Greetings, and welcome to the Trade Desk Second Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Chris Toth. Thank you, Mr. Toth. You may begin.

Thank you, operator. Hello, and welcome to The Trade Desk second quarter 2019 earnings conference call. Our call today is taking place from our Ventura headquarters. One 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 the 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?

Thanks, Chris, and thank you all for joining us. I'm excited to announce that our revenue growth accelerated to 42% in Q2, compared with 41% last quarter. Our accelerating growth is a testament to the increasing trust that major global advertisers are placing in us, as they shift more of their advertising dollars to programmatic. To understand the significance of our growth, we need to provide context for what is happening to advertising from a macro perspective. In 2019, according to IDC, global advertising spend will be about $725 billion, up over 4% from 2018. At current growth rates, global advertising will be a trillion dollar industry in about seven years, one of the only handful of industries with a TAM over that mark. Programmatic is still a relatively small part of total global advertising. It is estimated at around $34 billion in 2019. But it is growing five times faster than total advertising at around 20% year-over-year according to Magna Global. We maintain our prediction that before long, most advertising will be digital and nearly all of it will be transacted programmatically. This puts us in the fastest-growing segment of an expanding industry where we expect to continue to aggressively take share. We saw this in our results last year. We are continuing to outperform the industry again this year, which is reflected in our biggest Q2 to date. But more significant than comparing our company's performance now to our performance in the past, our growth rate is 10 times the pace of overall advertising growth and in fact, our growth is nearly four times the growth rate of digital. There are many reasons for our industry-leading growth rates. Some of our growth is coming because we're executing well and capturing opportunities. But other growth drivers are secular. The…

Thanks, Jeff, and good afternoon, everyone. As we've seen in our press release, Q2 was another outstanding quarter. Revenue increased 42% year-over-year and accelerated versus our Q1 growth of 41%. Adjusted EBITDA increased to $58 million and GAAP net income increased 45% to $28 million. We achieved this while we continued to invest aggressively in areas critical to our future growth, such as on our platform and adding engineering and sales talent. Revenue for the second quarter was $160 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 second quarter gross spend came from existing customers who have been on our platform for over a year. Q2 marked the 22nd quarter in a row where customer retention was over 95%. With the growth of our business, our operating expenses grew to $128 million. This increase year-over-year was due to sales and marketing and engineering as we continue to scale for future growth. The year-over-year increase also reflected higher G&A expenses, which takes into account stock-based compensation, and we expect G&A to moderate as a percentage of revenue in the back half of the year. Income tax was a $5.6 million expense, mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. GAAP net Income was $27.8 million for Q2, or $0.58 per fully diluted share. Our adjusted net income was $45.6 million, or $0.95 per fully diluted share, compared with adjusted net income of $27.2 million, or $0.60 per share in the comparable period. Adjusted EBITDA was $58 million with a corresponding margin of 36.2% of revenue during Q2. The increase in adjusted EBITDA dollars reflects the strong growth of our top line, offset by our increasing investments in product, people, global expansion, and corporate expenses. Net cash provided by operating activities was $11 million in Q2, and our trailing 12-months of operating cash flow and free cash flow were $95 million and $60 million, respectively. We continue to have zero debt on our balance sheet and our total cash, cash equivalents, and short-term investments exiting the quarter was $231 million. Our DSOs at the end of Q2 were 100 days, an increase of one day from the same period a year ago. DPOs for Q2 were 81 days, a decrease of one day from the same period a year ago. For Q3 of 2019, we are expecting revenue of $163 million and adjusted EBITDA of $45 million. For the full-year 2019, we now expect revenue to be at least $653 million, revised upward from $645 million last quarter. Adjusted EBITDA is now expected to be $201 million, also revised upward from last quarter, or about 31% of revenue. I will now turn the call back to Jeff for final comments and, of course, Q&A. Jeff?

Thanks, Paul. Q2 was another very encouraging quarter for The Trade Desk as we continue to see our strategy and execution pay off, as more advertisers commit their budgets to us. We exceeded our expectations for the quarter and are raising them for the year. The fundamentals of our business are solid, and we continue to scale our business across markets and channels. 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, the fastest-growing segment. 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. That concludes our prepared remarks. Operator, let's open it up for questions.

At this time, we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Shyam Patil of Susquehanna International Group. Please proceed with your question.

Hey, guys. Congrats on a great quarter. Jeff, I wanted to ask about the Amazon partnership. As you mentioned in your prepared remarks, it seems like it's a big step for the industry. Can you just talk a little bit more about what you think it means for the industry? And I know it's super early, but how do you think about the opportunity for the Trade Desk? Thank you.

Awesome. Thanks, Shyam. So, first let me talk about Amazon just generally before I talk about the deal. So -- and talking about Amazon and what they're up to, a lot of people have asked like what does, what are they doing and what the third-party apps mean and what is Amazon Publishing Services. So, my understanding of Amazon Publishing Services is that -- the primary thing that they're monetizing is Amazon Fire, which is the sticks and the hockey pucks and inside of that, of course, you have Amazon's own app where you watch Amazon Prime Video and then you have Netflix and then you have YouTube. Then you have a lot of third-party apps where there's ads, and they're going into those third-party apps, whether that's Sony Crackle or CBS, or anybody else and saying, we can help you monetize that. And doing it in a very different way, which is why I'm so excited about the deal. And let me talk about what this means for us. So let me just summarize the deal. So first, Amazon is joining the open Internet in the sense that they're using their ID to make it possible for us to measure what's happening in that ecosystem that I just described, as well as on the rest of the Internet. So, that makes us a measurement that is meaningfully better than what we would get inside of any walled gardens. Secondly, there'll be more aggressive in economics from what I can tell, then what anybody else has been on the sell-side for Connected TV. And what this does for content owners is, if you rewind two years and you're looking at this through the lens of a content owner, a owner who's 90% of their revenue comes through linear television and…

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

Hi. This is Sagar on for Youssef. Wanted to ask a couple of more questions about the Amazon partnership. First question is do you have access to Amazon's first party shopping data for targeting and second is, how do you compete with Amazon's own DSPs?

Great. So, first one is easy. No, Amazon would never want to do that because of the risk that, that would represent in terms of data security. So, they'll not continue, I suspect to do that on their own. So to answer your first question is, no, we don't. Secondly, in terms of how we compete with Amazon's DSP, I'd like to take a step back and just talk strategically for a second, if you look at this through the lens of some of the biggest advertisers in the world, that are CPG companies. Amazon as a distributor has more power and to them can be a little bit more scary than any distributor that they've ever had. So if you, for instance, compare them to Walmart a decade or two ago, while Walmart may have been the most powerful distributor they had been, Amazon has more power than they did today. And that's for a number of reasons, in part because Amazon has become just such an amazing retail engine that has done lots of consolidating, made it possible for other merchants to come onto their platform. But also because Amazon has gotten into so many other businesses, including selling CPG products themselves. So the conflict they have with those companies can create some pause and then when you add the fact that AWS often stores the data for all of these companies. I think it's a really hard pitch for Amazon to go to a CPG company or really most of the biggest advertisers in the world and say, we know you give us a lot of money and you trust us a lot to do all the distribution on our side. But we would also like to ask you to give us all of your marketing budget to do all of the spend off of Amazon.com. Because they have, in that sense, a bigger objectivity problem that any company in the world, where in effect, they're saying, trust me with your money, trust me with your data and trust me with your entire marketing spend. I think what I anticipate is that the core of Amazon's buy-side efforts will be to monetize Amazon.com. While they do have a DSP to helping do some other things today, I don't expect that to be the core of what they're doing. And this does shed more light on the significance of the sell-side approach they are taking in Amazon Publishing Services, where I anticipate that we will be partners with them for a very long time. And so when you look at sort of the strategic hand that Amazon has dealt, I think it makes a ton of sense that while we do compete with Amazon DSPs, the much more significant headline is that we are partnering with Amazon Publisher Services. I'm really excited about what that means for the future.

Our next question comes from the line of Michael Levine of Pivotal Research. Please proceed with your question.

Congrats, again, on the quarter, Jeff. Terrific acceleration. I -- wonderful to hear the detail about Amazon. But one of the other things that was interesting to see, come out this week was about the partnership with Disney. And also in the context of their, they're basically bundling Disney Plus, ESPN Plus and Hulu ad supported at probably a much lower price point, then I think a lot of investors had expected. So love to hear your thoughts about that, and how impactful you think it could be to business?

Fantastic. So as you know, Disney has been so aggressive in the last 18 months and it is actually so exciting to watch. A few years ago I was really touting between the forward thinking of AT&T and I feel just so excited by what Disney is doing as a partner and as a consumer as well. I think the new bundle they have coming out with Disney Plus and ESPN Plus and Hulu Plus for ads is really great. And I think it's going to be successful. But in about that same time about 18 months ago, they approached us and we just started working together. We learned something in those discussions, which is that more than 50% of the views that they're getting on their content is coming from connected devices. And they wanted to figure out a better way to monetize that. As somebody who's watched them for a long time as an investor in their business, I've watched them try to figure out what happens -- what do you do with ESPN in a world where cord cutting is happening and especially with just the business model that they have for ESPN, say a decade ago compared with today. It's actually why I am so excited about this partnership because, one, we anticipate getting access to a significant amount of inventory as they become more digital, but also I think programmatic is better suited for live events than any other way of monetizing. If you think about it, when a game goes into extra innings, it's not really conducive to planning months in advance as to how many ads you're going to see. And most advertisers are not going to spend a bunch of time thinking about, well, what if it goes into 13 innings [indiscernible]…

Great.

Thanks so much, Michael. Tim, next question?

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

Thank you, Jeff. Congratulations, too. It's just great to see the company executing so well here. I was hoping maybe we could switch subjects over to what's happening at Google. Can you please provide an update on any impact or opportunities you're seeing or expecting to see from the Chrome browser changes? And then separately, you've talked a lot about the Amazon transparency initiative. Can you also provide an update on the transparency initiative that you've been working on with Google for some time? Thanks.

You bet. Thanks for the compliments, Brian, and yeah, happy to give comments on Chrome. So just reminder that Chrome has roughly 60% of the browsing market. And I talked, I think it was last quarter or the quarter before at length about their initiatives including same site. I'm actually -- I'm the one that wants to really sing the praises of Google. I know sometimes, because we compete with some divisions of Google, because they are so big, a lot of people are quick to pick on them, at least the parts that we compete with, we've talked about. But what they're doing in Chrome, I think is exactly what the industry needs. And I think they should be praised for what they're doing. They're making the Internet better and they're making privacy better. I think it's a positive change for us and it's good for the industry. And I think the fact that it is positive for us and good for the industry is indicative of how we've aligned well with just -- if you do the right thing, then you're going to be set up well for the long term. And it's really great to see Google under the pressure that they are, sort of reaching the same conclusion. So, I'm really optimistic about it. They haven't been specific about when they'll roll it out. I think they just want to make sure that they dot every I and cross every t, which is exactly what I would do if I were them too. So, I think I suspect we'll be well into 2020 before we see these actual changes implemented. But there has been a little more discussion than just sort of coming soon to a theater [Phonetic] near you. So excited about that. Can you remind me, Brian, on the second part of your question?

Yeah. It was just on the transparency initiatives. I think you've been working on for some time here with Google. I know you talked a lot about where Amazon is heading on transparency. I was just wondering if you can provide an update on what you're doing with Google on the transparency initiatives. Thanks.

You bet. So -- so I know there's been a lot -- our trade publications talking about just our desire to put a lot of pressure on the sell-side to just be more transparent. And essentially, the way that I look at it, most advertisers, when it comes to digital have two options, two types of options. One is walled gardens, which are very good at making it easy to spend your money. The other is the open Internet, where you have more data, more transparency, you have more optionality, you have more power but it's more complicated. And sometimes what has happened to the open Internet is because of that complexity, some players have used that as an opportunity to hide margin, to charge more than they add in value. And I actually think that has been the thing that has held back the open Internet, while the walled gardens have grown so aggressively and so impressively. And so, I view our role as leading the open Internet. And what that means is that we have to go to all of our suppliers and say, we expect you to add more value than you extract. And as we get bigger, we're going to demand that we have more transparency on what we buy and we are in this really strong position because there is so much media out there and because the world of media and the Internet is producing so much content so fast. We are in the power position, if you will, and that we are able to be picky. We get to choose what we're going to buy and what we're not. And so we just demand a lot of our suppliers and those that are transparent and open and honest and give us a fair environment to participate, we spent way more with them. And we're growing very aggressively and those that aren't, we don't grow as aggressively. And so, I think that approach is putting pressure on a number of players on the sell-side and that is a great thing for our industry. It is great for the Internet. It's great for consumers because that will make a better Internet. And we're on a mission to do it and we'll keep doing that. It's something that we spend a lot of time talking about with Google. Overall, Google is interested in the exact same thing. So it is good for our industry to continue to work for a better Internet, and I'm really proud of all the efforts that we've done to date on that front.

Our next question comes from the line of Nick Jones of Citi. Please proceed with your question.

Hi. Thanks for taking my question. I just wanted to touch base on Unified ID. How would you try to benchmark adoption of this and what kind of a push back are you getting from those players who don't want to adopt the ID?

Yeah. So, I don't know we've been public yet about just the adoption numbers, but just -- I'll tell you just in terms of commentary. The number of companies that have adopted it is overwhelming. And I would say that it's very difficult to be a top 10 supplier for us in any channel, if you're not adopting it in some way, if you're not adopting it in some way. So, I do think it's been massively successful. I think at this stage, it's nearing inevitability in terms of its ubiquity. We've seen adoption all over the world. So, it's not isolated to North America. It's happening all over the world. And it is a better way to operate the Internet. It is better for users. And one thing that I don't think I've said enough is that we basically have used the standard with Unified ID that operates in mobile with IDFA. So, this means that our privacy standard or the way that we're creating this ID and the degree of privacy that this provides to consumers is just like IDFA, which is, of course, what Apple uses to operate its ecosystem and what the entire mobile community uses. So, this ID, while the way to sort of go-to-market or get its adoption, has been unique in effect, especially to the consumer, it looks just like IDFA, which is part of the reason why we're so proud of what we have been able to accomplish and getting adoption to Unified ID. So, I expect it to be one of the few standards for IDs and therefore, a targeting on the Internet as we march towards the future. And I'm sure at some point, we'll give updates in terms of where adoptions happen, but it's happened on the buy side, on the sell-side, on the data side, all over the Internet, all over the world.

Our next question comes from the line of Mark Zgutowicz of Rosenblatt. Please proceed with your question.

Thank you. Jeff, thanks for all the detail on the Amazon partnership. It's helpful. I was just wondering if you could separate the anonymized ID, what you're getting from Amazon, from the shopper data, which you're obviously not. I'm just trying to understand how the advertisers sort of closes the loop, if you will, with attribution. So without having the shopper data, do they go back to sort of Amazon to close that loop and sort of how do you close the entire attribution loop within your platform?

Yeah. So, this is actually something that's, I think, important to understand about walled gardens, is that when you operate a walled garden, you can't really provide attribution for the rest of the Internet. You simply say this is how many people I touched in my walled garden and this is how many conversions it came from those people that we touched. Whether -- you can't really make many arguments about causation or correlation because you're just measuring in isolation. That is sort of what you sign-up for when you create a walled garden. And the reason you have to create a walled garden so that you can use powerful data that isn't owned by the advertisers. So in order to use the data that another company like an Amazon or like a Google or like a Facebook have, you have to operator in a walled garden to make sure that, that data never leaves that garden, otherwise you run the risk of sharing that. That includes closing the loop on attribution. We are not able to say how does that -- that shopper out on Amazon actually convert when they went and bought on the rest of the Internet. We can't weigh in on the effect they had on the open Internet, nor can we weigh in on the open Internet effect on sort of bringing them into the walled garden and participating in sort of the supply chain once you get on to Amazon, because Amazon is not going to provide that outside of -- of their own shopper experience in order to utilize that data. So, walled gardens, by their very nature, make attribution hard for everybody else. And that is why it is so important for more and more advertisers to be spending on the open Internet. And it is why as Connected TV continues to grow and it will be extremely fragmented because TV has always been extremely fragmented, that the bias will be to the open Internet. So as an advertiser, so if they want to spend in Connected TV, the first place to start is on the open Internet. And then you'll give the leftovers to walled gardens because, one, that's where all the premium content is. Two, I expect that's where all the volume will be too of users because they'll spend more time there than they will on user-generated content, even though that's also a huge pool. But just by their very nature, you're not able to connect the dots between walled gardens because that is what makes them walled.

Our next question comes from the line of Mark Mahaney of RBC Capital Markets. Please proceed with your question.

Hi. Thank you for taking my question. This is Ben on for Mark. Two if I could. Just firstly on China if you could talk about that. And I understand that it's not going to be material for a while, but you are partnered with three of the largest Chinese media companies. I was just wondering about the short-term limits to growth. Does that have more to do with, one, a lack of demand from the global advertising partners you have; two, these media partners limiting your access to their inventory or three, you kind of self-capping the spend that you're bringing on to them in order to maintain positive relations with these partners? And just secondly, if we go back to Amazon TV, is there any way you could kind of quantify in relative terms, just the incremental amount of CTV inventory that this -- that this Amazon TV deal brings to you like relative to the CTV inventory you had prior, understanding that you do have access to 100% of those impressions? Thank you.

Sure. So, as it relates to China, so as you pointed out, it is very early stage for us. I wouldn't characterize anything that we've experienced today as limiting or anything like that. We started a partnership with Baidu, Alibaba and Tencent. We're growing that. We are seeing growth every single month and we're going slow and being very deliberate. We, of course, are going to continue to roll out in a bigger and bigger way and there is more to come before the end of the year on just some of our plans there. But things in China are going well and we're playing the long game. So, there is nothing that's happened in China that I view as a setback. It's us just staying the course and making certain that we tap into the -- to the media market that's about half the size of the United States, but growing at double the pace and is the second largest media market in the world. And perhaps the biggest opportunity geographically that we'll ever see again. So a huge, huge opportunity for us. So, we want to make certain that we don't mess up by being hasty or by burning bridges. And I'm really excited about what we've done so far. Second, to your question about incremental inventory, I can't comment on how much it will add to our total inventory, but I can reiterate that we will see 100% of every impression on Amazon. We will also compete with all other demand, and that includes anything that the Amazon sales team sells. I'm sorry. Let me say it again. We will compete with all other demand and that includes competing with anything else that the Amazon sales team sells. So, that means they haven't carved out that 20% or 30% of inventory that they then sort of given a carriage deal that is separate and then make a much higher margin on that than they would on the rest. They're putting it altogether and that's all competing. So, we are just as eligible to win any impression as anybody else's, including Amazon. So given that, that represents 100% of every impression on those third-party apps, that is without a doubt significant.

Our next question comes from the line of Robert Coolbrith of Wells Fargo. Please proceed with your question.

Great. Thanks for taking our questions. Jeff, wanted to go back to your comments earlier about programmatic, so far as a dress rehearsal for CTV and where you're going. Programmatic was initially sort of a non-premium opportunity, which ended up in some cases impacting premium pricing integrity. Given that, I was just wondering if you could talk a little bit about the PMP model and how some of the premium publishers and networks you're partnering with now are getting comfortable that we won't have sort of a repeat of that history with the creation of sales channel conflict or impacting pricing integrity. And then just one quick one on Amazon. Just wondering if that deal could potentially extend to their ad supported IMDb TV product. Thanks.

You bet. Let me answer the last one first. So, it doesn't today, but I see no reason why it couldn't in the future, but there is no plans for that, that we have talked about today. On the pricing, I love this question, first of all. So, you're absolutely right that, that programmatic was born out of sort of a bottoms-up growth or evolution in the sense that when we first started monetizing display 10 years to 15 years ago, we were taking the remnant, the leftovers and running an auction for it. And that was really scary for companies like MSN and Yahoo because they were saying, uh-oh, I make 90% of my revenue on 10% of the impressions and I don't want necessarily everybody to know that I have more supply than I do demand. So, programmatic signed in light of transparency and it did make prices go down temporarily. But what's happened over the last few years is that, that helps create better or fewer ads per page. That's helped make the Internet overall better, just economics getting more effective. But especially what's happened in Connected TV has been exactly the opposite, which is exactly what you want to do. So the programmatic in a way should have never started with display because when you have more supply than you do demand and auction is not the best way to monetize that. But when you have more demand than you have supply, which is exactly what's happening in Connected TV because we're taking the number of ads in a commercial break and reducing them. And because cord cutting has accelerated adoption, we're getting record demand for Connected TV that's made it possible when you join that with the increased efficacy that comes from being data driven,…

Thanks a lot, Rob. Tim, we have time for one more question, please.

Our final question comes from the line of Vasily Karasyov of Cannonball Research. Please proceed with your question.

Thank you. Good afternoon. Jeff, wanted to ask you about a topic that we don't talk about much on these calls and that's audio spend. And I think in your prepared remarks, you said, you think it's the best value in advertising right now. And looking at the growth rates, it's growing as fast -- a little faster than Connected TV, but I believe that's from a higher -- from a bigger base. So my question, can you talk a little bit more about that? Why do you still think the Connected TV is a bigger opportunity for you here? Maybe talk a little more about how audio is growing, how the adoption by advertisers is going, how far do you think this growth will expand? And anything that you think is worth sharing with us would be interesting because it is growing fast and we don't talk about it as much.

I am so glad you've asked this question and I -- and in part because we get to rectify exactly what you point out, which is that we have not given audio and that includes Spotify and Pandora, the word count that they deserve. So, we did mention in our prepared remarks that audio grew by three times for the third quarter in a row, which given how long we've been in audio is unbelievable. I am blown away by that number. And I'm looking at the trajectory. So, I'm just so excited by what's happening. Part of the reason why I call it such a great value is when you compare it to some of the other forms of advertising, including other forms of programmatic, I don't think that there is a form of advertising that captures your attention much better than audio. You think about the way most of us consumed Spotify, for instances, in your car or you're exercising, you're walking around, your way less likely to skip an ad then if you're watching YouTube or something where you're sitting in front of a computer and you are also more likely to give it more of your attention in some cases. And then when you look at the fact that the rates of those audio ads are exponentially or a fraction of the price of a more premium television content, I think it represents a big opportunity. When you look at what's happening in podcasting and some of the other ways that those companies are starting to monetize, it's no wonder that we're growing at the pace that we are, and I think it continues to represent a huge opportunity. One thing that I also think it's just worth pointing out because I think we can learn from it as we look at other markets and that includes other geographical markets, because some of the markets we're just about to go into are smaller markets than where we've entered before. They're not top 10 media markets. But that's -- they have something in common with audio, which is that audio is operating on such tight margins that they can't really afford to do what radio used to, which is pound the pavement looking for dollars and selling to SMBs. You have to sell in a more automated way and you have to reduce your cost of sales in order to be competitive. So as Spotify and Pandora are competing around the world to get as much listening time as possible, they have to operate really efficient engines and there is nothing that helps the distribution -- helps the efficiency of the distribution of ads more than programmatic advertising. So, it's another one of those places where we're sort of destined to work together. And I'm just so excited by what we're doing together.

There are no further questions over the audio portion of the conference. This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.