Greetings. Welcome to The Trade Desk Fourth Quarter 2023 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] Please note this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin.

Thank you, operator. Hello and good afternoon to everyone. Welcome to The Trade Desk, fourth quarter 2023 earnings conference call. On the call today are Founder and CEO; Jeff Green and Chief Financial Officer, Laura Schenkein. 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 provides a more meaningful representation of the company's operational performance. With that, I'll now turn the call over to Founder and CEO, Jeff Green. Jeff?

Hello, and thank you everyone for joining us. Today, I'm really excited to discuss our strong finish to the year in Q4, reflect on the progress we made in 2023, and explain why I'm so confident about our growth prospects in 2024 and beyond. Total spend on our platform in 2023 was almost $10 billion, a record for us. Revenue in the fourth quarter topped $600 million. The first time we have ever crossed that mark in a single quarter. This record spend helped drive revenue growth of 23% for the year. Once again, significantly outpacing the broader digital advertising market. And of course, we had solid growth in an uncertain market of 2022, when many of our competitors were exiting the year comparatively flat. In fact, in Q4 of 2022, we grew by 24% year-over-year. So 23% growth in 2023 on top of very strong growth in 2022 is once again leading the market. We generated adjusted EBITDA of over $770 million in 2023. We also generated $543 million of free cash flow. This relentless focus on profitability and growth allows us to keep investing in innovation, ensuring we are always bringing the best possible value to our clients, whether it's our game-changing Kokai launch or new approaches to identity and authentication for the open internet. While there is much to celebrate about 2023, I'm even more excited about 2024 and beyond. I've never felt more confident heading into a new year. I believe we are uniquely positioned to grow and gain market share, not only in 2024 but well into the future, regardless of some of the pressures that our industry is facing, whether it's cookie deprecation, growing regulatory focus on walled gardens, or the rapidly changing TV landscape. These industry shifts represent tremendous growth opportunities for us.…

Thank you, Jeff. Before I go through the details of the quarter, I want to build on Jeff's sentiments regarding the strides we've made in 2023 and emphasize the consistency in our strong execution. Over the course of 2022 and 2023, The Trade Desk delivered revenue growth over 20% every quarter, against what many would say were a challenging two years for the digital advertising industry. Whether it's our work in areas such as CTV, retail data, our platform upgrading Kokai, AI advances in our platform, or helping build a new identity and authentication fabric for the open internet, The Trade Desk remains resilient and we continue to execute efficiently. Now onto our results. We ended the year with a strong Q4 and our teams have carried the momentum into the start of the year. Q4 revenue was $606 million, a 23% increase year-over-year. Excluding political election spend, which was a mid-single digit percent of revenue in Q4 2022. Revenue grew 27% year-over-year. I am particularly proud of the $284 million of adjusted EBITDA we generated during the quarter, representing a margin of 47%, which helped drive full year adjusted EBITDA margin to about 40% and full year free cash flow of over $540 million. Our results in both Q4 and for the full year 2023 were another example of our ability to grow our top line and gain share while simultaneously investing in our business and platform to support future growth. For 2023 we ended the year with $9.6 billion in spend on our platform and about $1.9 billion in revenue, representing 23% revenue growth. As expected, our take rate in 2023 once again remained within a very consistent historical range. We continue to execute on the model set out at the company's inception of keeping take rate consistent…

Thank you. [Operator Instructions] And the first question comes from Shyam Patil with SIG. Please proceed.

Hey, guys. Great job on the quarter and the results. I just had one question. Jeff, you talked about this a little bit in your prepared remarks and Laura did as well, but could you just talk maybe a little bit more detail about how you view the state of the digital ad market today relative to how it was when you last reported your competitive positioning and how investors should be thinking about your growth in 2024? Thank you.

Absolutely. First, Shyam, thanks so much for the question. Second, before I just jump into the answer, I just want to give a shout out to Bryce, my Chief of Staff and his wife Julie who are listening to this call right now from the hospital where they're about to induce labor for their first child. Just wanted to say, thank you for listening, thanks for all you do and wish you the very best. With that, let me jump in to answer your question. So the current ad environment is really amazing for The Trade Desk because, first of all, it is a buyer's market. So our competitive position couldn't be better because, of course, we focus on the buy side. And our buy side, while we look at 15 million ad impression opportunities every second, we're also doing that with objectivity. So the fact that we don't own any media makes it so that we can objectively figure out what to buy. And when you couple that with our technology and our client service, both are the best they've ever been and I think are pretty consistently been credited as being the best in the space. That makes it possible for us to perform like we have, which is growing over 20% every quarter for the last eight quarters. I don't think there's any scaled ad funded company or walled garden, large or small, that can state that. And then, of course, we've got all these unique tailwinds that are helping the environment, they're also helping us. The first is that, of course, CTV, the shift continues to accelerate. And there's more and more going in to ads -- I'm sorry, into ad-funded TV, where subscribers that were focused, or streamers that were focused on subscriptions that did…

Thanks, Shyam.

The next question comes from Youssef Squali with Truist Securities. Please proceed.

Awesome. Thank you for taking the questions and congrats on the solid print. So Jeff, just as a follow up to your ads funded TV commentary, how do you think about the impact of Amazon's ad supported prime video offering on the CTV market in general and Trade Desk’s growth in particular. There are fears out there that just a massive influx of CTV inventory at a lower CPM could depress CPMs across the segment without necessarily driving more demand. So just how do you think about that for the industry and for you guys in particular? Thank you.

You bet. Thank you. So I don't think that the pool of inventory will be that massive. I do think it will be meaningful though and it will further the supply or expand the supply. But rather than that creating the huge imbalance, I do think it will just slightly tip the scale a bit more, and I would say in a way, it officially tips the scale to a buyer's market where supply does outweigh demand. But I think overall that's good for the ecosystem and it does create opportunity for us. That does mean that CTV companies will have to compete more intensely to win attention and subscribers. That does mean that their ad experience needs to be better. That means fewer ads and more relevant ads. The only way to do that is with programmatic. I believe that's part of the reason why every major streaming service that offers ads beyond their own sales team has adopted and announced partnership with UID2 and all of them are seeing higher CPMs as a result. So it does mean that the market is shaping in a way that gives more ads or more awards, more wins, if you will, to the companies that allow for UID2 to be used and allow for more relevant advertising. So to me, the way that this ends for every successful streamer is to basically run an auction that has identity attached to it, not so that they have to share any data about that impression or that user, but so that an advertiser can bring their own data about that user so that they can show a relevant ad and then the ad load can be lighter and more relevant and then that creates the optimal experience for the streaming service. I think this move by Amazon will move in that direction. What they're doing is not that unique in my view. Yes, they're adding a greater amount of inventory. But they also have a dilemma, which is that, unlike Netflix, who can raise their prices more regularly because it's attached to Amazon Prime, it makes it harder for them to do that, which means they've got to play with a different dial, which is the volume of ads. And as a result, we will see them affect in a way the more competitive nature of the landscape because they're affecting the overall supply. But again, I think that's good and accelerates the race. It will create a better experience for users and it more clearly defines what the competition is all about, which is them running an auction that includes our participation, because we largely represent the Fortune 500 and the most premium ads that you can bring into a quality streaming service. Thank you for the question.

Thanks, Youssef

The next question comes from Shweta Khajuria from Evercore ISI. Please proceed.

Okay. Thanks a lot for taking my question. Jeff, could you please comment on just your view or revised views? There is one on cookie deprecation. We read your blog post on The Current on this a few weeks ago. Basically, there is a healthy level of debate on the impact cookie deprecation could have on Trade Desk, especially as the year goes through. Could you please help us think through the puts and takes of that and why Trade Desk may not be as impacted or how much it would be impacted? Thanks a lot.

You bet. Thanks, Shweta. I appreciate the question. I was hoping we would get asked this question so that we could talk about the topic. And I know there's been so much written in our space and even in the general public about cookie deprecation, but also the product that Google has launched, Privacy Sandbox. Those two things are two separate things. I think it's important to talk about them differently, even though I believe they're doing them at the same time for a reason, they are in fact two different things. So cookies are being deprecated. That does mean that it makes it a little bit harder to create personalization if you do nothing. But as a result, everybody that touches that, some will be better off and some will be worse off. And that especially is a reference to publishers. So there are many publishers that have almost 100% authentication. So almost everyone in CTV has almost 100% authentication and they are not affected by cookies. So if you look at the 15 million ad opportunities every second, and you look at the way that the dollars are divided up, a substantial amount of the dollars and the impressions that we care the most about often come from premium channels like audio and CTV and those are almost always 100% authenticated. But then there's also millions that come from other channels that are also authenticated. So those two will get a premium and those prices are going to go up. And it becomes more important that every publisher have an authentication strategy and an identity strategy. And so, more and more publishers are talking about how they adopt UID2, how they adopt our single sign-on that we've launched publicly, although it's in closed beta right now, called OpenPass.…

Thanks, Shweta.

Up next, we have Vasily Karasyov with Cannonball Research. Please proceed.

Thank you, good afternoon. Jeff, thank you for the helpful color on the cookie deprecation issue. In a related topic, can you set the record straight on Privacy Sandbox? What is your view and what is Trade Desk testing there? What does it even matter to you? Because there's been some discussion in the industry press. There is some confusion, I would say. Thank you so much.

Thanks, Vasily. I appreciate the question. And as was mentioned previously, I have written fairly extensively on Privacy Sandbox on our news platform, The Current. So if anybody wants to read more details, there's also a great report by Bill Simmons, who was previously the CTO of DataZoo, which was acquired by Roku, who also had just a great POV on this, also on The Current. So as I mentioned before, there's two different things happening at roughly the same time. There is cookie deprecation, which is, Chrome is removing the use of third-party cookies, and they're doing that gradually. They introduced 1%, and that created a lot of discussion about it. But really, as an industry, so far, we -- beginning of the year, 35% of cookies were already gone because of Safari and Firefox, and now it's 36%, or something like that. So it wasn't a dramatic move, but the fear that it's going to go from 36% to 100% removal has lots of people concerned. I think it even has Google concerned who's doing this because they fear that they're taking something away and they're not replacing it with anything, Which gives their engineers a very difficult dilemma. What do we replace it with? So what they're proposing to replace it with is this product called Privacy Sandbox. Now it's a series of different APIs. There's actually more products than just Privacy Sandbox, but everyone in our industry just talks about that umbrella of APIs as Privacy Sandbox. I really believe that Google has missed an opportunity to build something better than this. They're increasing the complexity and they are deprecating at the same time. So I just, I don't think any good product ever deprecates an ecosystem and makes it more complicated at the same time.…

Thanks, Vasily.

The next question comes from Dan Salmon with New Street Research. Please proceed.

Okay. Great. Thanks. Good afternoon, everybody. I've got two questions. Jeff, you mentioned your single sign-on initiative, OpenPass, in the press release and your prepared remarks for the first time in recent memory. Could you talk a little bit more about that initiative? It's important to your identity and authentication strategy? And even more specifically how it works together with UID2. And then the second, just maybe for Laura on this one, but also in the prepared remarks, Jeff mentioned that JVPs now represent one-third of your business. Can you give us any more detail on how that breaks down between agencies and direct client relationships? Thank you.

You bet. So first let me take a minute to explain where we're at with OpenPass. So first, this is in a closed invite-only beta, and you're right, we haven't talked about it a lot. There have been a number of things where people are watching us closely lately and we've been scooped or people talk about it before we get a chance to talk about it. I think this was one of them. But let me explain what it is, first of all. So if you have ever used Shopify, I think that's the easiest way to understand it. I'm a big fan of Shopify, both the company and the product itself. The first time you use Shopify, you go through a checkout process that feels just like any ordinary checkout process, you actually don't even necessarily see the value. I actually think it was brilliant that Shopify, at least the way I experienced it, never took the time to explain what they were doing. I just experienced it. That was the fastest way to get people to adopt it was to get a few merchants to do it. And then where you really see the beauty of their signup process is the second time you go to a merchant and you see Shopify there, and then you see how much faster the checkout process is. And then if you're like me, you say, how did they do that? Where did they get the information? How is it secure? And then I'm literally putting together flow charts to understand how this worked and realize that both is faster and more secure than what I had before and it was just genius. It is kind of the opposite of what I was just criticizing in Google's product and Privacy Sandbox…

Yeah, thanks, Dan. On the topic of JVPs, they absolutely continue to be a key driver of spend growth in our business. And as we noted, about a third of our spend was under a JVP exiting 2023. And we had, I believe exiting the year over 45 JVPs with a robust pipeline of additions to that. Those JVPs represent billions of dollars of future spend. And what gets me most excited about them is that, those JVPs are helping us get closer to our clients. And to your point, that's both brands and agencies who are signing up to do things that will drive incremental ROI for their marketing budgets. It can be anything from increasing data usage to adopting UID2 to focusing on decision [CTB] (ph) spend and I can go on and on. And the way that we look at those is that, they're effectively a win-win for The Trade Desk, they're a win-win for the agency and for the brand where they're structuring a framework that works best for their business. We don't actually break down the percent that's coming from the agency versus coming from the brand. And the main reason for that is that, even the JVPs that we're siding with our brands, we are talking to the agencies that are working hand in hand with the brand as we are structuring those JVPs. And our relationships with agencies has never been stronger. So we just constantly say, we're never losing sight of the key role that our agencies play in helping our brands execute their business. And for that reason, we don't really look at it as a breakdown, but more in terms of how can we get closer to all parties that are spending on our platform.

Thanks, Dan.

Next question comes from Matthew Cost with Morgan Stanley. Please proceed.

Hi, everybody. Thanks for taking the questions. I have two. The first one is just on the conversation with advertisers. So at the time that you guided to the fourth quarter, I think you had seen at least in certain verticals some brand spend weakness through October and November, but obviously the quarter came in significantly ahead of your guidance at that time. So I guess how did the conversation evolve with advertisers? Where did you see them lean in, in ways that you didn't expect? And how has that trended through the beginning of 2024? And then the second question is just on the growth outside the US. I think there's a comment before about seeing green shoots there and continued faster growth than inside the US. I guess, are there specific ways that advertiser behavior or the inventory are changing that you would call out? Thank you.

You bet. Thank you for the question. Just writing it down so I don't forget. So yes, in Q4 -- early in Q4, there was a little bit more, I would say, hesitation in the ecosystem, in the landscape, and I think that was not isolated to advertising. I think that was just macroeconomic angst, if you will. But of course, for the last few years, and I would just say that the angst in the CFO's office has been more closely connected to the angst in the CMO's office, really since the pandemic at a level that I haven't seen in my career. So I think there was some angst early on. And as the quarter went on, we saw some advertisers really lean in and some advertisers see some pressure. And even as we completed the quarter, it really is a tale of two cities where some companies are really driving for growth and spending aggressively to go get growth and some are watching every penny carefully and trying to be really deliberate. And that meant some spent more and some spent less. And in the end, we have an increase in spend, obviously, beyond what we guided. As it relates to outside the United States. I think a significant amount of this is caused by the same macro environment that we were just talking about. So as things change in the dollar and some of the macroeconomic policies of governments, I think that does make it easier for things outside the United States to do well. But there's also some trends in media consumption. So if you look at places like the UK or Germany, we see their CTV growth meaningfully higher than what we're experiencing in the US. And that's often because they're a year or two behind the US in terms of the competitive landscape forcing the change, the ad-funded models, and some of those types of things. But we're seeing the exact same trends play out. So in the same way that we saw those green shoots a couple years ago here in the United States, we're now starting to see them in more markets around the world and that's very good for us. So I would say it's those two things on the international or outside the US front. Thanks for the question.

Thank you.

Thank you, Matt.

Next question comes from Matt Swanson with RBC Capital. Please proceed, Matt.

Thank you. I'll add my congratulations to you guys on the quarter and congratulations, Bryce, on his baby if you're still listening. So, Jeff, I think from the product event when we were talking about Kokai, one thing that was really intriguing to investors was this idea of being able to deliver attribution and KPIs and kind of segment it out throughout the funnel, right, not just give it all to the last click. It kind of sounded like the example you gave from Samsung. So when you've been out meeting with customers, can you just talk a little bit about like, what's exciting them the most about Kokai? What's driving adoption, and maybe how this new way of looking at attribution could kind of change spending patterns longer term?

You bet. So, first of all, thank you for the question. And there's so many things to talk about in it because there's just so many things that are inside of Kokai. So, if you don't know, and obviously I know at RBC you know this, but maybe some others on the call don't. We went on what we call a world tour at the Q4 to go to four continents and talk to our customers around the world about the product that we're launching. Honestly, I did that out of concern in the sense that I know we are giving them more change than ever, but I am confident that this is an upgrade in almost every way to our platform. And I was concerned that the amount of change would make them afraid of adopting something new simply because of how much it changed, rather than really considering all the reasons why we did it. And so, we spent a half a day on four continents. We did I think three in the United States and LA and Chicago and New York and then we also did in London and we also did it in Singapore and also did in Australia. And the reception was phenomenal. It really put to bed any concerns that I had about reluctance for adoption. We explained the reasons why we were doing everything. A big part of what they love, to answer your question about what are they most excited about, is we have streamlined our reporting. We've made it way faster. There are some reports that you just have to wait multiple minutes for it because they're just so robust. And we found ways to accelerate that. We've also added AI throughout the platform, especially in forecasting. So it's a little…

The next question comes from Brian Pitts with BMO Capital Markets. Please proceed, Brian.

Yes. Hey, it's Tim O'Shea on for Brian. Thanks for taking my question. Look, we've spoken about the impact of cookie deprecation, but what about timing and readiness? You work with so many advertisers, all the agencies. The question is, do you believe that advertisers are ready for Google to deprecate the remaining 99% of cookies in 2024? And if they aren't ready, what needs to be done? What is being done to prepare them? And then maybe just what happens to the ad market if Google decides to deprecate right before the holidays and the US presidential election? I'm curious, is there a pause? Is there a pullback? I know that Jeff spoke about what happened when Apple made similar policy changes in the past. Thank you for taking my question.

You bet. I love this question. Thank you very much for asking it. So of course, the answer is some are, some aren't. So, who is ready for cookie deprecation? So, I believe here at The Trade Desk, we're in a phenomenal position. As a company, a big part of our technology stack centers around what we call an identity graph. And that is incredibly robust. And that is the result of our efforts. And you will recall, we've launched UID2 before the pandemic, we launched UID before that, and all of those efforts were seen around corners and we knew that this would happen. So we're confident that we're in a fantastic position. As it relates to advertisers, some are prepared and some are not. I would say the majority are not doing as much as they can. If I were to just paint a picture of the typical advertiser, they've adopted something like Snowflake. They have been trying to take their data from 20 different silos all over their organization and they're trying to figure out how to make certain that they're respecting their relationship with the consumer. And I do want to underline, I've never met a big brand that doesn't start every one of these discussions by saying, I want to be really careful about respecting the privacy of my consumer. They want a long-term relationship with them. They want to sell soap or cheeseburgers or pizza or whatever to them over and over again and so they want to be respectful. And as they're doing that, they're trying to figure out how to bring it all together and make certain that they keep it all safe. Many as they're doing that internally are saying, we know we have to put first-party data to work, but…

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

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