Greetings and welcome to The Trade Desk First Quarter 2018 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 reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Toth, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Hello, and good afternoon. Welcome to The Trade Desk first quarter 2018 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, and thank you all for joining us today. I’m pleased to report that The Trade Desk had another outstanding quarter in Q1 of 2018, because advertising budgets are often been reset in Q1, numbers for the quarter have historically been the most challenging to predict. This year, we surpassed even our own expectations. A steady stream of new brands and agencies joined our platform. We won additional spend from existing customers. We developed closer relationships with the biggest brands in the world. This quarter was a quarter, where nearly everything went right. As a result, revenue was $85.7 million, an increase of 61% compared with a year ago, adjusted EBITDA increased 202% to a Q1 record of $18.9 million, and GAAP net income increased to $9.1 million. As a preface, I’d like to highlight that IDC estimates that global advertising will be $704 billion in 2018, which is up by 4% from their prediction of 2017. In 2018, the overall global digital advertising market according to eMarketer is estimated to grow by 18%. The Trade Desk ‘s revenue growth through Q1 was over three times that. We saw much of that growth in channels we have identified as key to our customers. 42% of Q1 spend in our platform was in mobile, the highest percentage it’s ever been. Our Q1 year-over-year mobile video growth was over 100%. Mobile in ad growth was over 100% as well. Data spend was up 70% and cross-device spend was up 65%. Connected TV grew over 21x from a year ago. Our expansion in the international markets continues at a strong pace. Overall, international spend grew over 100% year-over-year. International is growing at double the pace of the United States. This is what we expect for the foreseeable future, as most economic growth…

Thanks, Jeff, and good afternoon, everyone. 2018 kicked off with one of the best quarters we have ever had in terms of revenue and overall momentum in our business. We exceeded our targets and delivered strong operating results, highlighted by our 61% year-over-year revenue growth for the first quarter of 2018. Our growth was driven primarily by our mobile channel which soared almost 100% on a year-over-year basis and comprised 42% of our total spend. We also saw substantial incremental growth in our Video segment, which grew by over 100%. The first quarter is the time for us to reset and reinvest in both our employees and our customers. A large part of our focus in Q1 is hiring new employees and on-boarding and training them to contribute as we head into our seasonally stronger quarters of the rest of the year. Now in Q1, we also invest our time to educate our customers on the benefits of programmatic advertising, highlight new product features we’ve released and provide more training on our platform. We then focus on winning incremental spend as both brands and agencies look for options to diversify their digital ad spend away from large search and social media platforms. An example of this in Q1 was a global specialty beverage retailer that through their global agency began to think differently about how to allocate their digital ad spend. In this case, they had a major new product launch, so their goals were first, to increase brand awareness and then ultimately to drive sales for this new product. To achieve their goals, they believe that advertising programmatically was a more measurable and targetable way to spend digital ad budgets, and so they chose The Trade Desk to help them do just that. To increase brand awareness, their first…

Thanks, Rob, and good afternoon, everyone. As you’ve seen in the numbers, 2018 is off to a great start and we’re really pleased with our Q1 financial performance against our key metrics. Revenue increased 61% year-over-year, adjusted EBITDA increased 202% year-over-year, and GAAP net income was $9.1 million, all while investing aggressively in areas critical to our future growth. Revenue for the first quarter was $85.7 million, which was above our prior expectations and reflects increased spend by our existing customers, plus the addition of new customers and advertisers. We continue to see customers move more dollars on to our platform, helping to drive the revenue upside. For the quarter, approximately 88% of our first quarter gross spend came from existing customers whom we define as those that have been with us over one year. Our operating expenses increased with the growth of our business to $75.7 million in Q1 of 2018 from $51.4 million during the same period in 2017. The increase in operating expenses was primarily due to our increased investment in our platform operations and increased personnel, primarily in technology and development, as we invest for future growth. Total other expense net was $700,000 and income tax expense was $160,000 in the quarter. Income tax expense benefited from the new U.S. government tax legislation, which reduced the statutory rate, plus the treatment of incentive stock options that is variable but deductible under current tax legislation. GAAP net income was $9.1 million for Q1, or $0.20 per fully diluted share. Our adjusted net income was $15.3 million, or $0.34 per fully diluted share, compared with adjusted net income of $7.8 million, or $0.18 per share in the comparable period. Adjusted EBITDA was $18.9 million, with a corresponding margin of 22% of revenue during Q1 2018, as compared to…

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’re typically to the upside. There is a generational shift happening in the convergence of the Internet and TV globally. Massive markets like China are just starting to adopt programmatic. And I believe, it’s highly probable that the programmatic industry in the years ahead will see accelerating growth. We see the opportunity and now is the time to invest to land grab, gain market share and revenue, and we believe The Trade Desk will do so in 2018 and beyond. That concludes our prepared remarks for this afternoon. And now the operator will open it up for questions.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Shyam Patil from Susquehanna. Your line is now live.

,:

You bet. So first, thanks, Shyam, it’s great to hear from you. I definitely think the most exciting thing that we announced today is that 21x growth Q1 2018 over Q1 2017. That is honestly for us, even the most surprising thing that we’ve seen. We expected Connected TV to be really strong this year, but 21x is even in excess of what we expected. In order to get that big to have a number so large, it is one of those things where you have to be firing on all cylinders. And we think the thesis that we put out before is exactly what’s happening, which is consumers are looking for ad alternatives. So the number of subscriptions that they can afford, especially, because most of them have cable, as well as a subscription in Netflix and often others, they want things like Hulu, where it’s an ad funded experience. And the number of ad funded opportunities just continue to go up and that inventory is getting bigger and bigger, faster and faster and it’s happening across the Board. It’s not just one company like Hulu, it’s a 100 of them, and it’s super exciting to see them all contributing that’s why I pointed out TVB internationally. There are so many other companies even internationally that we could talk about. I do believe that Connected TV is not only the most exciting thing happening in the U.S., but the most exciting thing happening in Asia as well. And so there – it’s not just one thing to answer your question about where we are in terms of what inning we’re in, we’re definitely still in the first inning. But there are points on the Board already. It – there – it’s definitely clear to see some companies winning and…

Next question.

Thank you, Jeff. Congratulations.

Thank you. Our next question is coming from Brian Schwartz from Oppenheimer. Your line is now live.

Yes, thank you very much and congrats on a good first quarter. Jeff, I want to dig deeper into your commentary about the discussions you’re having within the market with the customers, with the agencies that you want in the quarter, also with the installed base. If they’re changing over time in terms of being viewed as this primary extensible omni-channel ad buying platform, so specifically, I want to ask you from a granular perspective. If you’re starting to move upstream in your conversations with people at agency and brand, and if that is having an impact on these outsized Connected TV results. And then more in general, what kind of impact in those upstream discussions have on the scope and future size of those agency relationships? Thanks.

You bet. Thanks, Brian. I think this is actually a really important concept to talk about. So the way historically that we won business as we partnered very closely with the agencies who understand – who understood programmatic really well and most brands have not understood it well and then super proactive and managing their programmatic budget. And we deliberately used the agencies, because they represent scale and we believe that the agency will be around for the long-term and that they represent a great way for brands to scale and that brands will continue to meet agencies’ help for as far as anyone can see into the future. We maintain that position. However, as digital becomes a more critical part of the plan, your average CMO or your average VP of Marketing and certainly, your average Head of Digital in any big brand wants to know a lot more about programmatic and wants to know a lot more about digital than they did two or three or five years ago. And so a lot of them are saying, hey, I need to get smarter about what the SC [ph] you were using and why and what the capabilities are. So the amount of relationships that we’ve forged it with brand themselves often due to an introduction from the agency where we’re going to arm in arm with the agency into the brand to increase the level of expertise and understanding. So that the three companies are working closely together. And typically, the brand is weighing in more and more on their digital strategy, especially as it relates to programmatic. They’re asking for more and more of their data to be deployed and they want assurance that it’s safe and used deliberately on our platform and that they understand the…

Thank you.

Thanks, Brian.

Thank you. Our next question is coming from Sam Kemp from Piper Jaffray. Your line is now live.

Great. Thanks for taking the question and awesome quarter. So I appreciate it all the conversation about data. Can you give us an idea today when we look at where you’re clients are paying for? How much of it is kind of core media execution versus data versus other components of value-added services? And then can you just kind of broaden a little bit on the media planning tool? Is that specific to digital or is that going for digital and traditional media formats? And is that an opportunity for you to, I guess, capture more TV share as it migrates from TV over to Connected TV?

Yes. So let me start with the last question. So planner is definitely focusing on digital first, so we’re not trying to plan their print buys or anything like that in part, because we don’t think we can do a very good job. It’s just – it’s hard to figure out, given the sparse amount of data available to figure out what print buy to make and we’ve never played in that space, so us weighing in on the entire plan is not necessarily what we do well. What we are trying to convince agencies, the planners at agencies, as well as strategists and planners and brands is that they should do media planning starting with digital. And what many don’t know is that, often when you start with those media mix models, you’re sort of taking a big picture guess about the way you should divide up your budget and the way things work sort of assuming that there is no data available to be more informed. And because all of the data lives inside of digital, we believe that you should start with a digital first plan. What can I spend in a data-driven way? And after I carve out that budget, I’ll go play in the rest. So we’re trying to get them to flip it around, so that they’re doing digital first and we think that makes for better planning, but it also makes for more incremental dollars to digital and especially the parts of the Internet that are on sale, which are mostly outside of walled gardens just because there’s some amount of friction to get to those. As it relates to the breakout on day between first-party data, third-party data, other value-added services and media, we don’t break all of those out today. But…

Thank you, Jeff.

Thank you. Our next question is coming from Brian Fitzgerald from Jefferies. Your line is now live.

Thanks, guys. Jeff, I want to ask maybe a follow-up question to the last one just around that data spending in the spike you’re seeing. I imagine we still continue to see elevated levels of data spending. Have you seen similar spikes historically? And then is there any dynamic to call out between when you see the data spend spikes and then it translates into more campaigns, the efficacy starts to ring true, and so budgets start to cut lose? I’m trying to get a sense for as momentum inflecting and it’s indicated by this data spend. I know that that’s kind of maybe a more esoteric question. And then, Rob, around the brands consolidating their programmatic spend the platforms like The Trade Desk. Are you seeing that trend accelerating also?

I’ll take the first one and Rob, you take the second one. So I think, I would summarize the data question and it’s – given that we in March, as we talked about in the prepared remarks, given that we had our highest month ever in data spend. Does that tell us anything in terms of the trend? And are those dollars easier to retain than other wins? And I would say absolutely it’s easier to retain those dollars than others. So if somebody comes to us and says, hey, I just want reach. That’s sort of the same thing they say when they go to traditional TV or radio, I just want reach. And on a level like we’re a little disappointed when that’s the goal, because there’s so much more we can do like why don’t we be a little more deliberate, there’s data that we could deploy, we could do better than. So when we have these data products where we basically say, we’re only going to spend money on data when it makes economic sense and when we know that the probability of increased results outweighs the cost of the data, meaning that the efficacy of those ads based on the goals they’ve chosen, we are strongly confident will be worth it to them, because we know that as we’re spending. But we also know that we’re performing better than if they didn’t use data. And because we think we’re the best company in the world at the point they’re first-party data or third-party data, we think that defending that against the other places where they’re just looking for reach or somebody else is great in their own homework, where we’ll just give them the visibility that it actually worked. Those are the most defensible campaigns we could possibly run. So when somebody gives us a data-rich campaign, those are the ones that were most excited about retaining. So I view and I guess to connect the dots to, I think, more specifically your question, I do believe that the dollars spent in March are a little bit easier to retain than the dollar spent in February just because of the fact that there was more data attached to them in March. Rob, to the other part?

Yes, for sure. So just talking about more brands consolidating with us, for sure, we do see that we talked about. Digital has become more of the leader than those sort of necessary sidekick. And so as digital spend gets bigger and bigger, brands are leaning in. As Jeff mentioned, they are educating themselves more on how programmatic can help them, both target and measure and do cross-channel advertising in a more serious way than they ever have. And that is causing more consolidation on to our platform first. So first just consolidation of more digital spend, broadly speaking. But then secondly, and we’ve had this conversation with you guys for a few years now. We’re seeing more and more brands, traditional brands even that we’re later adopters of programmatic arguably or just in testing phase sort of move more into Crossing the Chasm and it’s just becoming part of what they do. So, I definitely sense and feel a shift in momentum from the major brands consolidating both the platform or excuse me, spend on to our platform in a consolidated way, but then more of their digital spend just with us as more brands become more comfortable with programmatic for sure. And the one thing I’d call out is, I think we talked last time nearly half of the top 100 brands in America spent over $1 million with us in 2017 and I expect that it to double this year if not more.

Great, thanks Rob, thanks Jeff.

Thank you. Our next question is coming from Rocco Strauss from Arete Research. Your line is now live.

Hey guys and thanks for taking my questions. On GDP on Europe, even though you are not using any PPI data in our view will be much harder for third-party data providers to collect and use any data without clear consent from consumers. Could you share your views on what impact that may have on cross device or omni-channel tracking and measuring, if you can’t layer on any third-party data or if there simply isn’t any available anymore? And if that could limit European growth for you and also of other market participants to more or less only purely contextual-based advertising? And then secondly on mobile, with mobile accounting for versus 42% of gross spent now and mobile exchanges like MoPub, Smaato et cetera, all running at roughly 30% take rates. Do you see that the mobile equivalent of header bidding is becoming a more significant to how inventory is sold already today and can this be beneficial over time on your take rates in the short or medium-term? Thanks.

Awesome, I was waiting for somebody to ask about GDPR, so I appreciate you asking Rocco. In part, because I think that state of things is really great and that may come as a little bit surprise for some of you that cover media or spend, more time in media just because a lot of media companies are sort of a little frantic to get things implemented, but big picture, what legislators have asked for in Europe is for publishers in Europe to be more explicit about the quid pro quo of the Internet, which is that you share data and see relevant ads in exchange for free services. In order to believe that there’s going to be some massive dry up of third party data, you have to believe that that quid pro quo is under threat and/or that there is going to be a massive purge of publishers in Europe and I don’t believe any of those are happening and I don’t think the quid pro quo of the Internet is changing, something we’ve been hoping for for a long time is happening, which is the Internet community is getting more explicit in that quid pro quo and explaining that quid pro quo. So we’re delighted at what’s happening, we’ve been ready for a long time, we – because we only operate with reputable companies in third-party data space and because we don’t play indirectly identifiable personal information like names or social security numbers or those sorts of things. We feel like we are in a phenomenal position, so I don’t think it’s going to be isolated just for contextual data. I think there is a way to do the best thing for advertisers and for publishers and consumers at the same time, but that doesn’t require taking…

Thanks.

Thank you. Our next question is coming from Kim Norman from Macquarie. Your line is now live.

Thanks very much. Jeff, last quarter you were talking about some – working on some of the relationships with TV networks, also some of the CTV businesses like Hulu. You also mentioned that one of the positive signs you are seeing with connected TVs is demand seem to be coming before supply mutant to consumers are driving CTV usage. So, my question is about the TV upfront markets that are going on – was starting after next week. We had the digital new front the last couple of weeks, cable and broadcast, we had cable last week and broadcast starts next week, so are you working with TV networks and with agencies in the upfront process, is my question. Is there anything different may be in the upfronts this year if so, and basically what are you doing to help close the supply gap i.e. getting TV networks involved with making inventory available for connected TV? Thanks.

You bet. So, part of the thing that makes the 21x so bullish is that there is a bunch of additional inventory that even they didn’t predict. So as they’re going into upfront, they have to guess how much inventory is going to be available, because that’s the stuff that they can sell in advance. And so a huge number of our relationships that have grown over the last six months, they went from conceptual to implementation really fast, in part because they got more inventories than they thought they would and they had to find some way to sell it and programmatic is the way that that’s been told. And because there is a shortage of supply, the best way to monetize that is an option and that’s why programmatic is really, really great. So what has been happening during that time is we’ve proven our ability to monetize at a competitive level to all other sources of demand, especially when the TV networks account for the cost of sales, when they are doing martini lunches or huge parties at the upfront. So, we are involved in sort of discussions at the upfront and sort of making the case for data-driven digital marketing, but there is so much more that we could be doing. And I would just say that I think we’ve yet to scratch the surface on how things can change at upfront and mostly what programmatic has been used for today is monetizing that surplus, but it’s curating a hell of a case study to say, oh my god, we should earmark more inventory and some of them are actually doing that, which is they’re earmarking inventory saying this isn’t available in the upfront as we are super confident that we can sell it this way. And so that trend, coupled with the 21x is one of the most bullish things I could probably say to that.

Thank you. Our next question is coming from Alvin Concepcion from Citi. Your line is now live.

Hi, it’s Nick on for Alvin, thanks for taking the question. I guess switching past GDPR to ePrivacy, some rumblings kind of make it sound like that regulation of the potential to disrupt the quid pro quo as you say of the Internet, may be limiting or preventing publishers from restricting content if they don’t get consent, do you have any kind of commentary around that or what you guys are expecting?

Yes, so I think it’s really hard to implement a law that says you have to provide something for free, you have to. It’s fine to say you have to provide something, but provide it at market rate and with some sort of quid pro quo. And I don’t believe that that quid pro quo of the Internet can be legislated again. I do believe that that you can legislate and say you have to be more explicit in that and I do believe that is the heart of GDPR and ePrivacy laws. I believe that’s what they are after, which is a very good thing, which is to get publishers to be more explicit in that, and I don’t believe that that can be disrupted. So, I think that what everybody can expect is that publishers are going to be more explicit and they are going to do a better job of getting optioned. They are going to be more protective of who they share data with and that will be isolated to companies that have a track record of providing a demand for them and we think in all of those scenarios we are in a better position than we were before all of these things got implemented, because we’ve been trying to do the right thing from the beginning. So, I don’t see ePrivacy being any different than GDPR in terms of its impact to our business in the long-term.

Great, thanks.

Thank you. Our next question is coming from Dylan Haber from RBC Capital Markets. Your line is now live.

Hi guys, congrats on the strong quarter. First for Jeff, have you seen the user privacy issues that your competitors cause advertisers to shift their digital ad budgets around at all and could this potentially benefit you guys? And then next for Paul, just can you provide a little bit more color on the flattening seasonality is that primarily due to your international diversification? Thanks.

So, we’ve seen some modest reshuffling of budgets where because of concerns where people were spending in digital before the privacy concerns came up they were looking for a way to use data in a safe way and now they can’t on some of the big walled garden. And so we have definitely seen a number of inquiries that I think are the result of some of the challenges of other companies in the digital space. So, I do think that that represents some redistribution. I think actually even bigger than the problems for instance that Facebook faced in Q1, I think is the change of the policy that Google has made where it’s restricting the use of its IDs, because I think that that has a more positive impact on our business because of the fact that we can provide more detailed numbers, as well as attribution that can be validated by outside parties where Google’s competitive product will no longer make that available. Paul, your portion of the question.

Yes, sure. Hey there, so we have seen a shift in the seasonality. Really I think what we are seeing is with programmatic advertisers don’t need to advertise for far in advance anymore. They can do more real-time advertising and so advertisers are shifting the time in closer toward the actual event and that’s resulting in a situation where Q1 is looking stronger than it has historically and the curve at the end of the year is fine out just a little bit, but it really has to do with the timing because of the technology.

This is Rob, just to add on. Programmatic is more mature and now it’s just always on. It’s targetable, it’s measurable, it’s just what you do. So, when you look at the IAB measuring digital advertising overall, you sort of have a 45/55 split first half to second half for a long time in non-programmatic digital, we’re just heading closer to that direction, is really what’s happening.

Great, thanks for the color.

Thank you. Our next question is coming from Peter Stabler from Wells Fargo. Your line is now live.

Good afternoon. This is Rob on the call for Peter, congrats on the quarter. I want to ask a follow up on the data utilization participates in March, wanted to ask if that was fairly broad-based or more focused on specific verticals like CPG? Also wanted to drill into something Jeff, you just mentioned, I think you can make the argument that the walled gardens or platform companies are becoming more closed when you look at the changes that FB has announced around third party data or the changes announced by Google with respect to the DoubleClick ID, which I think you just referenced. Wondering if you could talk about advertisers’ sentiment that you are seeing in response to some of those announcements, does some advertisers think they need to become more engaged with those platforms versus others, looking for greater dependence. Anything you might be able to add on that topic? Thank you very much.

You bet. So first on, was the increased data usage isolate any one sector or category of advertiser? In general, as I look at it from a macro perspective, it’s not, I mean there were specific advertisers who probably had a little surge, but there weren’t – that didn’t come from just one and it certainly didn’t come from just one category. So overall it was far reaching and across the entire platform, and honestly I think it’s, we are doing a better job of making it available. We’ve done a better job of performing triage on the data. And I honestly I think that there’s still so much more that we can do and I expect to see that continue to increase throughout the year at a rate that’s faster than our company’s growth rate. So I expect data for the rest of the year to grow at a faster growth rate than our company’s revenue. You could say, in fact I’ll say, I think the question you’re asking about the walled gardens is maybe the most important question that we can be talking about today. Because I don’t think there’s any way that you can look at the value prop at the walled gardens and especially based on Google’s decisions to limit the use of their ID and say that their value prop got stronger as a result of the choices that they made, I just don’t think there’s a way to do that. And because – I think media will continue to fragment, I think media is at the top of its game and content is continuing to get better and better, especially in television and that means that there will be more stations and more ways to make that available and more and more, especially in TV, the content creator are trying to own their own distribution and that means that there will be lots of companies that any brand needs to buy from. And so when a couple of them say we’re going to grade our own homework, and that’s the only way that you can understand how your dollars are being spent on ads in our universe. I think that makes the open Internet so much more appealing. And I think in the long-term it’s really hard to come up with a thesis that doesn’t include that doing better and those companies that have historically been really great, great in content, getting better at monetizing that and benefiting from the open internet. So I think they have weakened their value prop and I do think that that’s good for us.

Great, thank you.

Thank you. In the excess of time, our final question today is coming from Youssef Squali from SunTrust Robinson Humphrey. Your line is now live.

Hi, yes this is Nate Mitchell on for Youssef. Thanks for taking the question and congrats on a great quarter. Most of my questions have been answered, but on the back of this walled garden discussion, I wanted to talk about your Twitter partnership and if you can speak to how that’s progressing and if you’re having any conversations with some of those, the smaller social names? Thanks.

Yes, as many know we have been partnered with MoPub, before they were even a part of Twitter and then of course since they have been a part of Twitter, we’ve – they have been a partner of ours. I am a believer in Twitter as a company and any partnership beyond that and MoPub, I’m just not at liberty to talk about today, but I’m super excited about the way that Twitter is thinking about the future of their business and I hope at some point to be doing more with them than we are doing today, but it’s hard for me to comment beyond that at all.

Thank you. Ladies and gentlemen, we reached the end of our question-and-answer session that also does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful evening. We thank you for your participation today.