Good day, ladies and gentlemen, and welcome to The Trade Desk Second Quarter 2021 earnings conference call. At this time all participants have been placed on listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Toth, Vice President of Investor Relations at The Trade Desk. Sir, the floor is yours.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk second quarter 2021 earnings conference call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. 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, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the COVID-19 pandemic on our business and results of operations are subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe that providing non-GAAP measures, combined with our GAAP results, provides a more meaningful representation of the company's operational performance. 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 pleased to report that The Trade Desk had a very strong second quarter this year. Our revenue was up 101% from a year ago to $280 million, significantly surpassing our own expectations. Our growth was across all channels and speaks to our position as the leading DSP for the open internet. More of the world's top advertisers and their agencies signed up or expanded their use of our platform, which just continues to validate our business strategy. They are increasingly embracing the opportunities of the open internet in contrast to the limitations of Walled Gardens. Our performance this quarter and year-to-date has led by CTV and premium video. The move from broadcast and cable to digital on-demand content is happening all over the world. While each major media market and nation has different dynamics impacting the adoption rates, every major market in the world is heading towards consumption of premium TV and movie content over the internet. Because of our products, including our new platform, Solimar, our objectivity and market shifts, CTV as a percentage of our business continues to grow very rapidly and is by far our fastest growing channel. Heading into the pandemic, our CTV growth had been driven by our leading position in the U.S. and Australia, and we continue to enjoy outsized growth in these markets. But now we're starting to see our CTV strategy scale more broadly around the world. For example, our CTV revenue in Europe was up more than tenfold in the second quarter. I'll expand on this in a moment, but I could not be more optimistic about our CTV business. Overall, we fired on all cylinders in the second quarter in large part because we realized the value of the investments…

Thank you, Jeff, and good afternoon, everyone. As you have seen in our results, Q2 is a very strong quarter. Revenue of $280 million was up 101% from a year-ago. Excluding political spend related to the U.S. elections last year, which represented a low-single-digit percentage share of our business in Q2 of 2020 revenue increased around 103% year-over-year. During the quarter, we benefited from continued improvement in the digital advertising environment from both agencies and brands. Growth was broad-based across all regions, channels and verticals. We saw continued strength from CTV, which again led our growth from a channel perspective. Our year-over-year revenue growth rates benefited from lapping slower growth related to the pandemic during the second quarter of 2020. With the continued strong top line performance in Q2, we generated $118 million in adjusted EBITDA, or about 42% of revenue. EBITDA continues to benefit from temporarily lower than expected operating expenses, partly driven by the virtual environment. This includes items such as travel and live company events that I've only just started to slowly resume. I'm proud of our sustained efforts to consistently generate meaningfully positive EBITDA, while continuing to invest in the critical areas of our business that can drive our future growth. From a channel perspective: video, audio, and even display all more than doubled in Q2 from a year ago. Exiting Q2, mobile currently our largest channel represented a low-40s percentage share of our business. Video, which includes CTV, represented a high-30s percentage share of our business. Video as a percent of our mix continued to grow very rapidly. The increase in video is driven by CTV, which by a wide margin again, led our growth during the quarter. And finally display and audio represented about 15% and 5% of our business respectively. Geographically, North America…

Thank you. [Operator Instructions] And the first question is coming from Tim Nollen from Macquarie. Tim, your line is live.

Thanks very much. Jeff, I'd like to talk about CTV a bit more if I could. You mentioned your growth in Q2, I think you said significantly outpaced your overall growth. I wonder if you could comment about how that difference looks in the second half and even into next year, CTV versus overall Trade Desk growth. And also Q2, you talked about the upfront, Q2 was the quarter that the Upfront market occurred. So I'm intrigued by your comments on an eventual decline and the role that the Upfront will play for TV, or at least certainly for linear TV. My question is what did the Trade Desk do with advertisers and network groups in the Upfront? Or should we think really of your role more is helping expand the scatter market reaching all those incremental households that are otherwise slipping away from linear? And I guess the scatter market having been so strong going into the Upfront; I guess that's what must have supported your growth. So just want to understand how that continues from here? Thanks.

Thanks, Tim. So first on the macro related to CTV, so, on a year where nearly everything doubled year-over-year in this quarter-over-quarter basis. CTV once again led the way with massive growth in the quarter we just reported. We of course expect CTV to continue to drive our growth over the next couple of years and beyond as the leader – as it relates to channels in terms of what's happening across everything in digital, CTV as the lead for the open internet. I do believe Upfronts are driving more to CTV as well; I'll talk about that as I answer your second question in just a second. But one thing I want to highlight about CTV is that unlike any other channel, this is being driven by users. And so when programmatic first got started, it was because a bunch of B2B companies like ourselves wanted to create something more efficient for the internet. That's very different than the trend that's happening in CTV, which is users are moving from, from their cable subscriptions to the internet because it's better. It's on demand content is just a better way to consume. They can watch what they want, when they want, and that's something that can't be stopped. That's a secular tailwind that is going to benefit us, as far as I can see into the future. And then lastly on CTV trends, before I talk about the Upfront, there is a lot of subscription fatigue especially in SVOD. So what has happened over the last year or two, I think is fairly indicative of what most of us have experienced as individuals, which is we consumed most of our CTV content from Netflix or Amazon three or four years ago, and now today we have lots more choices, lots…

Thanks, Tim.

Thank you. And the next question is coming from Vasily Karasyov from Cannonball Research. Vasily, your line is live.

Thank you. Good morning. So, Jeff, you had highlighted growth in connected TV outside of the U.S. Can you talk a little more about the growth you're seeing in Europe where, I think, you mentioned over tenfold rate of increases? And would you characterize this growth as an inflection point? Or I think it's just the low base effect? And as a follow-up, maybe you can talk about APAC a little more especially about the premium video and CTV growth that you highlighted. Maybe you can explain to us in a little more detail the difference between premium video, which I assume is mainly mobile and connected TV over there. Thank you very much.

Absolutely, thank you. So maybe one of the most bullish numbers that we shared in this report is that CTV growth in EMEA grew 11x year-over-year, that number is really astounding and really surpass our own expectations. I think one way to characterize what's happened for us in CTV is to say The Trade Desk was leading in Australia and the United States going into the pandemic. And over the last 18 months or so, everything in the world has changed, consumption has changed. We had 3, 4, 5 years worth of change in television happened in that period of time. And so, what I say is one of the most bullish things that we've reported in this report or in this quarterly report is that it's because I do believe it those represent green shoots. I do believe it's the start of a change and where we were leading just in the U.S. and Australia we're now the seeing amazing results in Germany and the UK and Scandinavia and France and Spain. And we continue to maintain that all of it will eventually be traded programmatically or bought programmatically because that is a data-driven way that is more effective and it's the only way to preserve the amazing state of TV around the world, which is you get premium content, you see fewer and more relevant ads, and that creates a better user experience, which can fund more content. That virtuous cycle can only be perpetuated with a data-driven marketplace. And because that's just the math, that's just the way that it works. It's impossible for that not to take on everywhere around the world and we're seeing that play out now. As it relates to APAC, APAC is a little bit different in that – CTV is not…

Thanks, Vasily.

Thank you. And the next question is coming from Shyam Patel from Sig. Shyam, your line is live.

Hi, guys. Congrats on the quarter. I had a couple of questions. The first one, Jeff, can you talk a little bit more about CTV and what you're seeing in Europe? It seems like it could be inflecting and maybe a few years behind the U.S., love your perspective on that. And then just a quick follow-up for Blake, I know you're not guiding beyond the third quarter. But when we look at 4Q, is there any color that you could offer just in terms of how to think about seasonality for revenue? Thank you.

Yes. So, I'll just reiterate what I just said about CTV in EMEA. We had 11x growth year-over-year, which is one of the most bullish metrics that we've shared in this report. And we still feel like we're in early stages, but the green shoots that we're seeing I think are indicative of more to come and our partnerships in content around the world whether that's in London or Germany or Spain or Italy or France, are all indicative of great things to come. Blake on the second part.

Sure and thanks for the question. I think, Shyam, I'll just talk a little bit about Q3 and then I'll try to address what I can on your question for the rest of the year in Q4. With Q3, there's so many positive trends and momentum in the Q2 and you've heard Jeff kind of highlights in those already. CTV is leading the way. The fundamentals of the business are really strong. The thing on Q3 is excluding political, which I would encourage people to think about as far as how to evaluate the underlying strength of the business on a year-over-year basis, we're showing significant acceleration year-on-year in Q3. I think that we're talking about excluding election Q3 of around 38% year-on-year and we were in the mid 20s for Q3 in the prior year, so really excited about that. As you think about and then moving on to the Q4, it does have more difficult comps than we see in Q3. You'll recall last year and we talked about this a couple of times, political breaths in Q4 last year was the biggest quarter that we had as a company was a high single-digit percent of our business, so really meaningful on a year-over-year basis. Also if you recall last year, Q4 is driven not just by that high single digit political span, but we also had a rebound in digital advertising as well, but I would just say regardless of the comps, there is so much momentum for us and the fundamentals of this business are so strong. I'm really optimistic about it.

Thanks, Shyam.

Thank you. And the next question is coming from Youssef Squali from Truist Securities. Youssef, your line is live.

Great. Thank you very much and good morning guys. Congrats on the solid performance again. Two questions please. Jeff, maybe going back to Solimar, I know it's very early. I think you've only had it out for maybe about a month now. But just wondering if you can share any early feedback from clients, any improvement and campaign performance so far relative to next wave at least within those customers that have used it for a few weeks now and any impact so far on overall spend? Again I suspect not, but just wanted to ask. And then Blake, maybe the outperformance in the bottom line was particularly impressive. Can you maybe just walk us through the biggest contributors the bottom line beat, and what's non-repeatable as we go into second half of this year and early next year? Thank you.

Yes. So, I'm really glad you've asked this question and I don't mind just being really open here, which is whenever you release a new – essentially a new platform, there's always some amount of anxiety you do as much research as possible, you test the market as much as possible, you listen as much as possible, and then you hope you got it right. And so we were really excited to ship Solimar, which is the biggest release in the history of the company. We had more engineering hours and people on this release than anything we've ever shipped ever. And to do most of that work during the pandemic where it's a little bit harder to do all those things like listen. I was anxious to see how it would be received of course optimistic and we were convinced we did the right thing, but you always want to see it in the numbers and that's exactly what we've seen. We've seen amazing traction. We're nearly a month in and the response has been fantastic. It does represent a behavior change though for the user, so they have to relearn something. But those that have taken the time to do it have all given us fantastic feedback that it is a better experience, which is exactly what we expected. And so, because it is a better experience that's why we're so optimistic that the majority of our ads will be bought on this new platform by the beginning of next year. And that represents more efficiency for the user. I'm especially excited about this going into Q4 because often what happens is Q4, as all of you know, is the biggest quarter of the year for us. But it's also where you prove yourself because much of the advertising spend is sort of determined by a calendar cycle, where in Q4 you spend the most, you performed the most. And then in Q1, you make a decision about where you’re going to spend for the next year. And so if we have a really strong Q4, it sets up our Q1 really nicely for next year. And so I’m optimistic that the performance will set us up for next year. So I couldn’t be happier with the way Solimar has gone so far, it’s very early as you highlighted, and it represents a behavioral change. But I’m convinced that that’s going to happen over time and really excited about what that means for efficacy on our platform.

And then I’ll just take the second part of that question on the beat on the bottom line for EBITDA. And so, more than half of the beat in the quarter on EBITDA was just really driven by the top line outperformance in the business. As many of you know, we don’t have a lot of variable costs associated with higher top line. So when we see it come in flow is almost directly often down to EBITDA, so you see that. We did have some expense benefit as well. Some of that’s timing, but it was broad-based, there wasn’t anything like that I would major a call out. A little bit lower platform ops expense, a little bit of timing on some fixed marketing expense. We had better bad debt than expected a little bit because of continued health of the receivables, but nothing major though that I would call out.

Great.

Thank you. And the next question is coming from Laura Martin from Needham. Laura, your line is live.

Hey there. So Jeff, you were talking about how the CTV open internet consortium was integrating into 2.0, and then you said Fubo was integrating directly into 2.0. I was wondering how that affects your ability to target, whether people are going indirect, like an affiliating versus like Fubo directly integrated into 2.0? And then my second one is on the Walmart deal. Are we still on track to be fully integrated with Walmart by 4Q? And as – do you get paid on that because you get the 15% platform fee. Is that how you make money on the Walmart deal when CPG spends money on your platform? Thank you.

You bet. Appreciate the question. So as many may know, one of the things that is really important about preserving the amazing state of CTV is to provide relevant ads on the shows that you’re watching when it’s ad funded. And because of the nature of devices in CTV, it requires a bit more collaboration between the content owners, as well as those providing that. And so what we’ve needed, and many people talk about this in the context of cookies and browsing but that’s not really what UID was designed for exclusively. It was designed to create a better currency for the entire internet, especially for a connected TV, so a content owner can have the same understanding of a user, pass that to those of us representing the advertisers. So that then we have a common understanding and can provide relevant advertising as well as make certain that we don’t show the same ad five times in the same commercial break, make certain that we don’t show them an ad that’s irrelevant to them, and that makes them more effective. So all the TV companies have different ways of integrating with the Unified ID 2.0, some of them have gone to coalitions like Blockgraph or OpenAP and said, hey, you’re a consortium and you’re a technology consortium, so why don’t you do the work for all of us? And there are others who have said, well, working in a consortium can take too long and we want to make certain that it integrates directly, and we have data that we want to put to work directly. And so from our standpoint, we’re a indifferent, whether a consortium does the work, whether the content owners themselves do the work, many have put them on parallel paths, which is a commentary on how critically and strategically important it is for them and for us to get the IDs set up, so that we can provide those relevant ads. But Fubo moved to do it directly, to me is exciting because they could access that in another ways, but they want to make certain that they do it as quickly as possible. We expect that trend to continue just because the future of television is dependent on it. And then the second...

Just Walmart.

Yes, Walmart. So yes, Walmart is on track. We continue to have really fantastic discussions with them. As it relates to how we’ll be paid, we’re paid the same way that we would with any other partnership where we have our standard platform fees and then they put their data exclusively to work in this version of their DSP, which is of course built on top of our platform.

Thank you very much. Great numbers. Thank you.

Thank you. And the next question is coming from Matt Swanson from RBC Capital Markets. Matt, your line is live.

Yes. Thank you so much for taking the questions. I’ve got two as well. They’re both going to kind of be follow-ups to Laura’s a second ago now. I mean, great traction on UID 2.0 ads. You used the term critical scale. Could you just help us with a little more color on what you think of as far as what is critical scale in terms of if cookies went away tomorrow, what you think of the efficacy of the replacement? And if there’s any way to think about endings or percentages of how far are you away from kind of the ideal state that would be really helpful. The other on the Walmart example, is it – are there ways that you can use this as kind of a POC, proof-of-concept for other retailers? I’m sure with Amazon doing what they are with their DSP, it’s becoming an increasing area of focus for other retailers who maybe don’t have the internal tech platform that Amazon does. And it seems like that’s a great place for Trade Desk to come in.

Yes. So the term critical scale, you pulled out I think a very important phrase that we used in our prepared remarks in the earnings report, which I do think is indicative of the moment that we’re in right now, as it relates to the way the internet is going to work. And then you asked about if cookies were to go away today. So to be clear, Google announced that they don’t expect cookies to go away before 2023. And they said – and even then, we’ll just – we’ll see when we get there. So I’ve been maintaining from the very beginning that I’m not certain that it’s in the best strategic interest for Google to get rid of cookies at all, but that’s not what this was about. Creating UID was not about replacing cookies. It was about creating a better internet and that doesn’t just apply to the browsing internet, which as everyone knows, that’s a small minority of what the internet is. Of course, your mobile devices and the related apps, as well as things like connected TV, which is some of the most effective advertising, maybe the most effective advertising that’s ever been done at scale, which is all dependent on different IDs. But when you get to a place where the currency is so widely accepted, it becomes critical to doing business. So think of it like Visa or Mastercard, a currency that if you do not accept that currency in your local store, you are going to struggle to get business. You might be able to say, I won’t accept American Express or I might not accept Discovery, but there are some currencies like either cash or Visa or Mastercard that you have to accept in order to just keep the doors…

Thank you. And the next question is coming from a Brian Fitzgerald from Wells Fargo. Brian, your line is live.

Thanks, guys. I want to go back to Solimar and you talked about some new capabilities specifically around onboarding and measurement marketplace, just wondering if you could discuss the revenue opportunities and the mechanics around those as well. If the measure marketplace is that going to be a take rate model and will onboarding have a revenue component. And if so – is that going to be more volume than spend oriented, just some more on the mechanics?

Yes. So both of those making it easier to onboard your first-party data, as well as making it easier to measure success, are not about making more money for us directly. I really like the Amazon metaphor of spinning the flywheel faster, and there are some activities that you do in your business to make it so that your core activity goes better, and that the value exchange is even more obvious so that your customers spend more, do more with you. So in both cases, onboarding first-party data and measurement marketplace. My idea was that they're both free. So there's not an incremental take rate for those exact features. But if you get more spend on the platform, you make more money. And if you produce better results, you get more spend and you make more money. And so I'm absolutely after making more on this, but not on those features directly by giving them away, we make efficacy on the platform better. We make the open internet better, and we get more of that spend. And that's the idea. There will be cases in the measurement marketplace where people do pay and that's good. It's kind of like paid apps on your iPhone or your Android versus free apps, both are important and having some amount of paid apps, so that they're really high quality and it create the most competitive marketplace possible are important. So some of them will be paid, but I think the default maybe similar to on your phone, should be for free because that creates more usage and creates the better experience.

Thanks, Brian. And Paul, we have time for one more question.

The final question will be coming from Justin Patterson from KeyBanc. Justin, your line is live.

Great. Thank you very much. Two, if I can first. Jeff, could you expand on the Snowflake UID integration? It sounds like something that could broaden your reach from large advertiser there. So that's question one. And then question two, you talked about efforts to simplify the supply chain, could you talk about what that entails and just how that creates new opportunities ahead? Thanks so much.

You bet. So I really appreciate the question because I, I think Snowflake adopting UID2 is one of the biggest headlines that has happened for UID to date and not enough has been said about it. I don't think most people understand why this is so big. So first let just remind everyone that UID2 is no longer a Trade Desk product. We did most of the early developing, but it's owned by the community. We've worked together with the open internet. It's open source at this point. So it is way bigger than us. And some of the proof of that is adoption from companies like Snowflake. So if you don't know snowflake, what they do is they make it really easy for you to manage your data. So in the same way that Wix made it really easy for companies to build websites, Snowflake makes it really easy for companies to put their data to work. Now they're typically much bigger companies than those that Wix works with, but that's part of what makes it so exciting, is that – if they're trying to put data to work, they of course need to be leveraging the currencies that had scale. And so that makes it possible for that data to be more used and protected so that they can do the right thing by consumers, whether they're on the content side or whether they're on the advertiser side. So when a company who is so focused on making data actionable and listening to customer so that you can make certain that you're doing what they're asking for. The Snowflake using this just underscores just how much critical mass UID2 already have. And then as it relates to Solimar and its impact on the supply chain. What we have…

Thanks, Justin, and thanks for everyone for joining the call today. Paul, I'll leave it with you to close it out.

Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.