Greetings. Welcome to The Trade Desk's First Quarter 2019 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 would now like to turn the conference over to your host, Chris Toth, Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator. Hello and good afternoon to everyone here in Europe and good morning to everyone in the North America. Welcome to The Trade Desk first quarter 2019 earnings conference call. Our call today is taking place from our London office. On the line is our Founder and CEO, Jeff Green, 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 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. The 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?

Thanks, Chris. And thank you all for joining us. I'm excited to be speaking to you from The Trade Desk's London office, the hub of our European operations. Our growth in this region continues to be very solid. Our offices in Hamburg and Madrid both grew spend well over 100% over the last 12 months. More on that later, but let's start with the results for the quarter. I am extremely pleased to report that Q1 2019 was another outstanding quarter, because advertising budgets are often reset in Q1, numbers for the quarter have historically been the most challenging to predict. This year, we again surpassed even our own expectations. We continued to add new advertisers to our platform, and existing customers increased their spend. All major agency holding companies are now under MSA with us and spending on behalf of the largest advertisers in the world. The vast majority of companies in the S&P 500 have run advertising campaigns on our platform. We are executing well. As a result, revenue was $121 million in the first quarter of 2019, which is an increase of 41% compared to a year ago. This beat our own expectations of $116 million. When we've seen surprises in the past, they tended to be to the upside. Because we have continued to maintain our 95%-plus client retention this quarter, continued that trend. Adjusted EBITDA increased to a Q1 record of $24.7 million. We continue to be one of the fastest-growing and profitable software companies in the world today. Our GAAP net income has been in the black for the last 12 quarters in a row. Now, let's step back and look at the big picture. In 2019, according to IDC, spending on global advertising will be about $725 billion, up over 4% from 2018.…

Thanks, Jeff. And good afternoon, everyone. And good morning to those investors joining us from North America. As you've seen in the numbers, we are off to a great start in 2019 with strong Q1 financial performance and execution. Revenue increased 41% year-over-year. Adjusted EBITDA increased to $24.7 million and GAAP net income increased to $10.2 million. We achieved this while we continued to invest aggressively in areas critical to our future growth, such as on our platform, while adding to engineering and sales talent. Revenue for the first quarter was $121 million, which was above our prior expectations, and reflected increased spend by our existing customers, plus the addition of new customers and advertisers. For the quarter, approximately 89% of our first 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 $115 million. This increase year-over-year was due to sales and marketing as we scale for future growth. The year-over-year increase also reflected higher G&A expenses, which takes into account stock-based comp, and we expect G&A to moderate as a percentage of revenue in Q2 and in the back half of the year. Income tax was a benefit of $4.8 million in the quarter, mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. GAAP net income was $10.2 million for Q1 or $0.21 per fully diluted share. Our adjusted net income was $23.1 million or $0.49 per fully diluted share compared with adjusted net income of $15.3 million or $0.34 per share in the comparable period. Adjusted EBITDA was $24.7 million with a corresponding margin of 20% of revenue during Q1. The increase in adjusted EBITDA dollars reflects the strong growth…

Thanks, Paul. 2019 is off to a great start for The Trade Desk. We exceeded our expectations for the first quarter and are raising them for the year. The fundamentals of our business are solid and we continue to scale up well. As the worldwide advertising market moves towards a trillion dollars in a few years, we are well-positioned to win a large share of the programmatic portion of that market. We invested early in key markets and channels. And, while we are pleased with our initial gains, we see far more upside yet to come. All indications are that our business is poised for increased success in 2019 and beyond. The future has never been brighter. That concludes our prepared remarks. Operator, let's open it up for questions.

Thank you. [Operator Instructions]. Our first question comes from Youssef Squali with SunTrust Robinson Humphrey.

Great. Thank you very much. Jeff, you mentioned mobile as a driver – really, as the first driver of spend growth this past quarter. One question we often get is around the upcoming changes to Chrome which ultimately may hamper the ability for advertisers to use cookies to track and target. So, really, just wondering how you guys expect that may affect the mobile online ad environment in general outside of Google and The Trade Desk in particular? Thanks a lot.

Awesome. Thanks, Youssef, for the question. So, I actually feel like we're a little bit fortunate in the fact that our prepared remarks were a couple of minutes shorter than usual. So, I’m going to take actually a little bit of extra time to explain this change more than I would otherwise because we just have a few extra minutes to spend. Because so many changes have happened so quickly, this has been something I've talked a lot about over the last couple of days. First, let me give a little bit of context. As many of you know, Apple made some changes called ITP to their browser where they decided to just block of the use of all third-party cookies about a year ago and replace it with what they call ITP, which was essentially an algorithm that would decide what third-party cookies would be allowed to persist instead of both first and third parties doing well no matter what or existing on the browser no matter what. Google has a different challenge. Because, of course, Apple doesn't make any of this money through advertising, at least not directly. And Google makes 95% of its money through advertising, and of course, Chrome has much more market share. So, a lot of people have been watching Google and the privacy pressure and some of the things being set out of Chrome, saying what changes are they going to make. In the last couple of days, they've made their announcement. And I'd just like to explain exactly what they did. So, basically, they decided to give – they tried to thread the needle between relevance and privacy, and I think Google did an amazing job and did a very good thing, which is that they gave users more privacy control. So,…

Thank you, Jeff. Next question?

Our next question is from Brent Thill with Jefferies.

Thanks. Jeff, just on the strength in OTT. Investment spend is up 3X. I was just curious if you could lay out how you the year evolve? Kind of what inning you're at and any other notable items that we should highlight? Maybe just to follow-up on TTD's unified ID and how that plays into the first question as a quick follow-up. Thank you.

You bet. So, I'm going to actually answer them in reverse order just because the unified ID question is in some ways an extension of the first question on the Chrome changes. So, because Google has created this – or announced this mechanism called the same site, which enables publishers like The New York Times in my example, to identify partners whose cookie should be treated as a first-party cookie. It makes all the work that we've done in Unified ID even more important and more strategic advantage or asset to us that it was even a week ago or a year ago. And I'm excited. Some of you investors may have known that, in this quarter, we announced that we've been fully adopted in the two major forms of header bidding as the ID that gets transacted in header bidding. So, for those of you that may not follow what that means, basically, in most auctions today, there is a technology used called header bidding. And that means that we get to participate in every ad opportunity that a publisher wants to sort of test the market before they allow their ad server to monetize it. And because most publishers, especially most premium publishers, all use some of some form of header bidding and the fact that there's only two standards for header bidding means that if you want to implement an ID or a common currency, you have to integrate with both of those. The first one we integrated with was index and we found a 99% match rate for that ID, which means that there is a common currency in that header. And then, a month ago, we announced our partnership with the open source header implementation, which actually has the lion's share. And now, our ID…

Over the last quarter.

Over the last quarter, okay. I cannot remember the time frame. And that 3x growth just continues to be indicative. You heard us measure [indiscernible] when it comes to connected TV. So, it's just indicative of all the growth that we're experiencing. More and more happening in live television. And this amount of conversation that we're having with content owners directly is perhaps the bullish – or the most bullish qualitative thing that I can share. Everything in the numbers is very bullish. But beyond just the virtual MVPDs and the aggregators and – because our conversations are so strong with content owners, and especially just having conversations at the upfront and having conversations with the biggest players at the upfront about redesigning the way upfronts work as it relates to digital and putting more and more in the programmatic. Those to me are the most exciting parts of sort of future growth potential in our business. So, the very biggest conversations that we've ever had on TTD are happening right now.

Thanks, Brent. Next question, operator. Our next question is from Shyam Patil with Susquehanna.

Hi, guys. Congrats on the great quarter. Jeff, just on Europe, you mentioned in your prepared remarks that you're more confident about what you can achieve in that market. I was just wondering if you could talk a little bit more about that, what you're seeing on the ground, what excites you the most? Thank you.

You bet. So, I'd like to start by talking about Germany. While I'm doing this call from London, I've spent the last week in Germany. So, Germany, for the last two years has grown over 100% each year. Last year, it grew by over 100%. It has a record quarter again incidentally as did the UK. But one of the things that I'm especially optimistic of in Germany, it is the approach that the biggest players in connected TV and even traditional television – the approach that they're taking to the market, perhaps none as bigger than RTL who I don't mind mentioning that we spent some time with this week. RTL made a very bold decision that I actually think many companies around the world should learn from, and that's they noted that Google have very aggressive economic in YouTube, would take a very healthy rev share. And while they would produce the most premium content, YouTube represented sort of a richer deal for the MVPD if you treat YouTube like that as distribution than they had ever shared in traditional television. So, they made the decision to not let any of their content go on YouTube and sacrifice millions of dollars for the long term. So, in the short term, it would cost them millions and, in the long term, they felt like that would make them create better relationships directly with the consumer as well as focus on other distribution, so that they never became too dependent on YouTube. That both paid off for them, but it's also made them lean more into our partnership. And so, we spent a lot of time talking about how we can do more together, how we can redefine the upfront, but that's also had a huge impact on our business.…

Thanks, John. Operator? Next question.

Our next question is from Mark Mahaney with RBC Capital Markets.

Great, thanks. Two questions. You had a lot of questions on the last quarter earnings call about setting expectations on China and materiality on China. So, I will just repeat the question this quarter. When do you think it's realistic to expect material contributions from that market? And secondly, maybe doesn't matter, but you haven't really talked about – or you've indirectly talked about Next Wave this call, but it's been more specific last couple of calls. And maybe that's just now an integral part of your product, but can you just talk about adoption you've seen and impact on spend and maybe it's embedded in your comments about the digital, the data spend, the growth of that, but just any more color on that would be helpful. Thank you.

Awesome. Thanks, Mark. So, first, as it relates to China and expectations for when materiality will come, China is something that we think we have to play the long game. And we've, for a long time, been in the business of establishing relationships with Baidu, Alibaba, and Tencent. I think we've done a great job of setting expectations with them and we've also sort of restricted our growth, if you will, in China by saying we want to start by only bringing incremental dollars to Baidu, Alibaba, and Tencent. And to make it very clear that is incremental, so it doesn't seem like we're taking money that they are already getting and then simply taxing it, which would make it – so they would be incentivized to not keep us around. But, instead, to focus on getting them incremental spend. And we've done that by leveraging the relationships we have all over the world, especially with the global headquarters of both brands and agencies to bring incremental spend. I had a meeting about that very thing here in London today. So, it's something that we spend a lot of time talking about. But because our numbers are so big and the amount that we spend in total and we're just getting started, I don't expect it to be material for some time now. But that said, at the end of March, in Q1, we launched our product GA. I was on stage with Tencent – chief data strategy officer at Tencent as I mentioned in our prepared remarks. Our dialogue with companies like Tencent, Baidu, and Alibaba is better than it's ever been. I'm really optimistic, but I expect it to go slow and to move the needle on a P&L as big as ours, when you're just getting started,…

Thank you very much. Operator, next question.

Our next question is from Vasily Karasyov with Cannonball Research.

Good morning, I have a question on Hulu. The CEO of Hulu at the investor day that Disney held actually called out that they will be investing heavily in automating this ad sales process. And I believe that refers to the private marketplace that they launched in January first and where The Trade Desk is a partner. So, I was wondering if you can tell us more about the role of The Trade Desk in that private marketplace and how to expect this private marketplace to evolve now that Disney is in control and really focused on automating the head sales process.

Yeah. It's one of the most exciting things happening in the TV. And the reason why, just to give a little top line color, is if you were to go down your Amazon Fire box or your Roku box and just see which aps are most popular, Netflix would likely be first, Amazon would likely be second and on many people's TV Hulu would be third, and therefore representing the first ad-funded app in that stack rank. So I think Hulu is a very important case study. It's an important tea leaf. I've been saying for years. They are one of the tea leaf companies of all of media. And I'm not sure that there are any two companies beyond Hulu and Spotify that represent tea leaf companies more than those two. But Hulu, as you pointed out, announced in January that they are opening up their automated biddable marketplace. This is really exciting because, in the past, there's been some channel conflict between their direct sales team and programmatic, and so they've gotten rid of that, so that we actually – they put it into one market which is great for them because then you consolidate all the demand, so compete against each other. And it's great for us because all we've been asking for years is give us a chance to compete. And it means that our buyers will be able to dynamically influence pricing and will give us access to more inventory, then we fully expect to become a bigger and better partner to Hulu than we've ever been. And I think we've been, one of, if not the, most important programmatic partner that they have. So, I expect long term to be the most important source of demand and price discoverable inventory and premium content is an amazing combination. So, I think what they're doing is really innovative and I couldn't be more excited about our partnership and the opportunity.

Thank you.

Thanks, Vasily.

Our next question is from Tom White with D.A. Davidson.

Great, thanks for taking my question. Thanks for the kind of expounding on the Google Chrome changes. Related to that, I was just hoping you could help me understand how to think about your data products, your data offerings within the context of those changes? Is there kind of unique exposure to that part of your business from these changes? And on data, it seems like – I think you pointed out in your analyst say that the number of data segments per campaign has been growing significantly. Does that increasing mix of data kind of raise the regulatory risk profile of your business at all? I'm just curious how you think about that. Thanks.

Yeah. So, I don't believe that it creates any meaningful risk. In fact, I think it's kind of the opposite. I think everybody in that space has been afraid of what changes are going to come and how do we need to respond and there's a fear. And I talk about it very publicly, the Mark Zuckerberg hearings in Washington. I think it scared Facebook. I think it scared Google. And it scared them in part because legislators, especially in the US, don't really understand all the mechanics [indiscernible] so the technology companies are more afraid of them. And so, the fear on sort of both sides has raised that people are trying to figure out what to do about it. And in light of Google's changes, I think Google has also been fretting about it. What do we do? Because 95% of our revenue comes from advertising and that's not something that Apple have to deal with. And if you are in Google's shoes, you are probably looking at Facebook, saying we have to do better than that. And so, they are sort of unchartered territory trying to figure out what to do. And what, in my view, they did, they did clarity to the industry. We will try to balance between relevance and privacy and consumers don't want a broken Internet. And they also don't want their privacy violated. And the Internet does have to pay for itself somehow. And so, to me, I leave this feeling more confident than ever that our long-term position of, hey, we can make relevant, coexist with privacy and that, if we just share with users, the benign insights that we are using to show them relevant ads, nearly all consumers will welcome it, especially if they understand that access to the…

Thanks, Tom. Next question please.

Our next question is from Brian Schwartz with Oppenheimer.

Yeah. Hi, thanks for taking my question here today. Jeff, just wanted to ask you a little bit of a long-term strategy thought here. Assuming that this growth opportunity continues and it almost feels like it's going to, especially given some of what you're seeing out there and what you've talked about today in your prepared comments, does it make sense at all for you to potentially even increase your investment profile even more, especially in your go-to-market efforts at this point. I realize, obviously, that could have an effect on the margin. But if you're continuing to grow very fast like you are, you're still going to see outsized profits. So, how do you think about that given the opportunity today? Thanks.

I'm so glad you asked this, Brian, because on one hand, I look at the global growth and I point at that and say, this is a secular tailwind and this is such a great place to be. On the other hand, I want to make sure that we get every dollar of it possible. And I just want to make certain that we are running faster than anybody else and we're running as fast as we possibly can. And so, at the same time, all of us can point to many, many companies who have destroyed their companies and their cultures by either spending too much by way of hiring or spending too much or too quickly by way of acquisition, and both are ways to ruin your culture and ruin your business. And so, I refuse to let our ambition ruin our business. But at the same time it kills me every single quarter to report EBITDA numbers as high as we do because I would rather reinvest the business and grow – or reinvest the money and grow the business. And so, I continue to look for opportunities to do that. There's a lot of consolidation happening in this space right now. Ad servers like [indiscernible] that go out of business and, of course, we're going to look closely and say, is there an opportunity here. And of course, there is an opportunity here. But what's the better one? Is it to buy it? Is it to go after the clients? Is it to build our own? Is it to simply get better at selling? Is it to partner with somebody else? So, we look at every one of those and one of the most important things we do in our calculus, to say how do we preserve our culture and not take unnecessary risks. And I'm constantly saying to our team on this, assume the money doesn't matter because, to some extent, it doesn't. That isn't the theme we're trading in. We're trading in the opportunity cost. We're trading in focus. We're trading in culture. And so, I do believe we will get ways to invest more. I think we're getting better at it. So, I'm delighted at the trend line there. But I'm still unhappy with how quickly we are able to invest and I want to look for more opportunity to do it.

Thank you so much, Brian. Next question please, operator.

Our next question is from Aaron Kessler with Raymond James.

Great. Thanks, Jeff. A couple of quick question. You mentioned kind of unicorns having good traction there. Can you also talk about maybe some of the DTC brands that you work with just generally? Obviously, there's a lot of reports a lot of them kind of internalize some of their advertising functions, kind of not going through agencies. What kind of traction are you seeing and is that a limiting factor at all for you guys? Thank you.

Yeah. So, there is some of that. I would just maintain the position that we sort of have always been saying, especially over the last couple of years as it relates to the topic, that there's a pretty significant delta between the headlines of in-housing, if you will, and the reality. It is really hard to develop the resources of a major agency. WBC has 100,000-ish employees. Omnicom, the same. Publicis, not much less than that. So, they have massive amounts of resources that every major brand in the world is likely going to rely on for as far as anybody can see into the future. But they are bringing more of the strategy in-house. There are lots of micro-enhancing efforts, if you will. And oftentimes, those companies are reaching out to us. But one of the most bullish things that I can share outside of talking about specific channels or regions, so instead of talking about CTV here, instead of talking about Asia or our excitement about Europe, if I instead – sorry, I just got struck, somebody came to ask me a question. Sorry, somebody just walked in.

I think you were talking about some of the most exciting trends that you're seeing.

Oh, yeah. With the agencies and…

Yeah, yeah, yeah. Somebody just walked in and completely blindsided me. But one of the most exciting trends beyond those two things is the number of unicorns that are leaning to us to help them grow their businesses. So, of the companies that are going public, of the companies that are sort of next generation companies, it's not just us sort of going through the traditional routes and going through the traditional brands who are trying to either reinvent themselves or make the transition into digital. We're doing that and we're doing an amazing job of that. You could even argue that's our bread and butter. But when you look at the emerging companies and those that are sort of the next generation of growth around the economy, the fact that all of those are coming to us as well to power their growth and we're getting -- those are often the places where we see surprises and new clients. That's one of the most exciting things happening in our business.

Our next question is from Mark Kelley with Nomura.

Great, thanks a lot for taking my question. I know we are going over the time allotment and sounds like, Jeff, they're trying to take the conference room away from you. So, hopefully, this will be… Two quick ones. First one is, can you help us maybe level set a little bit on what impression spend growth is. So, I would say everything that's less data – you guys called out that 80% growth in data, which is obviously quite a bit above the corporate level. Any color there would be helpful. And the second one, bigger picture, you guys called out audio for the first time, I think, in a few quarters. Curious what you're seeing there and if you have any thoughts on the podcast opportunity. You've got guys like Spotify talking about it and it's such a primitive format now where the podcast owners are reading the advertisement midstream. I would imagine you guys are pretty well positioned to see the moving pieces and capitalize on that as it grows. Any thought would be helpful. Thank you.

Awesome, thank you. The first part of the question, just being about impression growth, in terms of general media spend or impression growth, I don't even spend that much time following it or keeping an eye on it, if you will. And the reason why is, number one, there's still a double-digit percentage of impressions that don't have any meaningful data used against them. So, they just then just have to increase it. It's just economically irrational for it not to go up. And then, two, because the type of impressions are changing, meaning at the same time that we're getting more and more impressions that are more valuable because we're getting into things like connected TV and audio, also ideally, the number of ads per page in things like display and native, which is still overwhelmingly bad, meaning there are way too many ads on the page, we want to see those impression counts go down and the value and cost go up, and that is exactly the trend. So, if you spend too much time focused on either the dollar amount or the impression count, it's really hard to get a sense of those moving vectors. So, instead, it's just important to just keep track of how many of the decisions are data driven. Are those growing, are those renewing? And is efficacy going up? And all of those are positive. All of those are heading in the right direction. And it sounds like you asked about audio. I was hoping I could find some way to talk about it today because, audio, after all the years of growth, growing at 270% in Q1 is one of the most exciting things happening in media because of the fact that things have gone so well in TCD [ph], we…

Thank you so much, Mark.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And today's call is now concluded. The Trade Desk thanks you for your time and your participation and you may disconnect your lines at this time.