough they are all part of an ecosystem and they all sort of reinforce and strengthen each other..

Thanks guys..

Thank you. And the next question comes from Brian Nowak with Morgan Staley..

Thanks for taking my questions, I have two. The first one, the margin guidance for the first quarter and for the full-year, the incremental margin were little bit lower than expected.

Can you just talk through the two or three biggest sources of incremental OpEx spend this year and how you think about evaluating payback or ROI in the areas of investments for the company? And then secondly, I guess going a little bit back to Lloyd and even Doug's question, can you just help us understand in the guidance, how do you think about core Americas growth ex-Search, ex-Sponsored Products revenue, ex-TAC this year, just so we can kind of you get an idea for how fast do you expect the core business to growth throughout the year? Thanks..

Okay. So with respect to the margin guidance for the year, in fact our margin guidance for the year is pretty much in line with what we have shared with the market producing with respect to the impact of our investment in HookLogic, as well as the impact of the launch of Search.

Obviously these are two large areas of investment for the year and that’s the reason why you see a margin and EBITDA margin for the year income of progression, which is a much more modest than what we have experienced in 2016.

Obviously, we had expressed at the time of the HookLogic acquisition that we were exciting HookLogic to be a slightly negative to the EBITDA in the first year, so this is what is reflected in our guidance for the year and we would expect in the following year to see HookLogic or now Criteo Sponsored Products to contribute to adjusted EBITDA, not yet to contribute to positive to the margin into the following year to stop them contributing following.

So this is pretty much in line with what we told you in the context of HookLogic. With respect to Search there is a significant investments that we are planning with respect to Search in our guidance for the year, as we want to ensure that we have the right capacity, sales capacity in the various region to support the growth of Search.

So that’s with respect to the full-year. Now with respect to Q1, there are specific items in Q1 as we discussed previously, with respect in particular to the full-year of the 200 employees of Criteo Sponsored Products, as well as the FX headwind in Q1.

Now more broadly on how do we think about the Americas growth, I mean the driver for growth in the Americas with respect to our core business would remain number one mid-market, we have a large mid-market opportunity in the Americas and we are committed to continue to address that opportunities in 2017, so that’s going to be a one of the critical growth driver.

The second growth driver would be of course to continue to penetrate also the large accounts, leveraging now our combined capabilities with Criteo Sponsored Products on the strengthening of ourselves still in the U.S. in particular is going to contribute also to the success in the large accounts.

And certainly, I would mention the existing clients, live clients growth which obviously given all of the innovation hopefully that we are for the year, we expect also to be a strong driver of growth in the Americas [indiscernible]..

Thanks, just a follow-up you mentioned increased sales capacity for Search in the spending, how much of an investment are you seeing to make another headcount or dollars whatever you want to talk to it just in the Search sales force this year?.

So I mean the way to think about in terms of impact is single-digit medium impact on adjusted EBITDA for the year, the Search investment that we are making in primarily in Search capacity..

Okay. Thank you so much..

Thank you. And the next question comes from Heath Terry of Goldman Sachs..

Great. Thank you.

We saw the average revenue per user increase for the first time in a while, wondering how much of that was driven by the addition of HookLogic versus the core product, and whether you would have us expect that average revenue per customer continues to improve per year, particularly given the fact that you also added more customers thank you had been added in the quarter but for this quarter?.

Yes. So maybe let me make one quick comment on Q4, we saw reacceleration of revenue per client, which was great for existing client and we said now for a while that a lot of these come from innovation and supply and that’s not a linear path.

It happens at different points and one of the sort of proof points of that statement is for example the user graph, which took a while to build and got to a point now where it's really delivering results and so we saw 6% uplift.

Coming from that, we also had the kinetic design sort of platform that went out there and started operating and started optimizing and so all of those things drove better sort of revenue per client. Going forward and I think Benoit mentioned this, this is always the hardest thing for us to look in our business.

There is a number of initiatives around sort of improving the core business that we are excited about. At the beginning of every year we always have a good portfolio of initiative and we feel strongly the specifics of what those initiatives are going to result in are hard to forecast.

But I would say we feel quite positive, the one thing that’s hurting us this year is the mix effect of smaller client coming in and in intermit becoming a bigger part of it, but overall, we feel quite good about the innovation pipeline that we have..

So just to reiterate, I believe I covered just earlier on the call as well is the fact that full-year. We have assumed a slight decline of revenue per clients, as a result primarily of the mix of increasing share of new market clients in our overall portfolio. So that’s what is assumed in our guidance for the year.

Obviously we also assume we have very strong dynamic in each of the two categories of clients, but as a combine average we assume that it will decrease during the year..

Great..

Thank you very much, this concludes the call for today. If you have any further question, the IR team will be very happy to address them. We wish you a very nice day. Thank you everyone..

Thank you..

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