Greetings, and welcome to The Trade Desk Third Quarter 2019 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Chris Toth, Head of Investor Relations. Thank you, Chris. You may begin.

Thank you, Operator. Hello, and welcome to The Trade Desk Third Quarter 2019 Earnings Conference Call. Our call today is taking place from our Ventura headquarters. On the line today 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'll 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. 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 going to quickly cover the highlights of the third quarter, but then I want to dig a little deeper into a couple of key areas that are rapidly coming into view in our industry. They will provide context for our performance this quarter, but just as importantly, for our confidence in the fourth quarter and moving forward into next year. Once again, in Q3, we executed well and exceeded our expectations. We saw revenue grow 38% year-over-year. Revenue was $164.2 million, surpassing our guidance of $163 million. Just so you have a frame of reference for that growth, remember that Magna Global estimates the programmatic advertising market is growing at around 20% this year. And the overall advertising industry is growing at 4% according to IDC. So in the fastest-growing segment of an industry that is expected to reach a TAM of $1 trillion in the next decade, we are significantly outperforming. In fact, we are once again growing at about double the pace of the industry. Our outpaced growth and market share gain are the result of investments we've made in key channels and markets. It's also because of our commitment to objectivity and independence. And it's the work we do across the industry with partners and standard bodies to make this an industry that advertisers and content providers trust. As you know, one of those major investment areas is CTV. Spend on our platform and Connected TV was up 145% from Q3 of last year. We have seen strong growth in available CTV inventory, especially in live events. We're especially excited about the upside potential for live events in 2020, including major sporting events and the U.S. elections. After multiple years of triple- and even quadruple-digit growth in…

Thanks, Jeff, and good afternoon, everyone. Q3 was another record quarter for The Trade Desk, and we were really pleased with our Q3 financial performance and execution. Revenue increased 38% year-over-year. Adjusted EBITDA increased to $47.8 million, a Q3 record. And net income was $19.4 million. This marks our 14th consecutive quarter in a row of GAAP net income, all while we continue to invest aggressively for future growth. Revenue for the third quarter was a record $164.2 million, which was above our expectations and reflected increased spend by our existing customers and the addition of new customers and advertisers. For the quarter, approximately 89% of our third quarter gross spend came from existing customers who have been on our platform for longer than a year. Q3 marks the 23rd quarter in a row where customer retention was over 95%. With the growth of our business, our operating expenses grew to $142 million in Q3. This increase was primarily due to sales and marketing and engineering as we continue to scale for growth. The year-over-year increase also reflected higher G&A expenses, which take into account stock-based compensation. GAAP net income was $19.4 million for Q3 or $0.40 per fully diluted share. Our adjusted net income was $36.1 million or $0.75 per fully diluted share compared with adjusted net income of $30.2 million or $0.65 per share in the comparable period last year. Adjusted EBITDA was $47.8 million with a corresponding margin of 29.1% of revenue during Q3 2019. The increase in adjusted EBITDA dollars reflects the strong growth of our top line, partially offset by our increasing investments across our operating expense lines. Net cash provided by operating activities was about $67.5 million for Q3. And our trailing 12 months of operating cash flow and free cash flow were $136 million and $100 million, respectively. As a reminder, the timing of our payments and receivables in any given quarter can swing our cash from operations significantly. We continue to have a slowdown on our balance sheet. And our cash and short-term investment position continues to climb, exiting the quarter at $297 million. Our DSOs at the end of Q3 were 96 days, a decrease from four days from the same period a year ago. DPOs for Q3 were 77 days, also a decrease of four days from the same period a year ago. For Q4 of 2019, we are expecting revenue of $213 million and adjusted EBITDA of $78.5 million. And for the full year 2019, inclusive of our guidance for Q4, we now expect revenue for the year to be at least $658 million, which approximates to 38% growth year-over-year and corresponding adjusted EBITDA to be $209 million or 31.8% of revenue. With that, I will hand the call back over to Jeff for any final comments and, of course, Q&A. Jeff?

Thanks, Paul. Q3 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 across markets and channels. Looking at the rest of 2019, we anticipate a strong Q4. The advertising commitments that were made in the television upfronts earlier in the year are now kicking in. And of course, the holiday advertising season traditionally makes Q4 the strongest quarter of the year. We see similar opportunities in 2020. We expect another strong growth here in CTV fueled by live events such as the U.S. elections and the Summer Olympics and more quality inventory than ever on our platform. As the worldwide advertising market moves towards $1 trillion, The Trade Desk is perhaps the best-positioned company to win the largest share of the programmatic portion of that market, which is the fastest-growing segment. We feel confident in our strategy, our investments and the momentum we are seeing from both advertisers and content providers. We see nothing but upside ahead. That concludes our prepared remarks. Operator, let's open it up for questions.

[Operator Instructions]. The first question comes from Michael Levine with Pivotal Research Group.

Two questions, guys. First, I'd love to understand how we should be thinking about the linearity of 2020 with regards to Connected TV and both what gives you as much confidence as you do in terms of that very strong outlook as well as trying to better understand the move by Roku in terms of acquiring dataxu and how you think they end up being positioned as the media companies get a little bit more sophisticated about what their inventory looks like online?

Awesome. Thanks. I appreciate the question. So first, to talk about Connected TV, this year has been something of a dream as it relates to the way that we've set up 2020. If you go back in time and ask me to write down on a sheet of paper, what are the best partnerships that we could form this year, I don't know that I could have dreamed up a better year than what has happened between the partnerships with Amazon and with Comcast and what we're doing with Disney and even what we're doing with Roku. I'll come back to the second part of your question in just a second - but it's just been an unbelievable year. Q3, of course, we just highlighted that our Connected TV spend increased by 150% year-over-year. We talked about how Amazon inventory went up 21x throughout the quarter. We've used that 21x before in our Connected TV numbers. And to be there again with a partnership that is as new as it is with Amazon, but to go up that much, it's pretty exciting. Equally exciting is FreeWheel launching a product that is the equivalent of header bidding so that programmatic demand can compete with sort of the ordinary sales force in TV. Seeing that go up by 300%, also amazing. And it's been amazing to see our partnership with them expand. To sum it all up, I heard a number on CNBC recently, which was 20% of television content has moved to streaming, but only 3% of ads have. And if you look at that as sort of the macro direction that we're all heading in and if you believe that, ultimately, all the content is going to be streaming because it's better to be on-demand, then we're 3% done, and…

The next question comes from with Youssef Squali with SunTrust Robinson Humphrey.

Jeff, you've been very keen on and investing aggressively against all these future opportunities, while still showing margin leverage. And I think this quarter shows that as well. What are the key areas of investment as we go into 2020? And how should we think about the margin impact for the year? And then, Paul, trying to just reconcile all the excitement that is palpable in Jeff's presentation with your Q4 revenue guide, which basically implies growth dropping from 38% to 32%. Just so how should we be thinking about growth as we move into 2020 as well?

Awesome. Yes, I'll take a stab at both of those, and I'll let Paul add on to the second. So in terms of the things that we're especially investing in as well as the things that we're especially excited about as we head into 2020 - so I know I just covered it a second ago, but I just need to underline: there's nothing we're more excited about, there's nothing more game-changing than what's happening in connected TV. And that 150% year-over-year spend increase that we expect in Q3 is just indicative of that. The second thing that we've been investing in quite heavily is international, and this has definitely been an investment year where we need to help take all of our international markets into the next level. In broad strokes, when we started this business - actually, we're about to celebrate our 10-year anniversary. When we started this business, global advertising was roughly a $500 billion industry. It will be $1 trillion industry in 6 or 7 years. And about that time, we expect a much greater percentage of our revenue to come from international, given the fact that right now, the U.S. only comprises about 40% of the global advertising plan. And so we feel like we have a lot of catching up to do, and that means that we need to make investments. This year has been a year of investing where we expect to see in many of those markets, dividends start to pay off next year. And of course, they'll continue to pay off in years to come in order for that balance to come to pass. We also have just been investing a lot in tools related to measurement. And this somewhat relates back to Connected TV, which is that we need a…

Just a few general comments. We executed really well in Q3, and we're raising our expectations again for Q4. And we're comfortable moving expectations up as we go along. And we're continuing to win share, and we expect that to continue to drive growth. And in the current environment, we think it's prudent to be measured. And so I'll just remind you that surprise tend to be to the upside, and we do what we say we're going to do.

The next question comes from Vasily Karasyov with Cannonball Research.

Jeff, I wanted to talk about international for a little bit. Can you tell us what - maybe in more detail, what kind of trends you see in key channels, key territories? I know you touched on China. You did a lot of work building out overseas in the past couple of years. Can you share maybe more detailed thoughts on what needs to happen next for us to see an acceleration in share gains overseas? And do you think there is room? I think you just implied that you think that gross billings growth can accelerate in 2020, so I just wanted to make sure I understood that correctly.

Yes. I mean, to be very direct, yes, I do - I do expect revenue acceleration from our international teams in 2020. There is a huge amount of opportunity in Connected TV, in particular. And having met with some of the leadership of the biggest media companies in Europe, in particular, in the U.K. and in Germany, I'm especially excited about the opportunity there. As you know, as anybody who's been following us for a while knows, we've also just been making big investments in Asia, especially in China. Those investments are showing green shoots. Finally, it's been a long time of simply investing, and it's largely because of the fact that we've now put together a client-facing team inside of China. And because of the strong partnerships that we have with Baidu and Alibaba and ITE and, of course, Tencent, we feel more comfortable than ever to put more feet on the street. The partnership that we announced for the first time on this earnings call with BlueMedia represents the first of many, but also - I mean, they're a massive partner for some other big American tech companies. And so this is a huge opportunity. So I think we've made a lot of great investments there. I do expect revenue acceleration internationally, and we're going to keep doing that, so that we continue to make up the ground. That's the way I look at it. The international markets need to grow faster than the U.S. in order for us to rightsize that pie as we get to the $1 trillion. So I just keep looking at that long-term view. And there are some markets that are nascent. There are some where there's opportunity for us where we need to go catch up. But in most cases, nearly all cases, we are investing early rather than late, so that we don't miss the opportunity, and we won't.

The next question comes from Brian Fitzgerald with Wells Fargo.

Jeff, how is the rollout of first-price auctions on ad exchange and other supply sources played out in the quarter? And what kind of opportunity do you see in predictive clearing related to that? It seems like when we initially talked about first-price machinations back with header bidding back in the day, it took kind of quarters to normalize. But as it moved from the published pages to the DSPs, the exchanges, the adoption and the adjustment period meters through quicker.

Yes. So just to give everybody a little bit of context, just because I imagine this is a pretty detailed question for a number of people on the call. For the last few years, there had been a debate, if you will, or a disparity in practices among sell-side platforms and ad exchanges about how the mechanics of the auction should work. Should it be a first-price auction? Should it be a second-price auction? And at bad times, it's been what some have called a modified second-price auction, which I would say, at bad times, has meant people haven't always been consistent in the way they've run their auctions. But what's happened over the last few years is that, in part, because of the competition that header bidding created is that people have to run an auction with integrity or they're not - they don't have a place in the market. And whether you call it a first-price auction or a second-price auction doesn't really matter as long as you run an auction with integrity. Now if they do run a first-price option - sorry, they run a first-price auction, there's an opportunity for us to add a little bit more value in predictive clearing because if you run a second price auction, then the auction itself is going to lower the price on behalf of the buyer. In a first-price auction, we have to do that for them. We have to predict where it's actually going to clear so that we can save them as much as possible, and we have to be careful about overbidding. That puts more opportunity for us to perform and to add value. In some cases, that represents an opportunity for us to make more money. But overall, what we really just want is an ecosystem where there's integrity and consistency. And so we're happy that Google's ad exchange moved to first-priority auction. It helps us on both fronts and just delighted to have some consistency. So on the big picture, it really doesn't have that much impact. It's slightly positive for us. But overall, it's really a win for the ecosystem because people know how the auction is running, how it's working. And in my view, the changes that they made to the auction made the ecosystem just a little bit more of a level playing field, which is good for everybody.

The next question comes from Mark Zgutowicz with Rosenblatt Securities.

Jeff, you commented on your revenue outperformance, which in relative to worldwide programmatic, which obviously continues to be impressive, and you might even argue that it's even more impressive, given majority of your growth has been coming from the U.S., while it's really international, and particularly China, that's been really pressing that worldwide growth number. So the question is at what level do you need to see international mix really begin to grow? I mean at what pace does it need to grow relative to the market? It seems to be, obviously, tailing, which you've acknowledged. And the question is sort of how quickly that needs to grow to prolong what is eventual mean reversion at some point? And then just more specific to that, what - what markets do you see really driving that acceleration in '20 and then beyond '20?

You bet. So to answer your question about what pace we expect it to grow, I'll just say in broad strokes, I expect it to grow at a faster pace than the U.S. That's it. And it's not going to be a straight line. So a lot of these markets are very nascent as it relates to programmatic. We have had a couple of years, for instance, in Germany, where they've been up hundreds of percentage points every year. That's not going to happen every year, especially when we're at the scale that we're at with them. We've had the same thing happen in the U.K. We've had similar things happen in Australia. We've had similar things happen in Singapore. And of course, we've had some amazing years and quarters in Hong Kong. So it's not going to be linear, but we do expect the international markets as a whole to outpace the U.S. for as far as we can see into the future. In terms of what markets we expect especially to contribute in 2020, it depends on whether you're talking about actual dollars or whether you're talking about growth rate. We have a much stronger presence in Europe, just as we've been in the market longer than we do in some of the markets in Asia. But Asia has so much growth potential. And we're going to continue to invest, but it's possible to see some serious pops in terms of - or inflections in some of the markets that we're in, in Asia. And so without going through each market by market, it's really hard to identify which ones we're expecting the most from, in terms of growth rate or absolute dollars. But we expect all of our international markets to continue to lead the way.

The next question comes from Mark Mahaney with RBC Capital Markets.

Zach Schwarzman on for Mark. At the end of your prepared remarks, you spoke about products such as cross-device, data and identity solutions and that you expect that to continue that trend with new products that will be launched in 2020. What potential synergies do you see here with these trends for live TV sports and really just Connected TV as a whole? Can you elaborate how you think this could evolve and how you can capitalize on this trend in 2020?

You bet. I'm so glad to get this question because it gives us a chance to talk about part of the - part of our value proposition, which is media is getting more and more fragmented, especially in Connected TV. So because of that fragmentation, if you're a buyer of ads, it's really hard to control what we call reach and frequency, which means how many people are you reaching and how often are you reaching that? So if you're trying to launch a new movie and you want everyone in America to see the ad 3 times, doing that is harder than ever, not because there are people watching TV all the time. In fact, we're consuming more TV content apparently than ever. But because it's just harder to know where they are and how to measure where they are because there's 20 different ways to watch ESPN on your TV. You can do it through your cable company. You could do it through Sling TV or Cube TV or you could do it sort of the ESPN app. There's a lot of different ways to get access to it. And if those aren't all coordinated, if the buy isn't coordinated so that you're showing the ad three times to one person and three times to another person, then you're going to waste a bunch of money and even worse, you might make the consumer hate you because you show them the ad 57 times instead of three. And the only way to fix that is to have a platform that is objective sitting in front of all the different media options. And the only way to partner with all those media options, it is to be objective, to not own any media so that when you partner with…

The next question comes from Shyam Patil with Susquehanna.

I had a question on the Fire TV partnership. Surprising to see the 21x growth rate occur so fast. Jeff, you mentioned you have access to all the premium inventory, not just around it. I was wondering if you could just talk more about just this opportunity with Fire TV for Trade Desk. And also just how economics here compare to other CTV partnerships you guys have in place?

You bet. Shyam, thanks for the question. If I had to pick a partnership that we have just under-discussed and is a very big deal that we've yet still failed to express what a significant deal it is, it's this one. And part of the reason why it's such a big deal is because of the way that Amazon is approaching it. So I know we've taken a stab at explaining this before, but I want to do it again because I think we're getting better at it. So first, Amazon Publishing Services, APS, started with all the Fire devices. So they're showing ads on the stick and the pop that you buy from Amazon so that you can access all of your content. Basically, they're a competitive product to Roku. And so they're starting with just the third-party content on it. So we're not talking about Amazon apps or Amazon Prime videos. We're talking about things like Discovery Channel or the Turner products or any of those sorts of that are on the app that you - or on the apps that you would have on your Amazon Fire device. So any of those that have partnerships with Amazon that are on their device, we are able to show ads, assuming that the content owners have opted-in to showing ads as their means or at least part of their means to monetize their content. So that's exciting by itself just because the Amazon Fire is growing, and they're competing. But what's especially exciting is that many of the MVPDs, so the distributors for linear television, charge a pretty aggressive rate. And in some cases in Connected TV, because rates have gone higher in Connected TV because of the data component that makes them more valuable, they're charging an even…

The next question comes from Mark Kelley with Nomura.

Jeff, can you just remind us how much of your spend was political during the last election cycle in the U.S.? You noted a pretty big opportunity next year. It would be good to have kind of a baseline to think about. And second, just bringing it back to CTV, I want to make sure I understand your prepared remarks a bit more. You called out a lot of the positives from gaining access to Amazon and some of the other growth metrics. And then you noted, I think, that, that, in particular, helped reaccelerate growth. But it looks like CTV growth was basically flat versus the second quarter. And then corporate level revenue growth was down a few hundred basis points. So I guess, are you talking about spend? Or did I mishear something?

Yes. So let me first talk about the percentage that came from political. So in the last election cycle, it was low single digits. Of course, when you've grown as much as we have as a company since the last election cycle, if we add low single digits to 2020 in political, that wouldn't be here. Otherwise, that's a big number. That's a material number. So I'm really excited about what we proved in the last election and excited to be a part of the process in this upcoming election. As it relates to the prepared remarks and a slowing down in Q3, I actually - I'm not sure what you're referring to.

I don't know if you're referring to just 150% year-on-year growth, and you're looking at it from that perspective, Mark?

Yes. So you guys had 145%. And then in Q2, you guys said it was 2x year-on-year. Yes, so you get to basically the same number. What...

That doesn't mean that it's necessarily slowing down. You're just looking at the growth rate.

No. You guys had to reaccelerate.

Year-over-year.

Yes. You guys said that it helped to reaccelerate the business. I just want to know what reaccelerated. That's all.

Oh, throughout the quarter.

Yes, I see what you're asking for.

Got it.

It was really exciting to see. I was just trying to give a little bit of a glimpse into what happened inside of the quarter. So it wasn't that there was a slowdown or anything like that. 150% year-over-year growth is incredibly exciting, especially after a quarter where you put up 200% growth year-over-year. However, what I was trying to point to in that comment of reacceleration was simply that the last month of the quarter was especially strong. And I was just trying to give some indication that, that's part of our reason for bullishness on CTV as we're looking at Q4 but also as we're looking to 2020. Because that 21x is super exciting, but a really strong end to our Q3 is something I was just trying to share a glimpse of with shareholders.

The last question comes from Brian Schwartz with Oppenheimer.

Jeff, just one question. Just an operational question on the management team. You had talked previously about looking to help scale the leadership team to help you scale the business. I'm just wondering if you have any updates in terms of that initiative.

Thanks, Brian. Yes, it's been a very busy year. I would summarize 2019 thus far as a year where we've been adding a lot of leadership from the highest levels of the organization, which we've added a few people to and also that we've added a lot of management and leaders in the middle, if you will. We've never had a year where we've added so many leaders from outside the company at all levels of the organization. So it's been an adjustment for us. But the adjustment has been extremely positive because we have a company with a really amazing culture going into the year and we leave having added to it and added to this amazing team with fresh blood that can actually influence lots of other people and by keeping our bar really high on the people that we'll add to the team, at times, we wanted to grow faster than we have. I still want to grow faster than we have in terms of adding to the team and growing our business because I think it is land grab time. But I'm really happy at our - at what we've done this year in terms of adding to our leadership. We saw more work but I think this year marks the most significant year in the history of our company in terms of the number of leaders that we've added to the company. So I'm really pleased with what is often a very tough sort of stair-step for growing in scaled companies when you get to our size. So it's an exciting time.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.