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Criteo S.A. (NASDAQ:CRTO)
Q3 2019 Earnings Call
Oct 30, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Criteo Third Quarter 2019 Earnings Call. [Operator Instructions] After the prepared remarks, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Edouard Lassalle, VP of IR. Please go ahead.

Edouard Lassalle -- Vice President, Head of Investor Relations

Thanks, Nicole. Good morning everyone and welcome to Criteo's third quarter 2019 earnings call. With us today are Co-Founder and CEO, JB Rudelle; and CFO, Benoit Fouilland.

During the 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. As always such 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.

Today, we will also discuss non-GAAP measures of our performance. Definition of such metrics and the reconciliation to the most directly comparable GAAP financial measures were provided in the earnings release published earlier today published earlier today, which is available on our website. Finally, unless otherwise stated, all growth comparisons made in the course of the call are against the same period in the prior year.

With that, I'll now turn the call over to JB.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Thank you, Ed, and good morning everyone. On today's call, I will discuss three main topics. First, our Q3 operating performance; second, our priorities and business outlook; and third, our new governance with the arrival of Megan.

Before I start, I want to say a few words about today's announcement outside of earnings. As you may have seen in our separate release, I had decided with the full support of our Board of Directors, we bring in a new Chief Executive Officer. I will remain, Chairman of the Board, while day-to-day operations will be in the hands of the new CEO. I'd talk more about this transition at the end of my prepared remarks.

Starting now with our Q3 results, we continue to make progress in our operating priorities and transformation. We achieved the top end of our guidance on revenue ex-TAC and exceeded our adjusted EBITDA target. Our performance was particularly strong in the midmarket, where we saw solid momentum and accelerating growth in the double digits. Among the Q3 highlights, our quarterly net client additions were again positive with 214 net new clients in line with our expectations. As in the prior quarter, this was again driven by focused execution and productivity improvements in our mid-market sales teams.

One of the most exciting results for Q3 is the momentum of our new solutions, which as a reminder include all our solutions outside of retargeting. They grew 57% on our revenue ex-TAC basis and now account for 11% of our total business, up from 7% a year ago. Over the past year, identity graph has also grown both in size, we have over 2 billion unique Criteo IDs and in density. Over 95% of our Criteo IDs now contain long term persistent identifiers rather than just by the cookies.

Furthermore, in Q3 we announced a new partnership with LiveRamp on IdentityLink. By combining LiveRamp's Identity solution with ours, we offer marketers additional capabilities to reach their customers in a privacy by design manner. We believe this enhanced Identity solution is quite unique in the industry and very competitive compared to walled gardens own proprietary approach. This combination also broadened our reach broadened our reach by providing access to additional cookie less inventory, including Connected TV.

Among the key benefits of our dense identity graph is its ability to offer new marketing scenarios to our clients. From this perspective, I am particularly pleased with the early traction of our web consideration products that we launched in Q3. Rather than our usual cost per click model, we decided to price these upper funnel products on a cost-per-impression or CPM basis. While our revenue contribution were still modest, we already had 400 live accounts using web consideration and received very encouraging client feedback on its performance.

Also within new solutions, Retail Media further accelerated in Q3, growing 25% on our revenue ex-TAC basis and performing well across all three regions. This business, which was designed to be largely immune against third party cookie restrictions, is enjoying very good market traction. As discussed on previous earnings calls, our Retail Media business is also increasingly marketed with a transactional SaaS model. This model applies to both our Sponsored products and our Commerce Display products. Enabling more control and transparency for clients turns out to be very popular among large retailers. As a result, it has continued to grow very quickly in our Retail Media revenue mix. There is good momentum around forces at conviction that offering clients the ability to consume our assets as a programmatic platform allows us to build stronger and a more strategic relationship with them, more on this topic later.

On the supply side, we continue to expand our direct publisher network, over 4,200 publishers now connect to a Direct Bidder, both on the web and app inventory, including a recent addition such as T-Online and LA-Times working directly with large number of high-quality publishers allows for more reach, while eliminating the middleman tax from ad exchanges.

Regarding our legacy retargeting business, we saw a decline in the mid-single digit range on a revenue ex-TAC basis. The softness was mainly concentrated in the large customer segments and is driven by two main factors. First, the much higher penetration we have reached here compared to the market, and second, the delayed investment in mobile app marketing that doesn't fully compensate the slow erosion of browser usage yet. Moving now to our outlook and priorities for the future. We expect the softness we saw in large accounts in Q3 to continue in Q4, in particular in our app business, which is highly concentrated around our large accounts. Given the important contribution of large clients to the holiday season, we are taking a more moderate approach to our Q4 revenue outlook. Despite this more moderate top line, we expect to see a year-over-year improvement in our profitability margin in Q4. This illustrates that even if our transformation does not generate top line growth yet, it is already showing early signs of positive impact on our bottom line.

Looking beyond just Q4, one of our key priorities is to make our revenue model more resilient. This will involve broadening our value proposition beyond pure return on ad spend. As discussed about Retail Media, we are seeing some of our most sophisticated retailers seek more control over the ad tech stack. Sometimes this appetite for control becomes even more important than campaign performance itself. We are seeing an opportunity to proactively embrace this new trend and engage more strategically with those large clients. This might involve adapting our pricing model from traditional cost per click to a transactional SaaS model for fraction of a high-end marketing solution clients, quite similar to what we already started doing successfully with Retail Media. We believe that having a transactional SaaS offering, dedicated to specific client needs will allow us to capture a bigger share of the market opportunity. It will also make us more resilient in a world where access to cookies has been made more difficult.

Looking back over the past 18 months, we have made important progress around four key dimensions. First, we have greatly broadened our product portfolio from what was almost just retargeting to a set of new solutions. Those new solutions are still relatively early in the development, that as we've seen already generating substantial growth. Second, to evolve from what was perceived as a narrow point solution to an actual tech platform, we made huge efforts migrating our managed services into self service tools that can be operated directly by our clients, large and small, and their agencies. Third, thanks to bigger Third, thanks to bigger, more diversified Identity Graph and a growing number of products that are cookie less by design. We had significantly reduced our dependency on third-party cookies. And fourth, to steer our ambitious transformation, we have appointed a whole new generation of highly talented and passionate executives.

Despite the significant headwinds we've faced during those 18 months, it is worth noting that we were able to implement these key changes, while maintaining a healthy financial profile, as evidenced by our strong balance sheet and cash flow. Now with a clear direction set for Criteo, it is time to move to the next stage of our transformation. This phase will come with more changes to the way we operate and will require tight execution.

I believe that adding someone who has already lead teams through similar types of transformation programs will maximize our success. This is why we are all very excited about Megan joining us as our new CEO. From my multiple conversations with her, I think Megan is a fantastic leader with the right skills for the job. She combines very strong industry expertise and a global profile with her proven track record, in driving complex transformations. Her addition is a great opportunity for Criteo and all its employees, as well as for our clients and partners. I am personally very happy to work with Megan on the next phase of our transformative journey.

As Chairman, I will remain a public face of the company, especially in Europe Public Affairs. I will also ensure that the Board fully supports Megan and the executive team to maximize Criteo's success. Megan's appointment will be effective November 25. To ensure a smooth transition, I will support her operationally until we report our fiscal year 2019 results. As usual, we will then provide our guidance for the coming year.

In closing, I'd like to say that, given our plan and achievement so far, I am very confident that Criteo is on the right path to succeed as a leading advertising platform for the open internet.

With that, I'll turn the call to Benoit.

Benoit Fouilland -- Chief Financial Officer

Thank you, JB, and good morning, from my side. As usual, I will walk you through our quarterly performance and share our guidance for Q4 and fiscal year 2019. Revenue was flat at constant currency at $523 million, revenue ex-TAC our key metric to monitor the business was also flat at constant currency at $221 million. New client business drove our performance, especially in the mid-market, offsetting a limited decline in our existing client business despite continued adoption of our new solutions across the client base.

Using currency assumptions supporting our guidance, revenue ex TAC reached over $223 million, before $2.5 million negative FX impact. Compared to Q3 2018, the FX negative impact was approximately $3 million or more than 1-point of growth. Revenue ex-TAC margin was essentially flat at 42% in line with our expectations. We grew the number of clients 4% year-over-year to 20,000, and maintained client retention at just below 90% for all solutions combined. From an existing client standpoint, same client revenue decreased just a bit less than 3% at constant currency, despite higher adoption of our new product, driven by the slight decline in retargeting, in particular, with large customers. As a result, same client revenue ex-TAC decreased 4% at constant currency.

Turning to the regional performance, in the Americas, revenue ex-TAC growth was slightly positive at constant currency, improving from the prior quarter, including notable improvement in the US growing plus 3%. This was driven by continued traction of our new solution, including Retail Media on the mark [Phonetic] recovery in the midmarket business, offset by softness with large clients.

EMEA revenue ex-TAC grew 1% at constant currency. This was also driven by double-digit growth in mid-market on continued strong traction of our new solution in the region including Retail Media, offset by a softer business with large customers, in particular in the UK.

On in APAC, revenue ex-TAC declined 2% at constant currency, similar to the prior quarter. The Typhoon hurting our Tokyo data center cost us approximately $0.5 million in lost opportunity, which combined with slower business with large clients in Japan and Australia offset continued strong momentum with large customers in Korea on steady growth in mid-market across the region. Excluding the impact of our Japanese data center outage, our growth was close to flat in APAC.

Shifting to expenses. Other cost of revenue decreased 6%, driven by the change in our server amortization period. Savings in power consumption in our data centers on lower expenses for third-party data, offset by the provision for the French Digital Tax on Revenue. On a non-GAAP basis, other cost of revenues increased 16%. GAAP operating expenses declined 3% year-over-year, driven by our disciplined expense management on lower equity awards compensation expense, due to the lower stock price over the period.

Headcount related expenses represented 74% of GAAP opex, up about 260 basis points. We ended the quarter with 2,800 employees, an increase of 2% year-over-year, but a 3% sequential decline. On a non-GAAP basis, opex were flat at $138 million, down about $12 million compared to the prior quarter. Looking at these by function, R&D decreased 1%, partly driven by an increase in our Research Tax Credit, despite a 1% growth in headcount to 680 R&D and Product engineers. Sales and operation decreased 2%, despite a 2% increase in headcount to 1,620. Sales and account strategists, our so called quota-carrying employees, grew 1% to 730. On G&A, increased 9% driven by a 2% increase in headcount to 500 employees, after internal transfers from other functions, as well as one-time consulting fees including for tax advisory and HR related third-party providers. As indicated last quarter, we continue to effectively manage our cost base and expect non-GAAP expenses for 2019 to grow slower across all functions compared to our original plans.

On the profitability side, adjusted EBITDA was over $64 million or 5% above the high end of our guidance, at comparable FX, and 3% below Q3 2018 at constant currency. This drove our adjusted EBITDA margin to slightly over 29% of revenue ex-TAC, down only 80 basis points at constant currency.

Depreciation and amortization expenses decreased 13%, driven by the change in the useful life of our servers from three to five years, representing approximately $10 million in Q3. Equity awards compensation expense decreased 32%, due to the lower stock price over the period and to a lower extent to equity forfeitures. Financial expense decreased 11%, due to higher income from cash equivalent and lower interest charges on debt, more than offsetting the impact of ForEx changes on our hedging positions.

And our effective tax rate was 28%, in line with our 30% projected tax rate for 2019. In Q3 2018, the effective tax rate was 27% translating into a 16% increase in the provision for income taxes. Net income increased 15% to $21 million, driven by a 14% increase in income from operation and lower financial expenses, despite the slightly higher tax expense. Our earnings per diluted share increased 14% to $0.28. Cash from operation decreased 14% to $43 million, driven by a lower adjusted EBITDA and negative changes in working capital over the period, partly offset by lower income tax paid.

Our transformation of adjusted EBITDA into operating cash flow remained strong at 67% in Q3 and 86% for the first nine months of the year. capex decreased 19% to $24 million, representing only 4.6% of revenue. That's we're essentially flat on a year-to-date basis at 5% of revenue. As a result, free cash flow only decreased 6% to $19 million, reaching 30% of adjusted EBITDA in Q3 and 44% for the first 9 months of the year. Our cash and cash equivalents increased $45 million in the first nine months to $409 million. With respect to capital allocation, we started executing our new $80 million buyback program in early August. In the quarter, we purchased approximately 915,000 shares for a total cash amount of about $18 million, at an average price of $19.24 per share. We have not considered [Phonetic] any repurchase shares at this point, but may consider doing so in the future. We intend to continue executing our buyback program over the next few quarters, including in Q4.

I will now provide our guidance for the fourth quarter and fiscal year 2019. As usual, the following forward-looking statements reflect our expectation as of today, October 30, 2019. As explained by JB, we are taking a more moderate approach to our Q4 revenue ex-TAC outlook to reflect the softer trend in our business with large customers. As a result, we expect revenue ex-TAC for Q4 to be between $255 million and $261 million. Using the currency assumption used in our Q3 guidance, this means, between approximately $261 million and $267 million. So the Q4 guidance implies constant currency growth of approximately minus 5% to minus 3%.

We expect year-over-year ForEx changes to negatively impact reported numbers by both $3 million or 120 basis points of growth. With this more moderate outlook for Q4, we now expect to land at the bottom end of our revenue ex-TAC guidance for fiscal year 2019 as communicated on July 30, 2019. This means we now expect approximately flat revenue ex-TAC growth at constant currency for the full year 2019. Using our current ForEx assumption, this means revenue ex-TAC of about $942 million. Based on FX assumption used for the Q3 guidance, this means approximately $949 million. Compared to 2018, ForEx changes are expected to negatively impact reported numbers by about $24 million or 250 basis points of growth.

Now on the profitability side, we expect Q4 2019 adjusted EBITDA between $99 million and $105 million. At the midpoint, this means an adjusted EBITDA margin of 39.5%, driving a 100-basis point improvement in our margins in Q4 compared to prior year. This margin improvement demonstrates both the strength of our financial model and the early positive impacts our company transformation is having on our bottom line. And for 2019, we maintain our expectation of an adjusted EBITDA margin of approximately 30% of revenue ex TAC, demonstrating once more our commitment to profitability.

As indicated in the past, we are committed to proactively manage our cost base in order to generate healthy profitability on free cash flow in 2019 and beyond. As usual, the FX assumptions supporting our guidance for the quarter and the fiscal year are included in our earnings release.

In closing, we feel good about our strategic direction and remain focused on accelerating our transformation. In doing so, we are committed to making our business more resilient and driving efficiency across the entire company.

With that, we'll now take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Matt Thornton of SunTrust. Please go ahead.

Matthew Thornton -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning and thanks for taking the question guys. A couple of quick ones if I could, and I apologize if I missed this, I know you talked a little bit about the Retail Media growth. Just wonder, if we can get an update on the web upper funnel products growth as well as the app install growth? Secondly, self-service, just wondering if you can give us a little more color on just how that platform is ramping and how some of the demand-generation programs are ramping there in parallel? And then just finally, I just wonder, if there was any impact that you would call out from Google's transition to the first price auction dynamic there. Any color there would be helpful? Thanks guys.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Thank you. Okay. I'll try to take this in order. There are a lot of questions here. So, first you mentioned web upper funnel, this is what I referred in my script, as web consideration. So, as I mentioned, this -- this is still relatively early, because we launched formally half way in Q3. But the early results are very encouraging. Actually, we have done significantly better than our own internal targets on this. We have now 400 clients live and more important, most of them are very happy with the performance. And we start to see very significant orders coming in. And sometime those orders are bigger than the lower funnel, the retargeting. So, it's really exciting, because this is something we always monitor very closely is what's the share of voice of the new products compared to our legacy retargeting. And we've seen recently for instance, mid-market client in retargeting that was asking us an [Indecipherable] order that was more like large accounts one for web consideration. So, this is overall very encouraging.

And you mentioned also app install, so this product is still relatively early. We are, as you know, transitioning the managed platform to the Criteo Stack and this is an ongoing process. So, right now, we are still in the building phase and haven't fully scaled this globally. But we are still learning from this Manage acquisition, to make sure we have the right product for the market. Self-service is also progressing. As we mentioned last time, we are testing a new set for registration platform across three test markets, the US, Australia and the UK, and we're going to get a lot of insights in -- during the holiday seasons, and this is going to give us a lot of good knowledge and expertise for rollout next year.

Last thing is Google's First Price. So this is important and Google was the last large exchange, plus at a speed to move from second price to first price. And we were very well equipped for this transition, because we've been developing First Price bidding engines for a long time now. And as a result, their overall impact was slightly positive for us, because as we believe our first price bidder is altering the course [Phonetic], relatively speaking, better than competition. We could take advantage of this change of Google to First Price to increase our bidding competitiveness. So, all in it we know, it's been a positive change for us.

Operator

Our next question comes from Lloyd Walmsley of Deutsche Bank. Please go ahead.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thanks. I have two questions if I can. First, presumably mobile app marketing is growing faster than web or desktop. So, is it right to think you're losing share here from these large clients, and can you just elaborate on why you think that is, is it performance related? Is it really just intense competition and anything you can give there would be helpful? And then secondly, if you can elaborate a bit on the identifier partnership with LiveRamp, you called out getting access to video inventory. So just wondering, how do you feel about your positioning to go after that more aggressively and kind of what is the go-to-market trend to take advantage of that? Thanks.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Sure. And so mobile app marketing, if you look at as a whole, it's a growing market, but if you look more specifically to the retail sector -- to the retail segments, it's a more mixed picture, and we have a very good view on this retail segment obviously, because we have close to 20,000 clients in this area. So, this is a market we know very well. And basically you have three buckets of clients. You have, what I would call the early adopters, who aggressively develop a mobile app and those retailers are clearly leading the pack in term of growth and momentum, and with those ones we do very good mobile app business with them. And they are represents, I would say, the lion share of our app business.

Then, you have a second bucket, which they do have enough, but clearly their app is not great and you know about that because it takes a lot of effort and investment to have a really best-in-class app experience. The same way the drive web, you have to do Android, iOS, it's a lot of -- or different techs. And those guys are less keen to spend in app marketing budgets, the same level that they spend in web, because they know that the app experience needs to get improved. They are working on it, but you can see that there is a kind of a delay between whether they do enough than what we've been doing in web.

And you have a third category and it is They are working on it, but you can see that there is a kind of a delay between what they do in app and what they have been doing in web.

And you have a third category and it's especially among mid-market clients. Most of them, they just don't have an app, full stop. And they know that's well -- they were hoping for a long time that they would not need an app. We are showing them with comparing case studies that -- it's not something they can afford in the long run, they will have to have an app one way or another, but they have been clearly delaying this investment in app, because it's a much bigger effort for them relatively speaking than the bigger guys.

So for this -- for those midmarket segments, basically we're doing only web with them. And it's going to take a while before they develop an app. So all in, all our client base is not migrating at the same speed. And when you see the lines investments in the mobile app industry as a whole, you have a lot of gaming or messaging, things like food delivery, but not as much in retail -- in retail, travel and classified which are the -- our core verticals.

So we're getting our partnership with LiveRamp. It's one of those exciting cases where one plus one equals more than two. And I think it's highly beneficial for both of us. They do have the capability to expand identity in a number of cookie less inventories, including Connected TV, which is still a small business Connected TV, but it's a fast-growing promising one, where the walled gardens have a lower position. And we've been doing a few tests there in partnership with LiveRamp, and these are very encouraging. So this is very early, so I don't want to you guys to get really excited about that. Because this is just -- we're just at testing phase. But it's an interesting additional opportunity for us in the midterm.

Lloyd Walmsley -- Deutsche Bank -- Analyst

So just to follow up on the mobile app stuff, clearly, it sounds like the clients that you have have kind of a weak mobile app themselves are not spending to drive traffic through their own apps. But if you think about your performance buying inventory within apps driving traffic to web, is that holding up well? Do you feel good about your performance there and kind of the growth in that side?

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Yeah, so this piece is going really well. Actually, this is the area where overall our media buying is growing the most. We discuss our Criteo Direct Bidder with ability to buy inventory directly from publishers, and For a long time, this was focused on web inventory and in the past three quarters, we've been focusing more and more in in-app inventory and this is where we see most of the increase of our media buy.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Okay, thank you.

Operator

Our next question comes from Mark Kelley of Nomura. Please go ahead.

Mark Kelley -- Nomura -- Analyst

Great. Good morning. Thank you, guys. Can you just talk a little bit more about the softness with your large customers, any verticals or geographies that we're most impacted? And I want to go back to the --my second question is I want to go back to the CTV comment you made about the walled gardens have a diminished position there. I think YouTube TV, Google is putting some emphasis there. I'm curious to get your thoughts on Roku, do you see that becoming a walled garden especially after the DataXu acquisition? Thank you.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Okay. And so the softness on larger accounts has been across all geos because the trend I was describing regarding the shift of investment from web to app is something which is kind of global happening everywhere. So there are some nuances in different geos depending on the maturity of mobile, some countries like Korea, we are today super heavily into mobile apps, but some other markets, it's -- it's still early in this transition. So, we -- again, we believe that this is -- this is not a long-term issue but more relatively short-term one. It's just that there is a delay in this transition in terms of -- of migrating advertising budget from the web to app again mostly because the app experience of large number of our clients is not on par with their web experience. So, they are reluctant to put the same amount of money in app despite the fact that users are more and more spending time in app rather than the web. So, and we are not -- we are trying our best to convince our clients to go there more aggressively, eventually is going to happen, but this is creating some short-term headwinds. Regarding CTV, it's an early market. So, it's probably a little early to speculate but while it is pretty obvious way one that it's a very fragmented market today and it's a bit like the web, I would say 15 years ago. So eventually one day you might -- it might consolidate into a handful of super strong walled gardens, but again, you should look at what Where was the web landscape 15 years ago, you had no walled gardens at all, you had a bunch of publishers that are all trying to better monetize inventory and you mentioned Roku and others. They are looking to increase the value of their inventory and maximize the opportunities to monetize their inventory and this is high quality inventory, where you don't have the typical flow that you have on the web. So, this is why is promising. Right now, it's a smaller --it's a small market when compared to the web. So, again, we are testing the waters there but I'd mentioned that as a mid-term area of interest for us.

Mark Kelley -- Nomura -- Analyst

Thank you very much.

Operator

Our next question comes from Tom White of DA Davidson. Please go ahead.

Tom White -- D.A. Davidson & Co. -- Analyst

Great, thank you. One clarifying question for JB, and then one for Benoit. JB, you made a comment in the prepared remarks about seeing some large retailers kind of increasingly favor control over performance when it came to kind of their ad tech stack. I was hoping you could just elaborate there? And then on expense growth this year, I think you guys said that non-GAAP operating expenses are going to grow slower across all functions relative to your prior plan. Just curious if you can kind of help us understand how much of that is just a function of the slower revenue growth versus your decision to maybe hold back some spend or are you finding just pockets of investment or expense where you can be more efficient, just trying to understand what's happening there? Thanks.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Thank you. So, I'll take the first one and then we will let Benoit answer the second one. So that's very interesting, this whole control -- this conversation we're having, its relatively new with our clients. And again it's mostly concentrated on our most sophisticated clients. For a long time, we are tech a driven company and we -- our big focus was, let the machine take the decision instead of human beings because there are a lot of cases where the machine is smarter and capable to do things that human in front of the screen are less good at. So we automated a lot of things. And so, the good -- the good impact is that we have been able to develop like super impressive performance, and this has been how we've been growing very effectively in the market by having a best-in-class performance for our advertising products. The flipside of that is that we are being seen as a black box where everything was happening in a completely automated fashion and without any control from the clients on what they can do and for most clients, it's OK because the one thing they look at is performance, they don't really care how the algorithm works behind the scene, but for the most sophisticate one, they want to have more control, because they want to have the ability to influence the bidding tactics depending on specific circumstances, for instance, you know, they want to have -- they have an excess of inventory in a specific type of product and they want to put high bids on those ones or they have a special promotion week, so they want to be able to influence the bidding tactics in a more granular way.

So, we have to kind of open the platform and let them -- and do some control. So, the first reaction of engineers and you all, if you do this, you're going to -- the greater performance because the machine is always smarter than human beings. Well, and sometimes, I can't say that we know that but we still would rather have control, even if it's to the expense of performance and I think it's important that we recognize that and some time get this trade off providing more control to our clients rather than the maximum performance. And again, this doesn't concern all of our clients, it's a small fraction, but it's also the most sophisticated ones and typically very large clients and I think it's a very interesting trend and an opportunity for us to develop a different type of relationship with them where they will buy more tech than just [Indecipherable].

Benoit Fouilland -- Chief Financial Officer

Okay. So, moving on to your question regarding expenses, to be very clear, I mean, we've indicated agenda when we reported our first quarter results this year that we would increase our focus on expense management on profitability and that's exactly what we've done. So this is due to proactive management of our expense base. So, the current spending trends that you see are not, and the fact, I mean, are not the result of delaying expenses, they are as a result of proactive actions taken in our cost base. We've done some significant reorganization of our go-to market as well as reorganization at the leadership level last quarter that had been highlighted to you. But we are also taking proactive action as reviewing our portfolio of real estate and reviewing the efficiency project across the company. And that's not an effort that is behind us, we are going to continue in that effort to, as I said in my prepared remarks, proactively -- continue to proactively manage to look for efficiency across the business, and that would translate in lower single digit growth in Single-digit growth in expense for the full year, we are following this trend as we speak, which is much lower than what we had initially in mind when we started the year.

Tom White -- D.A. Davidson & Co. -- Analyst

Okay thank you.

Operator

Our next question comes from Andy Hargreaves of KeyBanc. Please go ahead.

Andy Hargreaves -- KeyBanc Capital Markets -- Analyst

Thanks. I just have a broad question sort of on retargeting and the slow erosion that we're seeing is, at one point, I think we are fairly hopeful we would get back to something close to double-digit growth in the second half and it seems like the gap is almost entirely the retargeting business and it doesn't seem like there's been any sort of new external impacts that we didn't know of. So, is it just that people are moving away from individualized targeting, the ROI [Phonetic] is declining, what is driving that erosion?

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

So, you know, overall, we have this --as we said in our prepared remarks, we have this slow -- small contraction into the retargeting business, but you are absolutely right, given that the size of this in our overall mix, it's, it has a big impact on the overall picture. But when you look, one step more [Indecipherable], it's a more -- it's a more mixed picture and there is a -- there is a disconnection between mid-markets and large accounts. Mid-markets is growing very nicely, you know, double digit in some geos, especially in Europe and in Americas.

So, it keeps growing very nicely. This shows that there is nothing that is overly concerning about the retargeting. There is a specific softness within our larger accounts, and this is explained very simply by the fact what we discussed previously that most of the investment in large accounts is in -- in, well, most of the investment in mobile apps is in large accounts. So, as we didn't see the growth we were expecting in mobile app, this had a much bigger impact on larger accounts than on mid-market.

Andy Hargreaves -- KeyBanc Capital Markets -- Analyst

And then, excuse me --and the new products, just if we're looking at them collectively, the comparisons are getting a little bit more just more difficult. So should we expect the year-over-year growth to start slowing or is there enough momentum in those businesses to keep the growth rates sort of consistent with [Indecipherable]?

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Well, clearly today, there is a, there is a very high momentum. We are talking very high double-digit. We mentioned 57% for Q3. So, we are not providing as of today guidance for the future, specifically on new products, but we expect this high velocity to maintain for quite some time. This is really only scratching the surface of those new products. They are addressing very deep and large markets that are significantly different from retargeting. Significant number of those markets are immune to any third-party cookie restrictions and not by chance, because it's also why we precisely pick those new products because they would balance the risk. So, those new products won't face the traditional headwinds we've seen in our legacy retargeting business.

Andy Hargreaves -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Your next question comes from Doug Anmuth of JP Morgan. Please go ahead.

Doug Anmuth -- JP Morgan -- Analyst

Great. Thanks. JB, you talked about moving from a CPC to a SaaS-based model, I was just hoping that you can update us on your progress here over what timeframe do you think this can take place, and how are your conversations with advertisers on that front? And then just secondly, just curious if you're seeing anything impacting in terms of iOS 13 or anything new in terms of mobile platforms specifically? Thanks.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

So, yes, again, I mean, the idea is we want to be able to address the maximum potentials in iOS in terms of our clients and not all our clients are consuming advertising technology the same way. And the one fits all model that is the same for everyone is today restricting ability to go after the fuller -- the full market. And, so by diversifying our pricing models, we bring the ability to expand our market opportunity and also to deepen our relationship with some of our existing clients that as we discussed earlier want not only performance, but also control and transparency, and they want us to be much more as strategic partners than just a point solution providing the best return on ad spends. So this is a general trend. And it has a lot of positive momentum for us, it creates more sticky relationship on the long term, it allows us also to open conversation with a whole new lot of clients. So it's an exciting move, it's relatively early but with all the experience we gain in Retail Media, because we've been doing this in Retail Media for quite some time now and in a very successful way, we are getting this experience to expand this now to a fraction of our marketing solution business.

Regarding iOS 13 so far, I mean we, again we when we provide guidance we always include any headwinds we can have from ITP or other cookie restriction things. I think it's no secret that Apple will put some restriction on the ability to access cookies in the Safari browser. This has been going on for two years, as we said, we make a big effort on to fronts. One is to have Identity graph relying on multiple data points, including a lot, but not relating to cookies on one side, and two to favor products that were not dependent on the on cookie in the first place. And by doing this, as you know, we mitigate in our outlook any future impact that we can have from third parties. This is something we learnt from the past is we want to reduce our dependency on things which are out of our control, like the policy of an Apple or someone else on how they manage to access to cookies in their browser.

Doug Anmuth -- JP Morgan -- Analyst

Thank you JB.

Operator

Our next question comes from Dan Salmon of BMO Capital Markets. Please go ahead.

Dan Salmon -- BMO Capital Markets -- Analyst

Hi, good morning everyone. Good afternoon, if you're across the Atlantic. JB, I'd like to return to the partnership with LiveRamp, Rubicon Project also announced an extended partnership with them recently and their CEO penned a really interesting [Indecipherable] recently about talking about more of an era emerging in independent ad tech of collaboration and open source. I'm curious, do you see that sort of era emerging whether that is certainly -- everybody using identity link more whether that's things like pre-bid which you're involved in. I'd be curious to hear your thoughts on collaboration among independent players? And then second, I'm sure lot of us here are interested in your new CEO, you mentioned a little bit in your prepared remarks about Megan's background turning around and evolving the media business at Nielsen, which she certainly did, but maybe a few other key characteristics you saw in her to have her replace you in the CEO seat? Thanks.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Sure, so, yeah, this partnership, I think, you know when you look at the big picture one of the biggest trend happening in the market is the walled garden restricting the ability for advertisers to track their campaigns and manage their own identity behind the walled gardens and every quarter you see new announcement from walled garden that tend to puts further restrictions, which is something which make the whole ecosystem very uncomfortable because you know, I think it's very important for all advertisers to keep control on their destiny and be able to choose whatever measurements and tracking system that they want and not having this imposed by X or Y.

So, recognizing this concern from advertisers, I think independent players have a very important role to play. So each of us are obviously much smaller than the walled gardens but when we act collectively and join forces, we become extremely powerful. As you know Criteo has super large identity graph, LabRAM [Phonetic] has a very good one also. So combining our force there makes tons of sense and make this independent alternative a very unique and attractive compared to the walled garden owned solutions.

So, we think this is going to have a very positive impact in the market and actually the feedback we got from advertisers was very encouraging and they all want this independent solution to strive in the market, because the last thing they want is to have their hands tied to only a handful of proprietary walled gardens solutions, which is a good segue to the arrival of Megan as you know she is coming from Nielsen. Nielsen is an expert in measurement in an area where we believe it's important for players like Criteo to work to have more partnership with measurement companies. We feel it's very important for advertisers to have different measurements partners than the one executing the advertising tech, so there is no conflict of interest, and that's also one of the issue with walled garden is they are doing both things, both measurements and the media execution, which creates a conflict of interest. So we like the idea that --and I think Megan is going to help us in this, in building the right partnership with the measurement ecosystem. And I think this is going to be super useful and on top, obviously as you mentioned, she has a lot of experience in transformation and we are in a transformation journey accretive. So, I think it's just going to be a very valuable addition to the executive team to manage this transition.

Dan Salmon -- BMO Capital Markets -- Analyst

Great. Thank you.

Edouard Lassalle -- Vice President, Head of Investor Relations

Thank you, JB. This now concludes our call for today. The IR team will be available for any follow-up. I would like to thank everyone for attending and wish you all a good end of your day. Thank you.

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Thank you.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Edouard Lassalle -- Vice President, Head of Investor Relations

Jean-Baptiste Rudelle -- Chief Executive Officer, Chairman and Co-Founder

Benoit Fouilland -- Chief Financial Officer

Matthew Thornton -- SunTrust Robinson Humphrey -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

Mark Kelley -- Nomura -- Analyst

Tom White -- D.A. Davidson & Co. -- Analyst

Andy Hargreaves -- KeyBanc Capital Markets -- Analyst

Doug Anmuth -- JP Morgan -- Analyst

Dan Salmon -- BMO Capital Markets -- Analyst

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