Good day everyone and welcome to today's The Trade Desk Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn the conference over to Vice President of Investor Relations, Chris Toth.

Thank you, Operator. Hello and good afternoon to everyone. Welcome to The Trade Desk second quarter 2020 earnings conference call. On the call today are our Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. 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, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the COVID-19 pandemic on our business and results of operations are subject to change. Should any of these risks materialize, or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. I encourage you to refer to the risk factors referenced in our press release and included in 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 in our earnings press release. We believe that providing non-GAAP measures combined with our GAAP results provides a more meaningful representation of the Company’s operational performance. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Hello everyone and thank you for joining us. It’s no secret that the last several months have been among the most trying times for all of us. The global pandemic has changed the way every business in the world operates. For us, The Trade Desk team continues to be resilient, supporting our families, friends, customers and partners. The fact that we have always been so mission driven, with a clear conviction that our greatest asset is our people, has served as a solid foundation that has allowed us to continue to expand our business during these times. While our revenue growth rate continued to be impacted by the disruptions from the COVID pandemic in the second quarter, we’re starting to get a clearer picture of the role that advertising is playing as markets reopen. We talked last time about how data driven advertising would be on the front foot as that happens. And much as the global financial crisis of 2008 and 2009 caused many advertisers to consider data-driven strategies for the first time, I believe this crisis will cause advertisers to leverage data more aggressively than ever, as they look to make every ad dollar work as hard as possible. And we started to see this play out through our second quarter and into the start of the third. Since ad spend troughed in mid-April, advertisers have been returning and reactivating campaigns, but most of them with new approaches and new creatives given the environment we’re in. They realize that as markets reopen, they have a unique opportunity to gain market share. Many paused in mid-to-late March and even early April, but some advertisers in all categories have seen this as an opportunity to gain share. To do that, they’ve had to be more flexible and agile than ever,…

Thank you and good afternoon everyone. I hope you’re all doing as well as possible in this challenging environment. Before turning to results, I wanted to comment briefly on the status of our company’s operations. Today, we are currently operating with the majority of our full-time employees working from home. Safety is the number one priority for our team. We fully support our employees as they either continue to work from home or return to the office based on their preference and where allowed by local regulations, and in Q2 we were pleased to continue to onboard positive net new employees every month, investing in talent that we believe will deliver future value to our clients. Given the circumstances, I really can’t say enough about the dedication, focus and professionalism with which The Trade Desk team is tackling the challenges presented during this period. Now moving on to our results, In Q2, revenue was $139.4 million representing a decline of 12.9% year-over-year. That said, however, the story that developed over the quarter was a positive one. Coming off the lows we experienced in mid-April, spending trends improved throughout the period and by mid-June turned positive on a year-over-year basis and that has continued into July. As we began to see those improvements, we started to increase the pace of our investments to further capitalize on the opportunity that is presenting itself in our business, particularly in CTV. For Q2, despite the year-over-year revenue decline, we generated $14.6 million in adjusted EBITDA, or about 10.5% of revenue. With the investments we are making in our people and our solid working capital situation, we believe we are well positioned for future growth acceleration as conditions continue to improve. From the channel perspective, Q2 included strong year-over-year spend growth, relatively speaking, in branded…

[Operator Instructions] We'll move first to Brian Schwartz with Oppenheimer & Co. Please go ahead.

Yes, so thank you for taking my question this afternoon. I have a question, Jeff on the long-term impact from COVID-19 on the connected TV market. There is some investor concern here that COVID might be pulling in accelerating spend for connected TV given your guidance here for connected TV to more than double in 3Q, it's a big step-up from 2Q? But I want to ask you if you really agree with that or do you think what has happened so far as a structural change in the market? So essentially Jeff, what is the shape of this post pandemic demand picture on the connected TV market look like for the Trade Desk? Thank you and congratulations.

Well, thanks, Brian appreciate the question and the kind words. So yes, so let me start with the punch line. So I think connected TV and television in general has changed forever because of COVID-19. And nothing is going to undo the change that has been instigated. Is there some amount of viewership that is currently on AVOD that will go back to sports or something like that? There is some amount of that, but I'm really drawn to a couple of the big vector number. So first of all, we highlighted in the prepared remarks that cord cutting is typically been around 3% a year is according to our research expected to be around 11%. That's largely because the number one reason that people hang on to cable is sports at 60% of people saying that's their number one reason for hanging onto it. Even a sports comeback, the sports aren't nearly as watch as desirable as they were. But intimately, it's really important to note that as they are coming back, we're getting access to all of them. So even in their limited forms where a lot of people seeing them on demand and we're showing ads for the NDA. The major league baseball, major league soccer, tennis, even UFC - so we're showing ads across all the sports that are coming back. Of course, we've also seen a large surge in unemployment. And that of course, makes everybody and those that have been affected negatively economically, which is almost everyone to look at their TV line up and say what's the most expensive part and where do I need to cut and that almost always leads the cable television. It's really important, and I didn't emphasize this enough in the prepared remarks that cable television and connected TV are both. I think at a really important point, which is that the number of households that we can reach just passed in this quarter, 80 million households. And according to the projections that we have for this year, cable households are subscribers will drop below 80 million for the first time in many years. So there is a bit of a changing of the guard that's happening right now and I don't expect that to ever change again. So I guess the punch line to your question is that CTV has changed the landscape forever. The effects of C-19 have changed them forever. There might be some noise as things get back to normal. But as they get back to normal, people are moving, where they want to go, which is on-demand.

We'll move next to Shyam Patil with Susquehanna. Please go ahead.

Congrats on the impressive execution. I had a couple of questions. First one Jeff, can you talk a little bit more about the upcoming IDFA changes, what they mean for the Trade Desk? And also, how do you think Android will react to this?

So first, whenever we started to talk about IDs, it's really easy for me to lose people in the technical details. And so I always like to start with the headline and then just reinforce the headline as we finish, which is I'm extremely confident that The Trade Desk is going to be fine no matter what. I'm extremely confident that quid pro quo of the Internet cannot be disrupted by a single company, whether they are dependent directly on advertising or indirectly on advertising. With that as prefix Apple is indirectly dependent on advertising for what I believe to be the most valuable asset that Apple has which is their app marketplace. So people often make the point that Apple is not in the advertising business. And that's true they're not directly in the advertising business. But they are indirectly in the advertising business which is most of their apps and their ecosystem, again, which I believe to be their most valuable asset are dependent on ads in some form. All of that said, it's only about 10% of our spend uses IDFA in anyway. And one thing that I think is really important to remind everybody else is that we look at millions and millions of ad opportunities every single second, ballpark call 11 million. And with that 11 million, if you were to take away 1 million and say, now you have to fulfill all of your budgets, with only 10 million ads available every single second. We would be just fine. We would just buy a different 10 million. So if IDFA were to go completely away or everybody were to opt out, we would just buy different apps - so it wouldn't have much impact. That said, because Apple is dependent on that, I don't…

And if I could sneak in one more for you Blake, thank you for the color on the 3Q EBITDA and investment levels. I was just wondering, I know you don't want to guide beyond 3Q, but just in terms of kind of how you're thinking about OpEx or investment for the fourth quarter? Is there any kind of framework, you could provide us? Thank you.

Sure, thanks for the question, Shyam, I appreciate it. Yes, just to back up quickly, I was really pleased with how we manage the second quarter from an expense standpoint. Despite the COVID headwinds, we still generated nearly $15 million in positive EBITDA for the quarter. Our expense growth deceled, we’re up around 30% in Q1 and we deceled up 21% in Q2. So that said, even with the decel from Q1, we're still investing materially in the business and we continue to do so. Like we discussed in the prepared remarks, we did release more investment as we saw trends improve during the quarter. Additional color, I can try to help you with is on the Q1 call you might recall we were targeting our full-year 2020 hiring at more than 50% under our original plan. Today that figure has been reduced, it's probably closer to 30% to 40% as of today. So because of that, the expense growth in the second half, it's likely - if I had to say it's likely closer to what we saw in Q1 from a year-over-year growth perspective than what we saw in Q2. But you know I also would want to add. Remember, we really don't manage to an EBITDA target. We invest where the opportunity is. We invest where we believe the long-term value is, we'll always try and flex around that. And then also we have levers available to us if there was a macro deterioration of any kind. So, we showed that agility in Q2 and I'm really proud of that and so we have not only those levers that we were able to use in Q2, but we also have others available if needed. So we like our positioning where we can invest in growth, but also show the flexibility as needed based on overall macro trends to make the right choices for the company in the long term.

And we'll move next to Michael Levine with Pivotal Research Group. Please go ahead.

So, a question for you, Jeff. I wanted to talk a little bit more about connected TV. I mean obviously great numbers for the quarter and where you're looking at on the outlook, but I'd like to really unlock this opportunity to a much greater degree, what are the structural changes you feel like need to happen within the industry? If you think through, let's say, the advertising agencies, the media companies’ behavior that you're seeing at clients and so I'd love to hear your tuitions there?

Yes, so first of all, thanks for the question. So, one of them, I think it's happening right now and it's sort of indirectly related to connected TV and that is for the first time, a massive amount of really premium content has come into data driven Internet, fuel media and that's AVOD and all the content that's come in to connected TV over the last few years. And so that just changes a number of choices that advertisers have. And so what's really important that they do, and this has really been instigated an accelerated this year is evaluate what is the value of premium content on a relative basis to everything else, especially user generated content. And so I'm really impressed by number one, how much content has come online and how much viewership has come online. I noted the Wall Street Journal made the comment that Disney+ has picked up as many subscribers in the last roughly year as Netflix did in its first eight years. Peacock just launched in July and is off to a good start. We quoted numbers from Pluto and Tubi and others, when we're talking 3x growth in April at 100% growth in April. So all of that coming online at the same time that people are having a discussion about the relative value of premium to UGC is a really important thing to keep unlocking dollars. Also just in general measurement is probably the long pole in connected TV. So this relative value is an important discussion and it also just impacts the measurement discussion, which is the way that GRPs and reach our measured in linear television, it doesn't really penalize advertisers or media companies to show you the same ad over and over and over again, and sometimes that even creates negative brand affinity where if you show me the same ad 100 times, I start liking your brand less. But the way traditional television measurement works, it doesn't penalize that behavior. Rectifying just price and measuring reach and frequency and the fact that you have way more control in connected TV than what you can get with cheap GRPs and traditional television rectifying the way we measure between old TV and new TV is a really important thing that just has to continue to get better, and you'll see us continue to invest in product. We've made some big hires to help us with this, in fact, in this quarter. So it's something very top of mind because that is definitely one of the things that will unlock more spend. But as you can see by the prediction, that we'll do more than double our growth rate of Q2 at 40%. We are extremely confident that in the short term, we'll continue to improve.

We'll move next to Vasily Karasyov with Cannonball Research. Please go ahead.

Jeff, you were talking about webinars you were doing all quarter and I listened to a couple of those and you spoke about your unified ID. And I know you touched on it in the prepared remarks, but I think it's such an important topic, given how much identity resolution and privacy is, how central it is to everyone's thoughts about this space. I was wondering if you can talk a little more about it in a little more detail and maybe explain to us in a simpler terms, what do you think potential implications could be and why you are paying so much attention? Why you are leading the charge on that in the industry now? Thank you.

Yes, thanks. So I've been talking publicly for a few years now about how dissatisfied I am with the way companies like Apple and sometimes even Google have talked about privacy. And especially in the way that they've explained the quid pro quo of the Internet. So we don't always know why we're typing in our Apple ID for the 9,000th time in a month, but it often is because you're getting consent for something that they're not explaining well. And so we look at the current state of discussion on cookies and especially - really this started with GDPR where regulators rightfully said Internet players need to better explain the quid pro quo of the Internet and you need to just give notice in the case while you're providing targeted advertising to pay for your content. And the response to GDPR in part because people didn't quite know what to do with often do just say things like there are cookies, there are cookies on my site. Instead of explaining what those cookies do and explain how the quid pro quo of the Internet works. So what we want to do and what we've announced and we've developed, it is a framework for making that quid pro quo of the Internet better. So we spend a lot of time thinking about how cookies can be improved upon, how we could create an alternative to cookies and make that available to everyone else. So unlike many of the big players in tech who come up with a solution like this and then say, great, now, I can have proprietary advantage over everyone else. All we want is an ecosystem that is better and we're fine if it benefits everyone including Google and Facebook and others. And as our product, we…

And we will take our next question momentarily.

One second, please. Did you drop off, [Kali]?

My apologies.

Okay, great.

We're back on air. Okay. So one on CTV, one on China. CTV, so we had 40% growth in a quarter just reported were total ad revenue was down, total revenue was down 13% and now we're going to double that 40% growth to 80% next quarter, I assume will be more robust in the fourth quarter. Jeff, can you size for us how big do you think as a percent of total revenue CTV is by the end of 2020 for the Trade Desk? And how much is benefiting from the upfront $7 billion less being spend in upfront. So that's in scatter where you can compete for it. And how much is aiding you from live sports coming back? It sounds like you're getting access to that inventory I think for the first time. So that's the CTV question. And then China, geopolitical risk tensions, we're throwing out TikTok and we've got revenue under pressure in your core business. How do you think about the investment levels and the geopolitical risks of investing in China going forward from here? Thank you.

Thanks for the question. So in CTV, it is definitely the case that we have benefited from upfronts being weak and as we talk about a perfect storm in traditional television, that could never be more apparent than what happened to this year's upfronts especially because the sharp downturn that the economy especially advertising experienced between the middle of March and middle of April is also the exact time of when the upfronts is, which is, again end of March and April. So we definitely benefited from that being taken out and we definitely benefited from live sports being taken out of traditional television. As sports comes back, I think more and more people are going to be watching it, streaming and we'll benefit from that. As it relates to the mix in total percentage of revenue, we just don't comment on that yet. And the reason why we don't, is just as it's growing at such an amazing rate, we don't want to have to constantly be explaining any change in the shape of the curve that are just blips. But the general direction is all up into the right. We expect that to continue. And of course, when we're growing it, as you point out, 40% this quarter and over 80% next quarter where of course connected TV is leading the way. So if there is any other color, I can give on that, that's more a qualitative, it's simply that our sales team is leading every conversation with connected TV and connected TV is leading the recovery inside of programmatic. On the second question, as it relates to China and just international expansion, there are definitely markets that have been more negatively impacted from COVID than others. And so I think this is going to have a…

And we'll take our next question from Youssef Squali with Truist. Please go ahead.

I have two quick questions. One, Jeff, data revenues has been - have been very, very important piece of the Trade Desk's story and margins. Maybe can you just actually kind of highlight or break down, how much of the revenues last quarter did come from data? How should we thinking about it going forward, in particular, in light of all the changes that you spoke to earlier IDF, Chrome et cetera? And then just a quick one on political spending and maybe the likely impact you're expecting potentially in the second half? Thank you.

So first as it relates to a percentage of our revenue, we've never broken that out and we don't break it out for a number of reasons not least of which is that, I look at data as something at times, I'm willing to give away in an effort to just help people buy more media, more intelligently. And if that makes our clients more sticky and more invested and especially, see more ROI, I can make up the money that I could have made in charging for that by getting another dollar, if you will. So, meaning, getting another dollar media spend. So we're always making that trade-off, but I'd like to address the sort of bigger picture question that you framed because I think that's really important. And if I even rephrase your question, which is to say, hey, there is a lot of discussion happening with IDFA, with a third-party cookies going away inside of Chrome. There is a lot of things that are saying the way that quid pro quo of the Internet works may change. And if that change, not that the quid pro quo will change, but the mechanics of that quid pro quo may change. If they change, will that be good or bad for data companies? And the short answer is, I think it's good for data companies. So right now cookies in particular, create a really difficult way for data to be onboarded. It's actually created more of a barrier than anything else. Data gets applied more easily to things like direct mail and almost every other form of advertising then it does the browsing Internet. And as the Internet grows and as devices get more fragmented, having something that's more common as well as just better consent, will actually create more opportunities for data companies that do the right thing. So data companies that have been aggressive or deceitful, they're going away. Data companies that do the right thing and operate without being too aggressive on collection or on deployment are going to do really well. And I think if you look forward 20 years, there is more of them than there are now, but there is way less deceit on the Internet, 20 years from now than there is now just like there is less now than there was 10 years ago.

Political?

The political side, sorry. So a lot of questions about how is political going to be different given the environment. There's lots of discussions about even how people are going to vote in this upcoming election. But I don't think there is that much debate though about the fact that more people are going to be home, more of the debate and discussion is going to be hosted over the Internet, largely because people are having this discussion and debate in their own homes, just because of the nature of C-19. I think also the amount of uncertainty has put a little bit more budget closer to the actual election time, there will be – that it's possible that there's fewer debates and meaning actual debates where the candidates get next to each other. And if that's the case, then I think every candidate and every party is dependent more on the discussion that happens in digital ecosystems and that includes programmatic advertising. So, I think all of that means that this one is going to be more of a digital election, if you will than any ever before.

And we'll move next to Tim Nolan with Macquarie. Please go ahead.

Jeff, as always, a lot of great color around the CTV universe, and I wanted to follow-up with another question on CTV. And that's we're hearing a lot from media companies on them establishing linear/CTV ad sales platforms. We got another announcement today from ViacomCBS. My understanding is these media companies are not really putting a whole lot of inventory into real-time bidding, but it's more private market transactions and things? And I just wonder if you could maybe address this topic and what I'm wondering is sort of how much real-time bidding actually goes on in CTV ads with the media companies? I'm assuming it's still very low, but I'm also assuming they will be putting more into exchanges and doing more real-time bid impressions, and that I would guess it's very good for the growth of CTV in general. So I wonder if you could just address this topic, please?

Yes, you bet. I appreciate you're asking it. There is a lot of nuance in this topic. So let me take a step back and try to describe what's happening in CTV as it relates to the mechanics of data driven advertising. So when you're starting the new market, there is this chicken and egg problem. Until you have something to sell, nobody wants to come to your store. If somebody comes to your store, you don't have enough products to sell they don't want to come back. But if you put way too many products in your store then you have people showing up, then you're not going to want to sell the products that way anymore. So there is this chicken and egg problem. And one of the ways that that's getting solved in CTV and has been getting solved over the last few years is to just agree on what the price is going to be or agree on who's going to buy it. And so, the ideal marketplace is to let the market in real-time decide what to pay and decide what inventory to buy, you might not right-size the inventory and you might not right-size the demand. And also because of scarcity, because as CTV has been taking off, right up until this year, there wasn't enough inventory there for people to feel comfortable that they were going to spend the right amounts. So they like to be something a little bit more like a reserve or to have a little bit more of a reassurance that they're actually going to spend. So one of the ways they've done that is to create these private marketplaces where you basically create a deal and you agree on some of the vectors that would otherwise be variables…

We'll move next to Brian Fitzgerald with Wells Fargo. Please go ahead.

Jeff, in your prepared remarks, you mentioned the CMO telling you they want to move spend from social to CTV as rapidly as possible. Beyond some of the near-term – pressures that you're seeing with boycotts and social unrest and the elections. Do you get a sense that some brand advertisers are kind of beginning to lose faith in feed-based advertising, because they are increasingly – they're not just getting in front of their consumers within the feed? But now they're being put in a position where they're kind of responsible for the organic content in the feed too. Do you see that trend resonating with advertisers?

Yes, so it's an interesting way to put it, which is feed-based advertising versus user generated content. I do think the bigger issue is user generated content even though, you could also make the argument about the feed-based simply because it's harder to determine context. But I think when you're very high level about this – advertisers have more choices than they've ever had. And they have more data and more insight and they're smarter than they've ever been. And so, I think we're having a very important discussion on the Internet right now about what is the value and the risk of user generated content. And I've just been surprised and I mentioned this in the prepared remarks about how coordinated it seems the Internet has been especially the advertisers, the funders of the Internet. How coordinated they've been in saying, hey, especially as we move in to a pretty heated and competitive election, more people are saying in user generated spaces, your politics suck, you're an idiot. You just don't want that to be a brand that says this conversations brought to you by brand X. And so as a result, there, just looking at that same where are safer places. And if there were anything else to contribute to the perfect storm of traditional television that's contributing to connected TV, it's that because they are then saying, while there is this alternative which is all this premium content that I can advertise on and its premium video. It's a big video on a big screen that I know we'll run, and I know what I get. I know what I'm running next to. It's a very compelling alternative as people are struggling with what UGC or as you put it feed-based ads represent so they’re definitely rethinking it.

It does appear there are no further questions at this time. I would now like to turn it back to Chris Toth for any closing remarks.

Great, thank you all for joining us today. We really appreciate your time and look forward to speaking to you again in about three months. Have a good evening everyone.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.