Greetings and welcome to The Trade Desk's Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Toth, Head of Investor Relations.

Thank you, Operator. Hello and good afternoon. Welcome to The Trade Desk second quarter 2018 earnings conference call. On the call today are from our Hong Kong officer is Founder and CEO, Jeff Green; and from our headquarters in Ventura, California, 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 GAAP to non-GAAP measures can be found on 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. As Chris mentioned, I’m speaking to you from Hong Kong today, I’m excited to be taking this call from Asia for the first time. More on that later. But first, onto our results. I'm pleased to report The Trade Desk had another outstanding quarter in Q2 of 2018. Let me remind you that programmatic is growing at 21% while our growth was nearly 2.5 times of that. Our revenue was up 54% from a year ago to a record $112 million, which again surpassed even our own expectations. That 54% year-over-year growth equaled to 54% year-over-year growth we had in Q2 2017. Q2 also represented the largest increase in incremental revenue dollars we have ever had in a single quarter. Our business strategy continues to be validated in the marketplace this quarter more than ever. We continue to see marketers allocate budgets beyond the few search and social sites that historically got the most incremental advertising dollars. Our strategy of being the best platform for media buying and not owning or arbitraging media is more valuable today than it ever was. In the last three months, even more of the top 200 worldwide advertisers signed up on our platform. In the last 12 months Ad Age's top 50 worldwide advertisers increased their spend nearly 100% more with us this year than last. That positions us very well for continued growth, not only for 2018 but in 2019 and beyond. This quarter growth came from many areas. Mobile spend grew nearly 100% year-over-year to account for 45% of spend on our platform, the highest ever. That is about 4x the industry average for mobile ad spend according to eMarketer. Data spend, again hit another record for the quarter and spend on cross…

Thanks, Jeff, and good afternoon, everyone. We had a strong second quarter and a great first half of the year. Our business continues to deliver terrific results. Second quarter revenue grew 54% year-over-year. Mobile spend again grew nearly 100% year-over-year and, exiting Q2, was at its highest level as a percent of our total spend in the company’s history. Growth on the platform continues across both channels and regions. In Audio, one of the best values in programmatic today, it grew by just under 200%, mobile video grew 156%, and as Jeff mentioned, Connected TV spend more than doubled from the previous quarter. We had another exceptional quarter of international growth. Our offices in Germany, France, and Spain all posted over 100% growth in the quarter. In APAC, Australia led the way, growing over 150% on a year-over-year basis. It is our goal to always deliver the highest return on investment to the agencies and brands using our platform and create surplus value for them. We do this by focusing on the three core priorities of our business, which are to; One, to remain the Objective and Independent trusted partner to our customers, second, to continue to grow our omnichannel presence, and third, to continue to continue to grow our international footprint. Our objectivity and the fact that we do not own media differentiate us from our largest competitors. The choice, transparency, and insights that we offer are what creates trust between us and the agencies and brands that use our platform. They can invest in their own first-party audiences, in CRM segmentation, and deeper audience analysis through their own data management platform. It is important for them to understand and optimize reach and frequency across all their media buys. Agencies and their brands also want robust measurement to track…

Thanks, Rob, and good afternoon, everyone. As you have seen in the numbers, the first half of 2018 is off to a record start, and we were pleased with our Q2 financial performance and execution. Revenue increased 54% year-over-year, equal to the 54% year-over-year increase in Q2 of last year. Adjusted EBITDA increased 46% year-over-year, and GAAP net income was $19 million, all while we continued to invest aggressively in areas critical to our future growth. Revenue for the second quarter was a record $112 million, which was above our prior expectations, and reflected the increased spend by our existing customers and the addition of new customers and advertisers. For the quarter, approximately 89% of our second quarter gross spend came from existing customers who have been on our platform for over a year. With the growth of our business, our operating expenses grew to $86 million in Q2 of 2018 from $53 million during the same period in 2017. This increase was primarily due to our increased investments in our platform operations and increased personnel, primarily in technology and development, as we continue to invest for future growth. Total other expense net was $1 million, and the income tax expense was nearly $6 million in the quarter for a tax rate of 23%. GAAP net income for Q2 was $19 million or $0.43 per fully diluted share. Our adjusted net income was $27 million or $0.60 per fully diluted share compared with adjusted net income of $23 million or $0.52 per share in the comparable period. GAAP and adjusted net income in Q2 of 2017 reflected a discrete tax benefit of $8.6 million primarily related to incentive stock options. Adjusted EBITDA was $37 million with a corresponding margin of 33% of revenue during Q2 2018. The increase in adjusted…

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 one trillion dollars, 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 typically are to the upside. There is a generational shift happening with the convergence of the internet and TV globally. Massive markets like China are just starting to adopt programmatic. And I believe it is 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 in growing market share and revenue. We believe The Trade Desk is well positioned to realize this growth for the rest of this year, next year, and beyond. That concludes our prepared remarks for this afternoon, and now the operator will open it up for questions.

[Operator Instructions] Our first question comes from the line of Tim Nollen from Macquarie. Please proceed with your question.

I have a broad question which is kind of multifaceted and the main gist is on your CTV business. If you could help us understand where the ad inventory is coming from? And what I'm wondering is if you could elaborate a bit on the discussion of the virtual bundles that have come to market. You did not talk about devices so much, Roku devices and so on. I'm sure that contributes as well and they have inventory that they can make available too. If you could just sort of help us understand how that works? And then in conjunction with you mentioned some of the operators offering the bundles and you even mentioned the network group like Discovery. So if you could maybe just explain a bit better for us please, where all these inventories coming from and how it kind of aligns? And also you seemed to be in a position where you've got great volume growth and also great price growth. And I suppose that happens when a market is developing rapidly, but it's a very nice position to be in if you could maybe explain a bit of that as well please? So that's kind of all about the CTV inventory. And then if I could ask another question which is about the ad agencies that you really very much choose to rely on for the majority of your spending. If you could explain why that is so important to you and why you also have relationships directly with advertisers? And I guess behind that is could you work with advertisers that wanted to bring programmatic buying in-house. If so, why or if not why not? Thanks.

First of all thanks for the question Tim. Lot to cover there. So first in terms of where the inventory comes from. There’s three main places where it has been coming from the first is from the TV stations or channels that are new since the Internet has arrived. So if you're on your smart TV menu or on your Amazon Fire or Apple TV or Roku device, it's pretty much all of them after Netflix and Amazon. So the Hulus of the world the Sony crackle all of those that have ads on them below that and more and more of them have premium content and there's more and more consumption. The second is are those skinny bundles. And when I look at how many have popped up, I'm blown away by how many of them are or how many of them there are. There's a lot of people out there and I suspect most of the people on this call are the ones that can afford to pay for cable and so like me you’re unaware of how many of them are out there, but there are dozens and dozens and of them and they’re all dependent on ads. And then the third and honestly this is the one that I’m most excited about, it is the Fox and Discoveries of the world. So we definitely had a lot of conversation with all of those so that we can go direct as much as possible and get access to that inventory. The devices, I think there's an open question about the long-term on how much inventory can or will be tolerated from the devices. I think most of the inventory is going to come from people who own the content, and that's why I'm so excited about the…

Our next question comes from the line of Shyam Patil from FIG. Please proceed with your question.

Jeff, I just had a quick one, you talked about the changes that Google and Facebook have made regarding their policies around data sharing and usage. Just wondering if you could talk a little bit more about what kind of opportunities all of that has opened up for The Trade Desk and how you see those opportunities materializing over the course of this year and next year?

First of all thanks for the compliment, and for the question. So I'm really glad that you asked this question, because I think what Google has done is - has really opened a door for huge opportunity. I'm not sure that we've ever expressed - explained well enough, why this has created such an opportunity. So there is essentially a Google IP or that is assigned to each user and it makes it so that that user can be identified when you go to every website or every destination. So you used to be able to look at, oh, here's this user on Spotify, here’s this user on YouTube, here’s this user on whatever destination or device that they're on. And then you can compare the performance of all of those, and it made it so that people could use the data and the insight to do attribution modeling and figure out who deserves credit for actually moving the needle on any given sale, and basically do analysis of where my spending my money and what is working. Because they’re afraid of that data, and this is my view of why they're making this policy change, they're afraid of that data being used with search data, super sensitive data or with PII. So that there's some bad intending data company could get insights that they shouldn't. That's actually the reason why from inception we've never played in directly identifiable information with consumers. So, because we don't have a search engine, because we don't – we've never use social security numbers, we don't even use email address, we've made it possible that we can activate the data and most importantly provide reporting that makes it possible to compare Spotify to the New York Times. So when the time comes YouTube and…

Our next question comes from the line of Youssef Squali from SunTrust Robinson Humphrey. Please proceed with your question.

And let me also say congrats on a really impressive quarter. I guess just following on that last question, I'm just trying to understand why is it necessarily kind of risky for Google to do that, which caused it to effectively limit how DoubleClick IDs are used and not present a potential risk to you guys over time? Maybe if you can just kind of help us understand that, that’ll be great. And then in terms of the product launch, how should we be thinking about it as potential driver of extra spend? How - what's the rationale there? How would that happen? Thank you.

So, as it relates to the first part of the question, the biggest reason in my view why there's risk to them sharing an ID like that is because it can be combined with sensitive personal information. To me that's where everything goes wrong in using data on the Internet is when you get to that sensitive information. And if you think about how sensitive some of the information is that you share with Google and I mean in the search engine, right like any time you have a medical problem you do what I do, you go ask Google. It just anything that is sensitive like the details of your divorce, you're worried about your kids like anything you're going to type into Google. And Facebook, I think especially because of the Cambridge Analytica challenges what was happening it's just a whole bunch of insights about users who were able to be stripped away so that then data you actually get the Facebook personal data was put to work. So the reason why this doesn't pose a risk for us long-term at least in the same way that it affects them, it doesn't mean that we don't have to be sensitive, of course we do. We have to be sensitive with consumer’s data, we have to be super careful, but for us part of being super careful meant we never ever ask for personal like sensitive personal information, and we don't get directly identifiable consumer information like name or social security number, medical condition. We don't store that, we don't use that, we don't ask for it, we don’t have search engine and we don't have a social networking site where we asked all these personal questions. We have no way to identify a user personally. It's only in an anonymized way and without any of that sort of sensitive data that’s come to a search engine. So by that inherent difference, there's not an ability to activate it and it makes it easier for us to be open and sharing with our partners NIV so that they can activate their data. And of course by working with the biggest brands in the world, we all have similar sensitivity and create that sort of co-op where we work together. So it works because of the type of data that we claim. What was the second part of your question again?

The second part was around the product launch and how should we thinking about it as a potential you know driver of spend or extra spend as you go forward?

Yes, so of course the biggest launch in our company's history. I would summarize it all as an our effort to make the media buying process easier but at the same time more sophisticated. And normally you have to choose either you make it easy and you lose power meaning the power of the actual technology and you trade power and sophistication for easy, and we just figured out a way to give it the user both. So it is more powerful it is more effective, it's even more transparent, but it is easier to use and we've figured out ways to reduce the number of clicks, and we've done a better job of automating the things that can be automated and still giving the user the ability to inject themselves wherever and whenever they want without a lot of steps. So we just made media buying better, and then by making a planner, we made it possible for them to in a data driven way - do better allocation. So I don't think most people realize how bad the planning process and most of advertising is, like how do you decide how much money to put in connected TV, or how much you put in mobile, like it historically it's not been very data driven it's been mostly guessing. So by not only making the media buying process of data driven, we've also gone a little bit upstream to make the planning process data driven which is just going to make buying better and it's going to create better results for everybody as well as eliminate a lot of the back and forth that often happens in the media buying process which is this part works really well. I want to put more dollars to it, but it's just…

Our next question comes from the line of [Brian Reiser] from Pivotal Research. Please proceed with your question.

I was curious about your thoughts on whether or not a customer data platform CDP in the product category that’s evolving and something that you think you need to push into firstly, and then secondly, on your working capital I was curious if how those maybe skewed by new customers who - large ones that maybe working with or maybe working with independently of the agencies. Just curious, if there's any variation in working capital trends that you expect to see from your evolving customer base or if you will do get anomalies in a notably negative numbers in the growth quarters, just randomly?

So I'll take the CTV question, and then I'll have Paul to take the working capital question, and then if Rob wants to add any color, feel free. On the CTV, there's lots of different afternoons that her space creates for basically ways for companies to store data. And sometimes I think the afternoons actually confuse people whether it's a DMP data management platform, consumer data platform, customer data platform, like all of those are our ways for companies to store data and then put it to work. In broad strokes, I would just say, whether we're talking about CRM data or customer data, loyalty data, every form of data that is useful for an advertiser. Over time they're going to find ways to activate it, and especially like on one hand you need to respect consumers’ privacy. On the other hand you need to use the data, which I think effectively is listening to consumers, when they, when they share something with you, they expect you to use it, so that you don't bombard them with messages or I already bought that product, but they expect you to listen. So you have to do both and they are going to have to activate it and we're going to have to plug in his VMP and CVPs, and basically any way that they want to store and activate their data. I will say that over time I think the number of moving parts is going to reduce. So we think we have to make it easy for people to store data in part because we're the place where they actually activate it, we’re where the place where you actually use the data. So if you put the data somewhere else and then they ultimately have to plug it into us, so that in real-time we can use it to make better decisions on behalf of the brand of the agency then more and more the name of the game is developing quick types to get that data into our platform. We're happy when other companies do it. We're also happy when they work directly with us, to us we care more about data competencies than how many host there are, and sometimes when there lots of host, it reduces efficiencies. So ultimately we're going to activate all the things that are respectful to consumer privacy and create a better experience and advocacy for brands. On the working capital side. Paul?

And as far as working capital goes there really aren't any new trends. From a working capital management standpoint we tend to focus on the difference between the DSOs and the DPOs and those have been improving over time. If you look at our balance sheet, we had over $75 million in net cash less than two years ago at the time that we went public, and we have a $142 million now. And so we're expecting cash to continue to increase in a channel similar to that slope up and into the right for the foreseeable future and really nothing unusual with working capital.

And the only thing, I'd add - maybe for color you talk about – if you we’re more working directly with say a brand, is there, is there a difference in time lag, and while large brands have their own cash conversion cycle, remember that in the agency model, the brand pays the agencies and the agency has a holding period and then they pay us. So I'd actually argue that in most cases that we've seen today, we've been sort of net zero or even slightly positive, because we've taken that or linked out of the chain if you will in terms of getting the cash back.

Our next question comes from the line of Brian Schwartz from Oppenheimer. Please proceed with your question.

Jeff, I want to bring you back to the business results here, I would assume that, you get very little contribution in the quarterly revenue mix from the new customers, and the new agency partners that you sign up during the quarter. But this quarter was such a good one, Jeff, I mean you grew at the same rate as last year, and then if I look back into the first half of this year, the revenue and the profit growth has been accelerating here in the first half versus the second half. So it sort of begs the question, if you got any windfall or any meaningful contribution in the second quarter revenue mix from any of these new customers or agency partners that you signed during the quarter. And then if the answer is no, which I assume it probably is, then what is it, what do you attribute this sort of acceleration to the business in the first half of the year? Thanks.

So we did get slightly, slightly higher percentage of our revenue coming from new customers, which is actually super exciting. But, I think buying higher, it's ballpark, 90% from existing customers and 10% from new customers. But keep in mind, is that - our customers tend to be platform users that use our platform forever and they maintain relationships with lots of advertisers. And so where most of that growth is coming from is then getting slightly more budget from their advertisers that have already been spending with us and then in some cases bringing on a new brand which in most cases are included in that 90% where they're bringing on a new brand but because our customers are saying we're getting more spend. But in my view seeing connected TV after 21x growth last quarter quarter-over-quarter seeing that double again and just seeing all the move into programmatic like the secular tailwinds are the very best explanation of where all this is coming from. Because this is not a case of like new media versus old media, this is really about data driven media buying versus casting. That to me is the best explanation of the change.

Thank you.

Rob, I don't know if you have something to add.

Sorry, the one thing I’d add Brian and you're right on it, like what I would say is there are the winds or sort of the acceleration or matching of the prior growth is as much about the big wins we've had with major brands in Q3 and Q4 of last year Jeff has often said on calls like this where the bigger the brand the longer it takes them to sort of really ramp. And so we had a significant amount of meaningful wins in Q3 and Q4 last year where they were testing us and then came onto the platform in a more meaningful way in Q1 of this year and then even more in Q2. And so we've had a similar trend of wins I would say in Q2 and you're right those wins in Q2 didn't really contribute in a meaningful way to our Q2 this year. But I would say that gives us confidence as we head into next year, the size of the wins that we've had that are just starting with us now testing, really is a harbinger for what we think 2019 could be.

Our next question comes from the line of Peter Stabler from Wells Fargo. Please proceed with your question.

First of all, wondering if - I think last quarter you gave us the growth rate of the revenues associated with data, I think you offered us a partial view this year, wondering if you could give us the total growth number? And then secondly, if we understand it correctly Facebook's new third-party data policy is essentially forcing marketers to contract directly with third-party data providers. So does Facebook training the market this way present any element of risk to you guys as more and marketers elect to directly contract with data suppliers, pull that data into their DMPs, do their customer segmentation essentially off of Facebook, and then bring that data back in. Are they training the market in a way that could be negative in the future for your data brokering business? Thanks so much.

So I'll just respond briefly on the data side. I don't have the total data number in front of me, but I can say that, data spend on our platform in Q2 was the highest that it's ever been. And then our cross device which is in part because of the partnerships with every cross device vendor in the marketplace as well as the acquisition that we made last year was up over 100% in Q2. So that one I think is especially relevant and the bellwether. I think the bigger question that you asked about is Facebook training the market to make sort of third-party companies critical to our future in terms of them sort of housing the data, activating the data and it doesn't change really anything for us, it doesn't change our leverage or our opportunities. And let me explain why. So the place where you can make money in data as well as where you have the most amount of impact, if you have the data at the moment that you make decisions about what to buy and what not to buy. So the closer you get to that decision the more power you have with that data, in part because that's where the data really potent. Oh, here are the groups of users that are 55 times more likely to buy my products than everybody else. Now I'm going to just what I did I'm going to just what media I buy, I'm going to let other opportunities fall by the wayside because that's the one that I really want. So even if other companies are showing the data and this relates to the last question about data where I'm fine if there's lots of data companies out there that are activating or helping big brand, store and get that data into the media buying process. We're using a tiny fraction of what we will be at end state. So the faster that we can get the relevant data, well of course respecting consumer privacy in the process the better. And those third-party companies that Facebook is pushing now are super hungry, they tend to be more agile and more co-operative and sort of the big new media companies who are trying to do as much of the process themselves up until recently. So overall I think that trend is very good for us because ultimately the power sits at the moment of consumption.

Mr. Green just to confirm do you want to continue with the Q&A.

Yes, let's see one more.

Our next question comes from the line of Brian Fitzgerald from Jefferies. Please proceed with your question.

We'll try to make it quick, maybe at a higher level Jeff could you talk about the competitive landscape now that AT&T has bought AppNexus, is it easier to win new clients given that AppNexus is now inside AT&T. And then how do you think about the relationship between advertising agencies and then publishers and distributors? How does that change going forward due to the sources of future inventory change at all. Thanks.

So first let me say I love the fact that AT&T bought AppNexus and I love that they bought Time Warner even more. I love the AT&T strategy. I think it's brilliant. But I mean that more for what it does for TV and what it does for the landscape than just AT&T specifically. Like I think the tug of war over Fox and the need for Disney to own Hulu for instance is directly the result of the AT&T acquisitions in Time Warner and AppNexus. I do think that AppNexus the majority of their business over the last couple of years has been on the supply side. So, they’ve become a better partner to us because where they were both buy side and sell side four or five years ago and they were half competitor to us and half partner, they’ve become mostly partner over the last couple of years as they focus more and more on the sell side. That's even more the case inside of AT&T. So, I know a lot of people on Wall Street have asked the question like when is TV happening, when is it going to move to connected and when is digital going to drive choices? Well, AT&T essentially spent $2 billion saying that time is now and as their racing to get 5G out this year, their need for a programmatic ad solution is now. So, it sort of answers that question with, it is happening right now. We definitely have one less competitor in that move and they start to focus more and more on the sell side. They give the marketplace something I've been begging the market for which is more players doing TV and video on the sell side as well. So, that's super exciting that the market gets a little more focused from one of the best engineering teams in programmatic at AppNexus. So, it's really good for the marketplace. It also just signifies people who own content developing distribution and whether that Time Warner being acquired by AT&T or whether that AppNexus developing the pipe for Time Warner and AT&T, the relationship between content and distribution is getting closer. That for the most part means more fragmentation and that for the most part could put way more pressure on companies like us to aggregate it all and make it possible for advertisers to control frequency and make informed data driven decisions. So the changes to the landscape are really, really bullish for our future. So there's been little M&A over the last 10 years that excites me more than that.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Thanks for everyone joining. And this now concludes the call.