Good day, ladies and gentlemen. And welcome to The Trade Desk First Quarter 2020 Earnings Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Chris Toth, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, Operator. Hello and good afternoon to everyone. Welcome to The Trade Desk First Quarter 2020 earnings conference call. On the call today are our Founder and CEO Jeff Green, and Chief Financial Officer Blake Grayson. Jeff and I are in the office in Ventura and Blake has dialed in remotely. 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. 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?

Hello and thank you for joining us. It’s been an extremely challenging and unusual last few months for the world. But while there will continue to be uncertainties in the near-term, I am very optimistic about the future. Our number one priority right now is the health and safety of our employees, our families, and the communities we live in. As we take every precaution to self-isolate and ensure that we will emerge from this in a safe and healthy way, we are starting to see our customers plan for that future. With that in mind, I want to cover three main things with you today. First, I want to reiterate our solid financial foundation and how we are operating in this environment. Second, I’ll provide some perspective on the most recent market trends and what we are seeing in our industry. And third, where I would like to spend most of my time, I’d like to talk about the opportunity in front of The Trade Desk. While these are very challenging times for everyone, I think there is a shift in media that started about nine weeks ago that is accelerating the move to data-driven advertising. Nowhere is this more apparent than in Connected TV. And even though it is too early to predict exactly when the economy will start firing on all cylinders again, we do have a sense of the role advertising will play in that. And I’m confident that The Trade Desk will be on the front lines of recovery. It will represent a major land-grab opportunity, and our ability to be successful in that environment rests solely in our own hands. As it relates to what global recovery looks like, keep in mind that in order to grow and reopen for business, companies need to…

Thank you and good afternoon everyone. I hope you and your families are all doing well and staying as safe as you can in this unique situation. As Jeff mentioned, Q1 was on pace to be a strong quarter. Revenue for the quarter was $160.7 million representing 33% year-over-year growth and adjusted EBITDA was $39 million. That said, like other ad-funded companies, we saw a sharp deceleration in the second half of March. The Trade Desk was on track for revenue growth acceleration to start this year and we believe we are well positioned for future growth acceleration when macro conditions improve. From the channel perspective, Q1 included strong year-over-year spend growth in Connected TV, Mobile Video, Mobile in-app and audio channels. Geographically in Q1, North America represented 88% percent of spend and International represented 12% of spend. As Jeff had highlighted, in terms of our verticals, during the last two weeks of March and into April, Auto, Shopping, Style & Fashion and Travel were our weakest verticals for those that represent at least 1% of our spend. We saw resilience in Health and Fitness, our largest vertical in 2019, Technology & Computing, Home and Garden and Education. Operating expenses were $150 million in Q1, up 30% year-over-year, while Sales and Marketing and Technology and Development costs both grew more rapidly than our revenue, Platform operations and G&A costs both grew at a much slower pace than revenue. G&A’s deceleration was driven partly by delayed corporate events due to COVID-19. This approach to our operating expenses continues to reflect how we actively allocate capital within the company toward areas that can drive growth and efficiency in the future and that we discussed in our Q4 2019 earnings call. Adjusted EBITDA was $39 million in Q1, up 58% year-over-year and representing…

Thank you. [Operator Instructions] At this time, we'll take our first question from Michael Levine with Pivotal Research Group. Please go ahead, sir.

Two questions. One for Jeff, one for Blake. So Jeff, I'd love to dig in a little bit more around CTV in your optimism. I mean, I guess based on what I've been hearing out in the marketplace, it feels like a greater probability that the up-front conceivably breaks and there certainly should be a lot more scatter inventory as part of the mix looking at the 2021, I think for some of the reasons you outlined. So I'd love to – I'd love to get your $0.02 on how you think the company is able to adapt to that and become a better partner to the media companies? And then for Blake, I'd love to hear more about your expense management philosophy, just in terms of areas you're going to lean in more aggressively versus not beyond the comments you call – you call that in your prepared remarks?

Hey, first of all, thanks for the question Michael. Yes, I'm excited to start by talking about Connected TV because it's the part of our business that I'm absolutely most bullish about. Of course, we started the year on pace to more than double in Connected TV. And that's in large part because there were lots of AVOD options being presented to consumers even before the pandemic. It's really just been a perfect storm for linear television. I was talking to a woman this morning who has been an exact in television for the last 30 years, and just talking about how we've never seen anything like this. And it's really an unfortunate timing for television in the sense that that typically upfront and guarantees are made at the end of April and early may. That's a moment where people have some visibility into the line-up for linear television for the year. And this year there's just no visibility. That will push things to the scatter market, but we'll also push things to the spot market, which is what programmatic is. What all of them are doing is scrambling to make more of their programs available in Connected TV options because they know that people are watching on demand. As we highlighted in the survey that we did, which I find that to be one of the most insightful pieces of research that we've ever done. We highlighted that the primary reason that people are hanging on to linear television subscriptions or to their cable bill, 60% of the time is because they want live sports. And of course this is an environment where you don't have that. So I think the upfront coupled with just the current environment are making it so there's lots of moves to Connected TV and that is another way of saying the spot market – the data-driven spot market. Blake, you want to take the expense question?

Sure. Thanks for the question, Michael. You know, I guess what I would have to say about our expense philosophy is that our guiding principle is to continue generating quality positive EBITDA over the long-term. The focus now that we want to take is to balance our expense base to stay flexible. So that staying flexible in order to be ready to grab share in our recovery or, and also be disciplined in case the recovery takes longer than we expect and we have additional levers still available to us. One data point that might be helpful is, excluding stock-based comp the actions that we've taken to-date that I referred to in the prepared remarks, they reduced our cost base by over 10% from our original actions that I refer to include reducing hiring expectations by more than 50%, reducing Q2 marketing costs by more than 50%, pausing various discretionary spend like events, some T&E and other areas. And it's important to remember we have other levers still available to us and we'll just adapt based on how the macro environment unfolds.

Thank you so much.

Thanks Michael.

[Operator Instructions] We'll take our next question from Shyam Patil [Susquehanna Financial Group]. Please go ahead, sir.

Hey guys. Good afternoon. Thanks for all the color on the current trends. Jeff, as you mentioned on the call, this is a time of significant uncertainty, but over time as things return to normal, do you see yourself getting back to the growth rates that you were at previously, the 30% to 40% or higher growth rates? Just wondering if you could just talk about that and just kind of how you see that in terms of the key drivers? Thank you.

You bet, and thanks for the question Shyam. So this is a moment where there's just not a lot of visibility. So I'm not eager to sign-up for specific numbers over the long-term, but I will say that the opportunity in front of us now is bigger than it's ever been. I'm more bullish on the long-term and because of the fact that we started January and February accelerating our growth again it's certainly not out of the question that we could see that acceleration resume, you have to make a lot of assumptions about what happens in the macro in order to get there. But what has really just happened is that linear television was decaying at a 3% or 4% rate pretty steadily for the last five years. And that has just accelerated because of all the things that we talked about in the prepared remarks. So because of that acceleration, our opportunity has gotten bigger and it just happens to be that this is the year that we also project that the reach of Connected TV will rival and even surpassed the reach of linear TV. So, which I would argue is the feature of linear TV. So I'm more bullish than I was three months ago on the future of Connected TV and our role in it. There's a lot of uncertainty on specific numbers and whatnot, so just not able to sign-up for that at this moment, but my bullishness is higher than ever.

Great. Thank you guys.

Our next question comes from Tim Nollen with Macquarie. Please go ahead, sir.

Great, thanks. I've got another one about TTD and the up-fronts. Jeff, appreciate your comments. Agree with basically everything you're saying in general. The up-front typically run on Nielsen ratings. So I'd add to your comments about how difficult the difference will be to get done this year, that it'll be very difficult to do guarantees? So I'm wondering what things are buyers and sellers looking at now. What are you talking with them about as we go into the up-front? And the difference of reach is even [indiscernible] we used to reach a large number of consumers who want ads. Now it's about reaching consumers in different households that you couldn't reach on TV anymore. So I'm just wondering sort of what things are you talking with advertisers [indiscernible] as you go into this up-front or not up-front? Thanks.

Yes. So, I love the question because one of the gating issues for growth in Connected TV from an advertiser perspective has been the ability to measure, and it's not because measurement isn't better in Connected TV, it is. It is far better in Connected TV and in all things digital than it is in linear television. But it's new and one other thing that CTV has going for is that Nielsen is sort of a gold standard. It's the only way really to measure. And so the way that we have competed with that and the way that we've made the transition relatively easy, is that we've leaned on Nielsen in the same way of measuring linear television to give that as a baseline in digital and then add to that and every report, on every impression run additional metadata on where you're reaching people, how frequently you're reaching them. One of the biggest issues that linear television has is that you can't really manage reach and frequency. So if you go do a deal with one media company or on one station or even on one show and then do it on another one, you don't necessarily know who you're reaching the same user. And there's no way at a fine grain to know how much waste there is. You're just measuring how – if you reach them, not how often you touch them and that's something that digital has improved on dramatically, and that's one of the ways that Connected TV and digital is able to afford to reduce the ad-load and increase the relevance, while making all the content fundable. And so, all working in our favor but it's coming from – we start with the baseline of the same sort of measurements that we have in linear TV and then improve upon it. So we're already giving customers both of those things today. Next question please.

Our next question comes from Vasily Karasyov with Cannonball Research. Please go ahead, sir.

Yes, good afternoon. So we hear this when people talk about ad-funded companies, it's all about direct response. Direct response, how resilient it is in this environment and so on. So Jeff, I wonder if you could spend a few minutes talking about brand versus direct response. How it evolves on the other side of this environment. Hopefully, we’ll come out of it soon. And what is the mix of your business between brand and DR? Thank you.

I'm so glad that you've asked this question and not one that we've ever fielded before. And the reason why is because I like many of you listen to lots of other companies that I've been surprised at how often we've heard the term direct response. I struggled to define which ads you put in the direct response buckets and which ones you don't. Because if you're just talking about it from an advertiser perspective is GEICO or progressive, a direct response company or a brand company? They'd be using brands, but they put a 1-800 number and the URL at the end of every single commercial. They are trying to get you to respond directly as quickly as possible. What has become more synonymous with direct response or performance advertising is actually the way things are transacted. And this is actually really important for us to take a minute and just deconstruct and that's the impressions are often sold on a CPM, that’s the way that we transact. That is the finest grain metric to transact in because you're selling every single impression individually. You can of course sell on a CPC, which is the way most search is sold on a click basis or on an action. So what sometimes you see happen with companies who kind of control the ecosystem end-to-end, whether that's a Snap or a Facebook or a Google or a number of other companies, Twitter. When you have an end-to-end solution, you can take ads on a CPC or a CPA basis and then effectively arbitrage into a CPM. So you can say to an advertiser, okay, I know your ad budgets have been cut, I’ll show the ads and only – you only pay when we sell something. And then what you can…

Thank you.

Our next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead, sir.

Thanks guys. I had a couple of quick questions. One was on frequency capping and Connected TV and it seems to be a bit of a problem, it's getting better. But we were listening to Disney and they said, look we're moving across our disparate brands to Hulu, ESPN, moving to Connected TV and we're going to lean in on programmatic partners to help us solve this frequency capping problem because they get a better purview across the whole universe. And so they can with our help, we can help them manage their frequency capping. So, first question is, what are you seeing with risks back to that dynamic frequency capping and Connected TV? Is it getting better or getting worse, especially as inventory and advertisers move into Connected TV? And then second question was just in – with respect to your partnership with FreeWheel for video bidding. Do you see that panning out similar to what happened with header bidding on the display [indiscernible], and that was look at, it added transparency to a market and so that was good. There are dislocations in terms of pricing, so you got some better yields on CPMs and you guys actually crafted a tool out of that dislocation and that chaos predictive clearing built in the [indiscernible]. And so is that tucked into your predictive clearing product? Are there opportunities there to help solve that dislocation with video header bidding? Thanks.

Thanks Brian. Love the nuance questions and it gives us a chance to dive into the details. Thank you. On the frequency for CTV, yes, it brings me a lot of joy to hear Disney talking in that way because, one, we're also really excited about the partnership with them as we are with so many of the greatest media companies in the world. It is true that because television content especially in digital is so fragmented. It is really hard to manage frequency. I was just talking a second ago about how it's really hard to do it here. It's hard to do in linear and you’re isolated to the number of television sets or set top boxes that you have potentially in order to manage frequency. But now in a world where you have phones and you have computers and just so many ways to consume Connected TV content, it makes it so managing frequency can be even harder because there's just more devices involved, let alone managing people across all those devices. So Connected TV does a better job of this than linear ever can, just because of the nature of the technology or the pipes. We've been doing a good job of it. As you point out, the industry can improve dramatically. That's one of the reasons why I spend a little bit of time talking about the release that we just did about a week and a half ago, which we were already planning to do it. We put all hands on deck to make this one of the most important releases in the history of the company. One of the biggest features, maybe the biggest that we shipped in this is just enhancement to frequency capping to do exactly what Disney is asking us…

Great, thanks Jeff.

Our next question comes Brent Thill with Jefferies. Please go ahead, sir.

Good afternoon. Jeff, many are curious about your vision of the shape of the ad spend return. You had mentioned a negative high-teen year-over-year decline in the last 10 days. And when you listen to some of the commentary from a lot of the companies that are reporting, they're saying, the U.S. feels like it's bottom and you're seeing improvement week-over-week and it seems like obviously you're seeing a lag here, can you just talk to, how you think this rebuild in the shape of this and what it looks like throughout the year? Thank you.

Yes, there's a lot of macro that has to be taken into account to make any really good predictions. I mean – I can talk a little bit about what we've seen in our business and just to reiterate some of the things that Blake said and maybe give a little bit more detail. So, by the way, when I'm finished, Blake, if there's anything you want to hide or clarify or add to it, feel free of course. So, a slowdown that started in the second half of March, there was some amount of acceleration into April, in the middle of April. We saw some stabilization and then we've seen improvement since then. I think it's really important to talk about where we're seeing those green shoots in the time since mid-April when we saw that near bottom to today. First, companies are not all going to recover at the same pace. And if you think about this from a consumer standpoint, you're probably more likely to go back to work and be comfortable being in your office than you are on an airplane tomorrow. There's just going to be some differences, when you're willing to go do certain activities, even though the recovery, a lot of people are optimistic that things happen very quickly. I'm not certain the things will be back to normal right away. Certainly in the verticals that we're seeing spend, there's some indication that's the way the rest of the world looks at it too. It's not just from a consumer standpoint, but that's the way that companies are sort of putting their money where their mouth is. So not surprisingly, you're seeing things like health and fitness, which includes pharma, you're seeing technology and computing, and you're seeing home and garden and some education categories all doing very well at the front end of the recovery. Not surprising, those are the companies that are more likely to be spending right now. If you're a travel company or you're an automotive, you're more likely to be on the back part of the recovery, which there's just fewer green shoots to point to at this moment. But overall I'm encouraged by the trend I see, I definitely see green shoots in those categories. But where I get, of course most optimistic is in TV and in audio where we're just seeing some pretty strong numbers where we're leading sort of out of that bottom with what I think are the most effective channels, which to me is a reason to be bullish about those is if advertising is really about winning hearts and minds, that I'm not certain that there's anything more effective than then video advertising and audio advertising and the fact that those are leading the recovery in those specific verticals. To me, it's a very positive sign. Blake anything I got wrong or you want to add to that?

No, I think you've covered it well.

Our next question comes from Mark Mahaney with RBC Capital Markets. Please go ahead, sir.

Okay, this is Dan on for Mark. Two, if I could. Just in terms of, we've obviously all seen now the numbers reported and the rates of deceleration from the walled garden companies. Looking, just based on what you disclosed in March and mid-April, Jeff, why do you think the rate of deceleration on Trade Desk ex-CTV are kind of more pronounced than the walled gardens. And how do you think the recovery shapes us versus them? And then in terms of just kind of clients coming to you versus spending through agencies, how has that been trending? I think, you've been getting more spend come you directly has this crisis kind of accelerated that and then what do you think the kind of P&L implications of that long-term? Thank you.

So, as it relates to the rates of deceleration, why are there more with us than there that was with the walled gardens. The walled gardens often don't break things out much because of the performance advertising or having control over the inventory itself. It when you put all those numbers together, it's not surprising that for instance, if you're in YouTube and you have an increase of impressions, that double-digit increase because everybody's shelter in place. And then you also take on advertisers on a performance basis to supplement your demand, you could offset some of the loss that comes from that. So the theme is – the thing about what the situation that we're in is that, let's say that, yesterday I got to look at a 100 impressions that I bought 50 of them. Today I get to look at 150 of them and I buy let's say 40 of them just because of pauses or decreases in budget. And then as well the reason I went from a 100 to 150 is because just more impressions available because people are consuming more. In a walled garden scenario that's going to go into their pockets. In our scenario that's going to go into consumer surplus or to our client's advantage where we are now doing a better job of selecting which impressions work for them. So it all gets translated into the efficacy of the ads, which is part of the reason why I'm so bullish about our ability to win share during the downturn, because just the mathematics of programmatic or I get to look at more impression during an environment like this and I have to buy fewer of them. So I get to be more selective, that difference plus the way things are transacted…

Thank you very much.

All right. Next question comes from Brian Schwartz with Oppenheimer, please go ahead, sir

Yes. Hi. Thanks for taking my question this afternoon. Jeff, I want to ask you a question about your investment strategy here during the downturn, clearly articulating throughout the entire call, how excited you are about the share shift that you expect to happen in programmatic and Connected TV here, and how the opportunity just got bigger. So I kind of wanted to ask you a different question here, I realized there is a cost here to the margin, but the balance sheet is strong, so doesn't it make sense for you to potentially not slow down hiring here to get the best talent, maybe even invest more to scale the international business faster or – for an inorganic? Thanks.

Yes, love this question and I'll take the first thing. Blake, I'd love for you to add any color. Blake and I spent a lot of time reviewing and making these decisions together. So when we started to see the downturn in March and in early April you know, as I compared it to a cloud of smoke on the prepared remarks, you don't necessarily know where that's going to go. So we're really encouraged by what we've seen since the middle of April. And so we definitely have the ability to hit the gas again. I'm really happy that we have such a strong balance sheet that unlike so many other companies who, their car was going 100 miles an hour and they had to come to a screeching halt. We took ours from 100 miles an hour to 80 miles an hour and now we're in a position where we can accelerate if we decide to. So we are in the position where we could do that and we'll gain market share during that time. I don't mind sharing with everybody that during that time, we scrutinize every single piece of incremental headcount, every single role, I personally looked at all of them. Blake and I and team reviewed them all, just trying to go as aggressively as we possibly can while also just accommodating to the uncertainty of the moment. But we absolutely have the ability to hit the gas again and it's not that hard to go from 80 to 100 or 110. It's not nearly as hard to go from zero to 110.

The only thing I'll add to what Jeff said is that we did – we were super diligent about where we choose to hire for the near term. So just to give you some idea, we said we reduced hiring from our full year plan by 50%, of the remaining hires that we have open right now, 75% of those are in sales and marketing, and technology and development. And those are the areas that will give us the ability to be a catalyst to continue our growth. So we're not slowing the business down, that's really important. We're really – what we're trying to do is be as flexible as possible in order to gain share in the recovery, but also be adaptable depending on where this all goes. And so that's the kind of a balanced mechanism that we're trying to do.

And that does conclude our time for questions today. We'll turn the floor back over to our host Chris Toth.

Great. Thanks, Karen. Hey, thanks everyone for joining today. We really appreciate your time this afternoon. Stay safe everybody. And we look forward to speaking to you again. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.