Greetings and welcome to The Trade Desk Fourth Quarter and Full-Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a remainder, today's conference is being recorded. I would now like to turn the conference over to your host, Chris Toth, Heat of Investor Relations.

Thank you, operator. Hello and good afternoon. Welcome to The Trade Desk fourth quarter and full-year 2017 earnings conference call. On the call today are Founder and CEO, Jeff Green; Chief Operating Officer, Rob Perdue; and Chief Financial Officer, Paul Ross. A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I would like to remind you that, except for historical information, the matters that we will be describing will be forward-looking statements, which are dependent upon certain risks and uncertainties. I encourage you to refer to the risk factors included in our press release and our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the Non-GAAP to GAAP measures can be found in our earnings press release. We believe providing non-GAAP measures combined with our GAAP results provides a more meaningful representation regarding the Company's operational performance. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks Chris. Good afternoon, and thanks to everyone for joining us today. Q4 was an outstanding quarter for The Trade Desk and the capstone to a terrific year where we again exceeded the goals we set out to achieve. In 2017, we surpassed $1.55 billion in total spend, resulting in annual revenues of $308 million, which is an increase of 52% year-over-year. This growth is almost double the rate of the programmatic industry's 27%, according to Magna Global. Just as we did the previous year, we believe we continued to gain more share in price discoverable programmatic advertising than anyone. The growth, share gain, and momentum of our business heading into 2018 reflects the investments we have made over the past several years and our focus on serving agencies and advertisers objectively. We generated an adjusted EBITDA of $95.5 million for 2017, which reflects an adjusted EBITDA margin of 31%. This $95.5 million is a record for The Trade Desk that came even as we aggressively invested in developing products, growing channels, and expanding global business that we expect will deliver strong ROI in the coming years. Q4 2017 revenues were $102.6 million and up 42% from Q4 2016. Q4 2017 adjusted EBITDA was $39.5 million for an adjusted EBITDA margin of 38.5% again demonstrating our operating leverage. As we have each quarter since our IPO, we have once again exceeded our guidance. While these numbers are great, they tell only part of the story. Our execution in Q4 is especially meaningful because our Ventura headquarters and team were significantly impacted by the fires and mudslides that ripped through Southern California. We came together as a team during this challenging time, not only to help each other and the community, but also to close out another record-breaking Q4 for the…

Thanks, Jeff, and good afternoon, everyone. Our business continued its strong trajectory in the fourth quarter, and we exited 2017 with strong momentum. Total fourth-quarter revenue increased 42% year-over-year, led by our mobile channel, which grew 67%. Mobile is now our largest channel by total spend and we expect it to increase further in 2018. Our Native channel also had an amazing quarter, increasing over 200% from the prior year; our audio channel grew over 600%; video grew 61%; and as Jeff mentioned, Connected TV grew 535% from a year-ago. Throughout the year, we put a lot of our focus on things like growing our network infrastructure, adding features to our platform, hiring our newest employees or building out our global management structure, all with the goal of improving our scale and being ready to deliver results for agencies and advertisers in Q4, which is our seasonally strongest quarter. We delivered on those goals, and one of the best indicators of this came during the holiday advertising push in November and December, where we generated significantly more business from many of the advertisers on our platform from many industries, including retail, technology, automotive, finance, CPGs, and many SMBs. Expanding our omnichannel presence is a key part of our operational goals and some of our bigger highlights from the quarter included the emergence of significant spend on our Connected TV channel and the breakout spend growth in our native channel. An example of this was a major technology company that through their large global agency initiated ad spend across our channels in mobile, audio, display, native, video, and for the first time in Q4, Connected TV, to dramatically increase their scale and find the same users across multiple browsers and devices. By expanding their omnichannel approach, the advertiser was able to…

Thanks, Rob, and good afternoon, everyone. We are extremely proud of our performance in 2017, as we continued to execute and deliver solid results against our key financial metrics. We grew revenue 52% year-over-year, adjusted EBITDA 46% year-over-year, and GAAP net income 148% year-over-year. We did this all while continuing to invest aggressively in areas critical to our future growth such as adding engineering talent and expanding our global reach. We continued to gain market share, ending the year with over $1.55 billion in spend on our platform, up from approximately $1 billion a year-ago. Mobile spend was the primary driver of our growth, increasing 87%, and 2017 marked the first year that total mobile spend was greater than display. Now turning to our financials, revenue for the fourth quarter was $102.6 million, up 42% year-over-year. This growth reflects both expansion of spend by existing customers plus the addition of new customers. Approximately 87% of our fourth quarter gross spend came from existing customers who have been with us for over one year. On an annual basis, revenue for the 2017 fiscal year was $308 million, up 52% year-over-year, with 91% of our gross spend coming from existing customers. Adjusted EBITDA was $39.5 million with a corresponding margin of 38% of revenue during Q4. Margins are typically the strongest in the fourth quarter given the seasonal strength in advertising spend. For the full-year, adjusted EBITDA was $95.5 million, for a 31% margin reflecting our revenue over performance, even as we increased our investments in product, people, and global expansion. In Q4, stock-based compensation was $8.9 million, an increase from prior quarters, which was primarily the result of the Company's employee stock purchase plan. For the year, stock-based compensation was $21.3 million or just under 7% of revenue. Our effective tax…

Thanks, Paul. In closing, let me reiterate that, while we are excited about The Trade Desk's current performance, we see even more potential for the future. As the worldwide advertising market grows to $1 trillion, we believe it will move to programmatic. Programmatic is the fastest-growing segment of advertising, and The Trade Desk is growing faster than anyone in programmatic. When we see surprises, they tend to be to the upside. Now is the time to invest to grab market share and revenue and The Trade Desk will do so in 2018 and beyond. That concludes our prepared remarks for this afternoon and now operator will open it up to questions.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Youssef Squali, SunTrust. Please proceed with your question.

Thanks for taking the call or for taking the question. Two if I may. First, Jeff just piggybacking on something you said towards the end of the call that the investment that you are looking to do in 2018. As we look at the guidance, it looks like taken into account that $15 million to $20 million additional spend, the margin should see some deterioration. Should we be looking at 2018 as an investment year? And then starting at 2019, you start coming out of that or is this somewhat of a perpetual kind of state of affairs as long as you can continue to drive the topline above your original expectation you'll continue to spend, potentially at the expense of the margin maybe not in absolute dollars, but certainly the expense of the margins. And second, the take rate implied in your 2018 guidance suggest less than 100bps compression, just trying to understand what gives you the confidence in that number considering all the pressure ad agencies are under and the 500% plus growth you spoke to with regards to the Connected TV were take rates are lower? Just any clarity there would be great. Thank you.

You bet. First thanks for the question. In relation to the first question, margin compression and are we focused on growth or we focus on bottom line, I just want to be super clear. It is land grab time in advertising, so we again believe that price discoverable problematic represents a little more than 2% of the global advertising pie which is growing and will be a $1 trillion in less than 10 years. I don't know that there'll ever be a transition like the one we're experiencing now where transactions are going from inefficient pieces of paper and a handshake deal and martini lunches to digital transactions. And any focus on bottom line, I think would miss out on the opportunity, which is to grab land. So that is our focus. One of the things that we think is really beneficial about our business model is that because there's so much operating leverage built into the business model. That at times that's been difficult for us to invest that aggressively as we want to, so that in advertently as exposed our operating leverage and just showcase what we're capable of even though we want to be investing as much as we possibly can. That's exactly what happened in Q4. On the second question, hey a little bit of change of the take rate are you worried about that being any lower. So just a couple things number one as it relates to take rate that is not something that we optimize our business to. We're trying to grow as fast as we possibly can and we do care about revenue of course but we want that number to be as big as we possibly can. So I'd rather have a bigger number of revenue and that number be 18.6%…

Our next question comes from Brian Fitzgerald, Jefferies. Please proceed with your question.

Thank you. Jeff, during your prepared remarks you highlighted the potential for walled gardens to continue coming down and we've seen Twitter starting to work with third party DSPs as well as telcos talking about building up their own ad tech stack? With that as a backdrop how would you see 2018 playing out in terms of your access inventories? Do you think you will start to have greater and greater access to inventory that was previously soiled? And then one additional one we had was as you ramp data spend how does that impact the overall business model in terms of cost to serve inventory, cost to service customers? Thanks.

You bet. So it relate to the first question which is essentially will our inventory access to be bigger or smaller in 2018 than it was in 2017. A especially as we expand into China, it's really exciting to see how open. The equivalence of Google and Facebook and Amazon are in those markets and by you Alibaba intents that. And we're super excited about those discussions and we think we're in a unique position where we can be a company that partners with both by you and with both 5U and with Google and can partner $0.10 and with Facebook. We don't think there are very many in the world that can give that. And especially as you see TV company is getting more aggressive in fact most TV company's and this is two Comcast and Disney and AT&T the core of those business are sale side. So there making their inventory available and so there will absolutely be more inventory available to us then there was in 2017. Now one thing I just want to explicit about it is economically irrational to maintain walled garderns around any lease of inventory forever. So I do believe that that eventually even the walled gardens of Google and Facebook come down just because it is a better way to monetize YouTube to get as much demand as you possibly can, then it is to monetize it yourself or you provide all the supply and all of the demand. I do think 2018, I said this in our Investor Day and I've said it many times since. I think 2018 you will see some of the walls come down around, especially social media companies that are smaller than Facebook. So I do think that that is going to happen and there is…

Our next question comes from Kerry Rice, Needham & Company. Please proceed with your question.

Thanks a lot, great quarter again. Quick question on just how guidance is allocated throughout the year, it looks like based on your guidance Q1 one little bit heavier contributor than it has been in the past. Is there anything to take from that or you more competent in Q1? Is it more existing customers or is it just the way happened to play out? And then Jeff, it would be great to get your view you're taking market share, where do you think you're getting that market share from if you have any insights on that that would be great? Thank you.

You bet. Thanks. So you are right now that we're allocating just a little bit more into Q1. In general, I would just say that we see a little bit of a shift happening and the seasonality of advertising and I think in part that is because a programmatic has stopped being just red-headed stepchild or that the tiny little portion of the plan and more and more see it as the future and absolutely the place where they need to deploy more dollars. And because of the real time nature of price discoverable programmatic advertising, it does make it. So if you don't have to plan nearly as far in advance. So if you're promoting a movie, you don't have to do it three months in advance, and if you want to heavy up on the week before the movie releases, you can and the same thing is true in Christmas season and everything else. Secondly, as you may know, we over index in a number of the sectors of the economy that tend not to expand as much in the second half of the year - as they do in the first half of the year like CPG or automotive, some of those segments of the economy, we tend over index in those and so as a result they tend to spend more in Q1 and Q2, so that too has flattened the curve just a little bit. Last thing that I'll just highlight is that Japan, Australia, Germany with Japan being the best example, they tend to follow different calendar in terms of the way that things get allocated, and their Q1 looks like the rest of the world's Q4 or much of the rest of the world's Q4, so it's a little bit different. So as…

Our next question comes from Shyam Patil, SIG. Please proceed with your question.

Thank you, guys. Congrats on the quarter and the guidance. I had a couple questions. The first one on programmatic TV, Jeff can you talk about kind of how you see the ramp toward materiality for The Trade Desk? Is it 2018, is it 2019, is it 2020? How do you feel about where you are from an inventory partnership perspective? And then second question is on walled garden, a couple of things that we hear in the marketplace, is that from the walled garden, is that - they only want to use programmatic for quarters when sell through is weak or they have to be careful to partition it correctly or could lead to prices deflation. How do you respond to those comments and concerns and how do you envision the walled garden opportunity for The Trade Desk?

Awesome. So as it relates to programmatic TV, I mean when we talk about the expediential growth happening year-after-year like, once you experience the numbers like we're putting up and we're talking about, we use numbers like 1000% growth and we talked about how it looked like that last year. We've been in TV for a couple of years now. When you're putting up percentages like that for multiple years, it's impossible for it not to become material really fast. So I really expect those green shoots that we're seeing now in early 2018 to be much taller by the end of 2018. So I think 2018 is the year that it becomes material. But we're growing the rest of our business which is already scaled so much that it is going to take years for it to be the kingpin that eventually will before it becomes the largest piece in the pie and what we just talked about mobile being 40% of our business before it surpasses mobile as the largest chunk of the business. I think there is a lot of growing up that needs to do. And it is in large part because of what you asked in sort of part B and question one which is about inventory. So definitely more inventory needs to come online. The great news is this is not being driven by us. We don't have to go knock on doors and say you should really put more inventory in programmatic. What is happening is, the media companies will control this. They all want to monetize it themselves. It's really hard to deal with the sales force by yourself, and it's really hard to create the ad variety and the CPM that you can get in programmatic without like the high cost…

Our next question comes from Tim Nollen, Macquarie. Please proceed with your question.

Hello. Thanks very much. I have another question on Connected TV if that's okay. I read a piece of research of this week talking about a survey that concluded that TV advertising traded programmatically will grow from practically zero in 2015 to more than 10% in 2020. We seems like a very big increase to me I'm guessing it may be kind of in line but you're thinking but I wonder if you have any sort of comment on if that is a reasonable assessment for all of - amongst all of linear TV the 10% will be traded programmatically by 2020. And if that's a reasonable figure what does it take to get there and Jeff you kind of answered this in your last response, but if I'm thinking most of the initial demand comes from the operator side the TV operator side. It sounds like you're saying the demand is growing now from the network side. And I wonder if you could just comment a bit more now because that's where all the inventory really lies? Thanks.

Yes, so thank you. I love the question, I love the topic. So the thing that it's hard to predict inside of TV, and I kind of alluded to this in the last question or last response. I just want to be a little bit more explicit in this response. So the thing that's hard is, if you're running a big TV company, still 90% plus of your revenue come through linear television and I think many of them are acknowledging that that business model is going to change, like linear television is not going to last for 20 more years. But nobody knows how long they can ride the wave that they've been on for a while. And they make a bunch of money from it and they like the way that it works and they're afraid of all the change that comes that they may not make as much money in the programmatic world and the digital world as they did in a linear television. But what that does is it creates a ticking time bomb in a linear television, which is fewer people are watching, so they add more commercials to make up for the fact that fewer people are watching and they create a work experience. I think all of us as consumers can acknowledge that the experience in terms of just that add to content ratio that has become worse over the last few years. Even though the content have gotten better and invariably the cost of the content has gotten much more expensive, which is why I call it a ticking time bomb. So the thing that's hard for an analyst to do is figure out when that an inflection point starts, when does the bomb go off? When the consumers really say that they've had enough and when does it stop looking like this early adopters of cord cut instead of everybody cord cutting and that is the hardest part to predict. So I don't know 10% is really aggressive, whether 10% will happen by 2020 is an open question. I do believe that's aggressive. But it's also not - it's not impossible and largely depend on how well three or four or five companies make their content available and make the transition and when they see this as a landgrab opportunity, it changes everything. And it will be really interesting to watch companies like AT&T and Comcast and NBC more specifically, ESPN, Disney, like these companies the way that they make that their content available will determine whether or not that that 10% as possible, while at the same time consumers are changing. The one thing we can be sure of is the move will not be linear, meaning that the shape of the adoption curve will not be linear and that that's why the super hard to model. Operator, next question?

Our next question comes from Aaron Kessler, Raymond James. Please proceed with your question.

Thanks guys. I'll try to ask an open ended question for those who are here a while. On the international revenues, can you give us maybe what those were for the year and what shall we think about international revenues or growth for 2018? And then second for the active client growth that we've got about 90 or so for the year - how important is that metric given you're probably already have most of the key kind of agencies at this point and from the advertising number, I think it was about $36,000 if you can maybe update us how that number looked last year as well? Thank you.

Hey, Aaron. Yes, thanks for the call. I think we talked about in our prepared remarks that international revenue reached 13% of our total revenues for the - in the fourth quarter and on a full-year basis just under 13%. So, on a full-year, basis it went up by just about 50% in terms of share we ended last year about 8.5% and that ended at 12.5%. So they both grew 2X, North American business for the full-year and nearly 3X in the fourth quarter. So international is growing across the board faster than the U.S. consistently in Asia and in Europe. And I forgot the second part…?

Second part is that how we should think about international revenues or growth?

Yes, I think our plan, our belief is that will still be continue to grow more than 2X, the rate of our U.S. business and so that's what our plan is that's implicit in the model that we've built and we would expect to continue trending in that way. So I don't know if we put a percentage on it in the public domain, but it definitely will take share.

Yes.

Yes, we don't put percentages on it publicly, but it should pick up in a couple of points of share.

Got it and the second question you'll see how should we think about kind of active client growth, but may be slow a bit, but you're probably have most of the key agencies today, so how important of a metric is that going forward for you guys?

That's you noted like I think we talked about even when we were coming through the IPO that we've signed nearly all of the large global agencies in 2014, 2015 and early 2016. So those will be some of the largest cohorts we ever signed. And so for us it's really about getting more of the brands inside of the agencies to spend and programmatic and then those brands to do spend in programmatic making a larger share of their overall advertising spend, the spent in programmatic. So we'll continue to add customers. We will continue to add clients particularly as we go into new geographies. But for us client count is not a key metric or something that we think drives the business. It's more about the cohort growth from the existing cohorts that we've signed.

Yes, sounds good and contracts on a quarter.

Thanks, Aaron.

Thanks, Aaron. Next question?

Our next question comes from Peter Stabler, Wells Fargo. Please proceed with your question.

Hi. Good afternoon. This is Rob on the call for Peter. Thanks for taking our question. Two if we could. First on CPG and retail, you would note some caution coming into the quarter, just wondering how that ultimately played out in the quarter and into early so far this year. How are you looking at those verticals for the year? And then second on China, I think at the Analyst Day, QPS was about 100,000 a day. Wondering if you might be able to give us an update there in terms of how supply is building and whether we could see a pattern similar to CTV or maybe grow supply for a bit? And then as we saw in Q4 demand really start to be catalyzed. Thanks a lot.

You bet. We weren't very specific about the caution that we gave on the CPG and retail. I know we gave a couple examples, but in general what I would say is that especially that relates to CPG where we over indexed. People spend less or CPG companies tend to spend less in Q4 just because there's a fair amount of competition for advertising dollars and that's where a lot of retail comes in. And retail, as things become a little bit more real time, retail has the luxury of spending more in the second half of Q4 then they use to, and CPG has the luxury of spending more in Q1 and Q2 when the purchasing decisions tend to be made more. So they tend to heavy up in Q1 and Q2. So we expect that trend to continue and you'll see a little bit more even spend across the year because of the move towards a real time nature across all sectors of the economy, not just CPG and retail. If you're looking at us and maybe the reason you got the question is, is that you look at a business like ours as a little bit of a bellwether for the economy just because we represent spend across all sectors of the economy. I would just say the spend that we're seeing across all parts of the economy and all sectors we mentioned that over 100 of the top 200 advertisers spent over a $1 million with us last year. Everything on a macro level looks very strong for us even in those sectors of the economy. As it relates to China and QPS, I have mentioned before that QPS was around 100K. I actually haven't looked recently to see what is that and maybe that in…

Thank you.

Operator?

Ladies and gentlemen, we have reached the end of the question-and-answer session and this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.