Greetings. Welcome to The Trade Desk Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toth . Please proceed. Chris Toth. Please proceed.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk second quarter 2023 earnings conference call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Laura Schenkein. 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. These forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. Actual results may vary significantly, and we expressly assume no obligations to update any of our forward-looking statements. Should any of our beliefs or 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, provide a more meaningful representation of the company’s operational performance. With that, I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and thank you all for joining us today. As you’ve seen from our press release, we posted very strong growth in the second quarter. We reported revenue of $464 million growing 23% compared with last year. This also represents an acceleration in our growth rate compared with the first quarter. And just like the last few quarters, we continue to significantly outperform the digital advertising industry. What’s particularly notable about our performance is that most advertisers are still dealing with some degree of uncertainty in their business. Even though certain macro indicators are improving, there’s still a sense from many advertisers that we are in an unpredictable environment. For them, it’s hard to dismiss what we’ve been through over the last 2 to 3 years with the global pandemic, rampant inflation, supply chain crises and banking system uncertainty, and of course, global rebalancing. None of these market dynamics have been very predictable the last few years. And this year, like the last few, has similarly had lots of never-before macro events. So while many indicators and advertiser sentiments are improving, there’s also a sense that it’s more difficult than ever to predict what’s coming next. But in this environment, marketers have learned that data-driven precision can bring a sense of certainty and reliability to their advertising efforts. Because of the innovations we brought to market in areas such as retail media, CTV, identity and data, advertisers have a clearer sense than ever of the performance and impact of their ad campaigns. And with Kokai, we are delivering even more innovation, all in service of helping advertisers drive precision, relevance and certainty in everything they do. As a result, we are winning more business with both new and existing customers. We are signing more multiyear joint business plans, or…

Thank you, Jeff, and good afternoon, everyone. For nearly the past 10 years, I’ve experienced firsthand all of the incredible work from The Trade Desk teams around the world that produce our outstanding performance that have enabled us to manage the right balance between strong growth and significant profitability. I’m proud to present our results today and going forward. With that, on to the numbers. As you’ve seen in our results, Q2 was a strong quarter. Revenue was $464 million, representing growth of 23% year-over-year, accelerating from the prior quarter. Excluding U.S. political election spend, which represented a low single-digit percent of spend in Q2 2022, our revenue growth rate in Q2 of this year was about 24.5% on a year-over-year basis. Visibility and advertiser sentiment continued to improve throughout the quarter, and we continue to gain share as marketers increasingly focus their investments on areas where data is deployed effectively, where AI and decisioning produce high ROI and where results are measurable and transparent. Our growth continued to be driven by the shift of budgets to connected TV and increasing use of retail data. Because of our objectivity and our connectivity to nearly every major CTV content provider, our platform is the most eligible for the tidal wave of demand as it shifts away from linear and walled gardens. In retail media, many of the largest retailers around the world are now our partners and more and more brands and agencies are taking advantage of this powerful data in their campaigns. We also continue to benefit from the trust we’ve built with our clients, launching innovative products in the interest of the demand side, paving cleaner path to supply and cultivating industry-wide support for improved identity solutions like UID2 and EUID. During the second quarter, growth was broad-based across…

[Operator Instructions] The first question comes from Shyam Patil from SIG.

Congrats on another strong performance. I had a 2-part question. First for Jeff, could you provide your thoughts on the macro and the current conditions and also your initial thoughts on next year, on 2024? And then Laura, can you talk about how you’re thinking about investments and expenses in the back half of this year, but also next year as well.

Thanks for the question, Shyam. I’ll go first, and then I’ll just hand it over to Laura to talk about investments and expenses. So it’s not news to anybody here that the last 2 or 3 years have been a few years of uncertainty and unpredictability for most advertisers and most of the Fortune 500. As a result, I’m extremely excited by the change in sentiment that we’ve seen in Q2 and see already in Q3, where CMOs are doubling down on what’s driving growth there’s an understanding, of course, that the markets have begun to recover, and there’s more certainty than they’ve had in the past. But they’ve also come to rely on data-driven advertising during that time of uncertainty as a place for certainty and for results. So we’re seeing lots of shifts due to what they’ve experienced in the last few years in CTV. And then, of course, this massive secular tailwind that comes from retail data as well. As I’ve said before, I believe ultimately, the shape of the Internet changes dramatically as a result of CTV and retail media. And then, of course, we’ve also seen some amazing results as a result of UID2 adoption. You might have caught during the prepared remarks that Warner Bros. was kind of the last of the U.S. independent CTV players to adopt UID2. So now, in a way, UID2 has the full collection here in the United States, and that has become the common currency to monetize CTV in the ad environment. We expect that trend to continue, and we’re seeing more and more of that. For the second part of your question for me, 2024 is looking like the tidal wave of opportunity that is both daunting as well as just massive in terms of what an…

Thanks, Jeff, and Shyam, thanks for the question. In terms of our investments for the second half of 2023 and going into 2024, I’ll start off just the big picture and then get into the specifics of what we’re seeing. So just always remind myself that we’ve got the great luxury of high growth, profitability and cash flow. And we’ve been responsibly managing our headcount, OpEx growth and investments for many years now. So in the first half of 2023, we grew revenue in the 20% range. And we just guided to continued growth acceleration in revenue when you exclude U.S. election spend that we saw in the same period in 2022. So from my perspective, we’re in an enviable position, while many of our other peers have struggled. So when I look out at the rest of 2023, I just look at how we’re being very deliberate in our investments and in our hiring, and we still expect headcount to grow this year, but roughly at half the rate of last year, which implies around 20%. And that sets us up very nicely for 2024, just as I remind everyone that our people are our largest area of investment. We’re also investing heavily into our platform and our products, specifically in areas like CTV and our forward market product and in retail media. And as we’re doing this, we’re focusing heavily on productivity and efficiency with all of our teams from our engineering teams to our go-to-market, business, sales AM and trading teams to make sure that we believe that all of our teams are firing on all cylinders. For this year, we also expect CapEx to be lower than last year. So last year, we came in with around $80 million of investments. And I’d expect that to be around $60 million in 2023. And just a reminder, our CapEx levels include all of our AI investments, and we don’t expect any significant step-up in investments that you may have seen in some other firms. So just to sum up and as it relates to our modeling, as we’ve seen in the past, when we outperform on the top line, that usually drops down to the bottom line as happened in Q1 and Q2 of this year. And we’re very comfortable with where things stand and cautiously optimistic about our business for the rest of the year.

The next question is from Shweta Khajuria with Evercore ISI.

Jeff, I have a question on cookie deprecation. So you touched on this in your prepared remarks, and there’s quite a bit of focus on it given that we are coming close to 2024 here and Google’s plan to deprecate cookies. Would love to hear your thoughts on you think the magnitude of impact on Trade Desk, in particular, why you think it’s not going to be meaningful and the overall industry, how you think about the impact? A - Jeff Green You bet. Thanks Shweta, I appreciate the question. So first, let me just say, we’ve been down this path before. So when Safari made cookies go away, there was anxiety, when GDPR first came out, there was anxiety and IDFA removal happened, there was anxiety. And in every one of those cases, our business continued to grow, and we saw very little impact, a speed bump at best. So I see this as slightly – or not slightly, exactly the same as all of those other things. But the reason for that is because a phenomenon that is just different about our business than most other businesses that are in the space. And so we look at 12 million ad opportunities every second and we choose from those 1 million or 2 million that we want to buy. If identity is removed from – instead of it being on 6 million, it’s now a 3 million, it just informs which ones we buy differently. We’re still going to buy the same amount, and we’re still going to be informed on the vast majority of those and in part because we’ve been so strong in growing CTV as well as leveraging UID2, we have an alternative in the biggest driver of our business in CTV that is present on…

The next question is from Vasily Karasyov from Cannonball Research.

Jeff, I wanted to talk about retail media. You spoke about the success you’re having with Walmart. We know that last year, there was a group of retailers that also came online. And so question number one, how is that coming along? Should we see contribution to revenue next year from those retailers? And then given that, would you be willing to update your thoughts on your plan in retail media that you gave us at your Investor Day, last October.

You bet, thank you. So let me first explain one of the reasons why I think it’s so exciting what’s happening in shopper marketing. So of course, many retailers have been sitting on amazing data where they know what’s actually being purchased, especially for those products that you tend to buy at the store and not online so many of the products in grocery stores and pharmacies are still primarily purchased in a store rather than online. And then, of course, many of them have amazing online presences as well as, of course, brick-and-mortar off-line. So many of them are bringing their data into the ecosystem, and they’ve recognized that the way that they’ve operated in the past creates a bit of a needle in a haystack problem where you take a small amount of data and you go look in that massive ocean of 12 million ads available every single second, and you go look for the usually thousands or tens of thousands that have your data on it. And so you start with the data and you go hunting for it. Well, in this new world where things are leveraging UID from the very beginning, you get rid of the sort of 9 dominos that need to fall in the supply chain so that you can then leverage the data, but instead, you start with the data and you’re actually just looking at the opportunities that match that instead of going out and looking for opportunities in that way. So by starting with the data, you make it so that you get rid of the matching problems of cookies, and you make it so that the flywheel spin faster for all of these businesses. So they’re not just making additional money on a small amount of data, but…

The next question is from Matthew Cost with Morgan Stanley.

Maybe just on the CTV market. When we think about what you’ve learned through the upfront, this year. How are you feeling about growth and trends in the market through the back half and into ’24? And then on a related note, if you could just give an update on the new forward market. What is the level of interest in it? And how are those conversations trending to that new product? A - Jeff Green You bet, thank you. So let me just say that I have never been more bullish on CTV than we are right now and that includes all of the major news and headlines that are contributing to the current environment. You’re seeing everyone in CTV look to add and/or enhance their ad-funded options. Nearly all of them are doubling down on the ad-funded options. So where there’s just a few years ago, there was a religion around only having subscriptions and not having ads. That’s gone, across the board. Everybody is looking to add ads and make them more effective. So the secular tailwind on our business is as great as it’s ever been because of those things. Also because there, of course, is a writers and actors strike, that makes it – so it’s much harder to sell at the upfront for all the content owners, which of course, the upfront is predominantly built for broadcast and legacy television. In order to take advantage of the very best of digital, we need a more sophisticated forward market than just the upfront, which is effectively a party where transactions are done with handshakes and very high-level data instead of the sort of precision that data-driven advertising can bring in an impression by impression and customized user by user, that environment can bring. And so our product that we have been working on literally for years on the forward market, makes it possible for people to have a much more sophisticated upfront buy. So the early phases have gone well. It is still very early phase. So I don’t expect it to see all of the fruit harvested and even in 2024, this is going to be something that we build up over the years. But I see it in the long term being a very significant portion of our business.

Our next question is from Justin Patterson with KeyBanc.

Jeff, I was hoping you could talk about the Kokai launch. I know it’s really early, but would love to hear feedback on just initial reaction, how it’s compared to your expectations? And just perhaps even stepping back, some of the behaviors you’re observing from this versus what you’ve seen in prior launches like Solimar and Next Wave. And as a quick follow-up for Laura. Could you talk a little bit about just linearity in June and July. There’s been a couple of prints so far this earnings season talking about a little bit more macro softness in there. So curious about any trends you’re seeing there.

You bet. Thanks Justin for the question. I’ll take the first part and then have Laura, you take the second. So first, let me explain what Kokai is. So Kokai is a Japanese word that means open for business or open waters. And the reason why we chose that is because we believe this is a very important moment in the open Internet to make it possible for more and more companies to build to us in a variety of ways. One of them being to sell their products. So we have value-added resellers that are selling on our product all the time, whether that’s in data, whether that’s in algos, there’s a whole bunch of ways with – contextual data, so many ways. And then the other is then is advertisers, in particular, bringing their first-party data to the table. And so with those as the overarching mission, Kokai has really built in 5 major sort of categories or pieces. The first is massive improvement to the use of data so you’ll recall, we launched Galileo earlier this year, and we also announced that Kokai, the creation of a partner portal where people can integrate to onboard their first-party data. The second is the use of AI across our platform. You’ll recall that we launched AI in our platform in 2018 before it was trendy. And we called it then Koa and distributing that AI across the platform in a variety of different ways and different deep learning models so that we’re using that for very specific applications rather than trying to create one algo to rule them all, if you will, which is something we actually very – in a very disciplined way, try to avoid. So that we can create checks and balances in the way that…

Yes, absolutely. Thanks, Justin. On linearity in June and July, we’ve seen visibility improve as the year progressed. And we continue to see improving trends throughout Q2, where we saw our revenue growth accelerate to north of 23% year-over-year from around 21% in Q1. We exited June on a great trajectory, and that’s continued so far in Q3. So we expect a strong Q3 for the same reasons that we outperformed the rest of digital advertising over the last few quarters, which is that we’re continuing to see strong growth in CTV, in retail media and in international spend, all of which have been accretive to us this year. So I believe we remain – are well positioned for the second half of 2023 and even further out as we move into 2024.

The next question is from Brian Fitzgerald with Wells Fargo.

Jeff, we’ve seen some developments around "premium" marketplaces in CTV built around SSPs. As you talk with marketers, do you get a sense that some may be willing to give up some of the precision or expressiveness with which they manage their programmatic CTV budgets in exchange for a lower tax or are they really more focused on getting as precise as possible to maximize ROI?

Yes. Thanks for the question. So let me first just describe a conversation that I had with the CEO of one of the publicly traded SSPs, where we were just talking about PG, or programmatic guarantees. And just talking about how he saw things. And he and I agreed that as people are moving budgets over from traditional television or linear – they are – sorry. As they’re moving over budgets, from traditional TV or linear. They’re often looking for programmatic guarantees as a place where they’ll spend first. But as he and I both agreed, they always end with spending in decisions because decisioning is much, much better. So we’ve recently done some studies on decisioning across the platform and compared it to PG. And we found that the value of decisioning or the performance of the decisioning on a CPA basis is 5x better in general, or if you were to say it in terms of savings, it’s an 83% save in order to – in CPA costs in order to decision. So whatever incremental tax, as you put it comes, which is usually, in our case, the 20%-ish take rate, that take rate is more than justified by the power of decisioning that comes to the table. And that’s exactly why even the SSPs and their leadership are predicting that long-term things move towards decisioning, but the PG is an on-ramp. We sometimes compare it to a freeway, where it’s an on-ramp and you get on the freeway. But if you stay on the on-ramp, you’re doing it wrong. And so that’s what we see happening. That’s what we think the SSPs see happening, but there will be some moves in the very short term towards these premium PMPs that are centered around especially programmatic guarantees that long term, we think, move towards decisioning and broader data usage.

The next question is from Dan Salmon with New Street Research.

I got a 2-parter here. Jeff, maybe could you give us an update on any discussions you’re having with industry bodies to act as a public administrator for UID2 in various markets? Is that still an important goal? Are you happy with existing relationships? And obviously, you’ve got a lot of private integrations you’ve done as well. And then second, you mentioned how identity is increasingly anchored by an e-mail address, yet it’s pretty clear that Apple doesn’t exactly love the use of e-mails for marketing purposes. Is that something that matters to you? Or do you feel comfortable with the level of consent that UID2 collects because Apple also seems fine when digital advertising uses consent in first-party data. Any views on that would be great.

Yes. So let me go in reverse order just because I think the significance of your comments around Apple is important. So any of us that operate in the Apple ecosystem are putting in our Apple ID, which incidentally is an e-mail address over and over and over again. In fact, we’re not even – we don’t even know why we’re putting it in most of the time. You’re asked to put it in. You say, why? And then you put it in. And then you’re asked again and then you put it in and you are asked again. Apple has used their e-mail-based identifier to provide personalization, they have updated many of the things that they said they wouldn’t do before so that they can leverage that Apple ID to provide personalization. It is exactly that, that I think provides a validation that UID2 is one of the most privacy- centric ways to provide personalization across the Internet. It’s used across many of the biggest platforms and with some of the biggest companies in the world, whether that’s at Amazon, whether that’s at Snowflake, whether that’s at Disney, there’s just hundreds of companies that are leveraging that, which of course, is based on an e-mail address not dissimilar from the massive empires at Google and Apple, which are also built around e-mail-based identifiers. So I don’t think the comparison that Apple is allergic to them is fair because their entire ecosystem is built on an e-mail-based identifier. As it relates to the public administrator of UID2. Honestly, it’s not that important. Most of our integrations are done privately. Of course, we were happy to hand it off and look for the right public administrator, as it continues to scale and as if it comes to a more pressing issue, but it hasn’t been yet. We want to make certain that somebody that is that public administrator, of course, shares the vision of protecting the open Internet. And at times is willing to stand up and do the right thing even if it’s not popular. That can be very difficult to find. And so that’s something that we’ll be very deliberate about, but it has not slowed down anything in not having that. So we’re not in any rush to change the status quo.

Our next question is from Mark Zgutowicz with Benchmark.

Jeff, just regarding earlier comment you made, I was hoping to get clarification how – I think you had said UID2 benefits you more in a cookie-less world. And I’m just curious how that is because it’s predominantly used as a matching mechanism between large pubs and advertisers and that data signal isn’t sort of privy to you. So I’m trying to just understand that a bit more. And then secondly, regarding OpenPath, appears that there’s a natural hesitancy that we’re hearing among publishers, large pubs to giving you more view into their CTV inventory or autonomy per se. I’m just curious if you agree with that and how you overcome it.

Yes. Thanks for the question, Mark. So the reason why we benefit from cookies potentially going away in the form of UID2 is that we have been saying to advertisers, every advertiser needs to have an identity strategy. We’ve been saying to publishers, every publisher needs to have an identity strategy and an authentication strategy. And by authentication, we mean there needs to be some way that you’re encouraging people to log in. And in the case that you have log-ins, finding some way to leverage them. Very few companies on the Internet are leveraging their log-ins to provide personalization to the level that they could be. And there certainly hasn’t been much effort to leverage those outside of their own ecosystems or to make it possible for those that are bringing advertising demand to leverage the authentication on those particular publishers. If cookies were to go away, the need for that goes up dramatically and so for many of the publishers – and we saw this with GDPR, we saw this with the IDFA movement. There are many publishers that are saying, "oh, well, wait until I have to. I’ll wait to make changes until I have to." When they have to, they will make changes quickly. We saw a fire drill around GDPR among publishers, where they were very quickly working to create the right personalization again. And again, I just want to remind everybody what’s at stake here. Think of how many print journalism companies have struggled to stay in business due to the Internet. And if you take their CPMs where they get a significant amount of revenue from $5 per ad to $2 per because relevance goes down, then they no longer can stay around. And that’s why I say that cookies going away poses…

The next question is from Mark Kelley with Stifel.

Great. And I will stick to one since we’re over time here. But Jeff, I wanted to ask you about if you’re seeing any impact from the MediaMath bankruptcy? And any other thoughts on share gains, whether it’s from competing DSPs or Laura mentioned verticals that you think maybe you under index? Any color there would be great.

Yes. So we definitely see some impacts to our business. So let me first just say, MediaMath is essentially exponentially smaller than we are. So it’s not a huge lift, but there are definitely some benefits. One of the first places was with employees. We have a lot of respect for what they had built and they did a lot of things right. And they also had some different perspectives on some things that we did. So we’re excited to have added a few people from the MediaMath team to our company. There’s also been some cases where there’s business upper grabs. In some cases, we won that business outright. But what most advertisers do, especially those that were running anything sizable on MediaMath is they run a process. They test a variety of platforms. They put together a crawl, walk, run plans with each of them. And I think we’re benefiting from that as much as anybody in the space or in the world. But as a result of those sort of deliberate crawl, walk, run efforts, I anticipate that it will be a sort of slow increase where we’ll once again see benefits come at all different paces, but we expect to win more business as a result, especially in next year.

Thanks, Mark. And John, can you please close the call out?

Absolutely. This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.+