Good afternoon, ladies and gentlemen, and welcome to The Trade Desk Second Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Toth. Sir, the floor is yours.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk second quarter 2022 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 any macroeconomic deceleration, potential impact of the COVID-19 pandemic in various regions where we operate, in addition to potential supply chain disruptions that could disrupt advertising spend in our platform, are all 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 on 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. Lastly, I would like to highlight that we are planning to hold an Analyst Day on Tuesday, October 4, 2022 in New York City. This event will be webcast and available on our Investor Relations website. I’ll now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and thank you all for joining us today. As you’ve seen from the press release, we had a very strong performance in the second quarter. We grew revenue 35% compared with last year and we outpaced our competitors and continued to gain market share, despite some macroeconomic uncertainty. In the first half of the year, marketers shifted to decision data driven advertising on the open Internet more rapidly than ever. And as a result, the Trade Desk has become increasingly indispensable as the default DSP for the open Internet and Connected TV. Perhaps the most encouraging aspect of our business through the first half of this year has been the rate at which we sign new and expanded joint business plans or JBPs with our clients. I haven’t spent a lot of time on this dynamic in the past, but I’d like to today, because I think this trend says a lot about how we are winning in the market and why that gives us optimism for the future and confidence that we can execute in any market environment. Joint business plans, or JBPs, our long-term deals that we sign with leading brands who aim to increase spend on our platform often over a multi-year period. In many cases, these agreements are signed with the partnerships and cooperation of the agencies that represent the brands. So as we continue to move upstream and get more direct commitments from CMOs and brand marketers, it is not at the expense of our valuable agency relationships. In the second quarter, we signed new and expanded JBPs at a record rate covering many verticals. For example, there were new agreements with some of the world’s largest automakers and technology companies along with significantly expanded deals with large global CPGs. Many people looking…

Thank you, Jeff. And good afternoon everyone. As you have seen in our results, Q2 was a very strong quarter. Revenue was $377 million representing an increase of 35% year-over-year. Our top-line growth of 35% is especially impressive, given we are comparing against a prior year growth rate of over 100% in Q2 of 2021. While the macro environment has created some uncertainty and we are not immune to it, we continue to gain share as more and more advertisers seek efficiency and measurable results in their ad spent, particularly in CTV. We also benefit from the diversity of our business model, including not only the breadth of advertisers and verticals we represent, but also the range of inventory we have access to across the open internet, which provides a long-term durability we are proud of. During the quarter, we benefited from a digital advertising environment that is shifting increasingly towards data driven buying and measurable results. Growth was broad-based across channels and verticals this quarter. We saw continued strength from CTV, which again led our growth from a scaled channel perspective. We’ve successfully completed a full transition to Solimar and our customers continue to see positive results as they utilize our platform to sharpen campaign goals, activate our industry-leading AI and leverage more data elements per impression. We are also seeing progress in our shopper marketing business. We have brought new partners into the platform over the past few months, and we are pleased to see increasing interest and adoption from advertisers utilizing shopper data in their campaigns. Although, it is still very early days for us spend that utilizes our expanding shopper data lineup continues to ramp very well. With the continued strong top-line performance in Q2, we generated $139 million in adjusted EBITDA, or about 37% of…

Thank you. [Operator Instructions] Okay. The first question is coming from Shyam Patil from Susque. Your line is live.

Hey guys, congrats on the results and the outlook. Jeff, I wanted to ask, this is now the second quarter in a row where your results and outlook are significantly better than, what we’re seeing from other app supported companies, especially in the face of a slowing macro. And I was just wondering if you could just maybe talk a little bit about, what you think is driving that outperformance? Thank you.

Thanks, Shyam. Well, so first let me just say, I’m incredibly proud of our Q3, r the start to our Q3 and especially our performance in Q2. But let me just highlight just a couple of the things that have really gone our way in Q2 and given us so much momentum going into Q4 or going into Q3 and Q4. First, we have an amazing secular tailwind of CTV, arguably the best secular tailwind we’ve ever had. Second, we are of course, seeing the benefits of Solimar, which we’ve gone to a 100% and it just has all these benefits to our clients. Third, we’ve got this, this momentum around the joint business plans where we’re just getting closer to brands and we’re creating better partnerships with each of them. And one of the things that they’re excited about is just our relationships in shopper marketing, the overall call, we started with the very biggest retailer in the world in Walmart and we just continued to expand on that. We highlighted some of those included Albertsons during the prepared remarks. But I do want to emphasize that we have never claimed to be a bellwether of the economy or of advertising yet. And what I mean by that is, I think a lot of times people look at our performance and say, how is this so different than everybody else’s? And what is often happening is, we are winning because of those secular tailwinds and because programmatic is growing share and because digital is growing share and meanwhile it is possible to have some macroeconomic headwinds in our face and have a secular tailwind of CTV and all the things I just talked about that, that overshadow that. And I think what we are seeing right now is just an amazing trend, which is that, that CTV in particular is extremely competitive. It’s also extremely effective. And so, as people are looking for alternatives to walled gardens they are looking to companies like us, who can give them objectivity to buy across all these fragmented places. Many of the smaller walled gardens, I think are especially under pressure. And as I’ve said, I think CTV can be the thing that brings down the walled gardens. But that’ll start with those that are smallest. So, I think often, we’re being compared to walled gardens of various sizes, and I don’t necessarily think that the fair comparison, and of course, I think we’re also in anomaly from the macro. So, hopefully that par is out all those things, but I’m really proud of what we did in Q2 and really optimistic about our Q3.

Thanks, Shyam.

Okay. The next question is coming from Vasily Karasyov [Cannonball]. Your line is live.

Thank you. Just to follow up maybe on this, on the first question, can you, Jeff, please talk about what’s going on in Connected TV. I’m sure, that some Connected TV players reported fairly slow growth in Q2 and guided to continued slow growth in the remainder of the year. So and if I listen to your remarks and assuming that your Connected TV spend is growing at least double your overall spend, that would imply at least 50% growth. So can you explain to us, how to understand that what the diversification is about and does the quick follow up there, maybe you can tell us about how you use the terms scatter market and spot market in Connected TV that sort of became a thing this earning season?

Yes, no problem first. And thanks for the question. So, as I mentioned, CTV is a secular tailwind that it continues to help drive our business. I would even say it continues to lead our business, including our growth. The scale that we’re seeing is amazing. And the changes in the world, including the pandemic, which made everybody stay home and stream a lot more, have created changes to the ecosystem that I don’t think anybody predicted. And, if you just take a step back and you think about if five years ago, you would’ve thought that HBO and Netflix would be showing ads I think a lot of people were public about saying that isn’t going to happen and it’s happening now, so there are these tailwinds that I just can’t overstate. And that as a result, CTV is often becoming the place where the very first dollar it is spent. But one of the things, I really like about your question and it gives me a platform to talk about is, okay, well then why isn’t everyone in CTV seeing the same sort of growth that you are seeing? And there are a couple reasons for that one. There are some companies that are deployed the walled garden strategy, which is that I have something special either on my operating system or on my channel, and you should buy that exclusively through me. And as I mentioned in the prepared remarks, no one in CTV has a position that is strong enough to be draconian the same way that you can in other parts of digital like search or social or some of those others. So as a result those tactics, I think are proving more difficult as more and more choices are coming online. So a platform…

Thanks, Vasily.

Thank you.

Okay. The next question is coming from Brent Thill with Jefferies. Brent, your line is live.

Great. This is James on for Brent. Thanks for taking my questions. Jeff, could you just spend a little more talking about – a little more time talking about what the Disney partnership means for your business? How much access does this deal give you to Disney’s premium CTV inventory and to what magnitude does it grow your footprint for UID? That’s my first question. And my second is for Blake just around hiring plans. We’ve definitely heard a lot of companies in the ad industry pulling back on hiring. So just would love to hear where you guys sit on hiring plans for 2022. Thanks.

Awesome. Thanks. I’ll go first and I’ll let Blake go and just to order you asked the question. So let me first just reiterate our strategy in UID2. So first, we created UID2. We open sourced it, we gave it to the ecosystem. This is not ours, but it is something that we really want to see successful because we think there needs to be a privacy safe currency that makes it possible for personalization to take place at large scale. That needs to replace cookies, but it also needs to do way more than that. And when people reduce it down to a discussion about replacing cookies, it doesn’t really capture what it’s about. It is a currency of the Internet that makes personalization and privacy control way better than it exists today. The way that you win that way, the way that you fix the infrastructure of the Internet, which can be massively upgraded, especially so that consumers have more control over privacy is that you partner with the infrastructure. Many might mistakenly think the way that you change the infrastructure of the Internet as you partner with millions of publishers or millions of apps or hundreds of content creators in television. And instead, it’s to start with the infrastructure. So the deal with Disney wouldn’t have easily been done if we hadn’t already partnered with Salesforce or Snowflake or a Adobe or AWS, some of those infrastructure plays that make it possible. But because we had it made it easy for us to then have great conversations with Disney. Additionally, Disney has done an amazing job of assembling all of its different assets, including Hulu, which was one of the first Connected TV plays to really understand the benefit of highly relevant ads and high CPMs that…

Yes, sure. James, regarding your question on the hiring, I just would take just a real quick moment to step back a little bit. If we think about where we are in our business, we have – we’re in one of the greatest situations I think a company could ask for, right. We’ve got high top line growth, high EBITDA growth with strong margins and we also generate solid consistent annual free cash flow. And so having those three things operating together for me, it’s got super special meaning as you can imagine. And what it does is it gives us the opportunity and the ability to be deliberate with our choices. And in doing so, I’m also proud of our ability to stay disciplined with those investments, regardless of the operating environment that we’re in. You mentioned what other companies are doing. And based on what we’re hearing, well, there are many of our peers that might have more resources, that are pausing, hiring or cutting investments because they invested too aggressively. We didn’t get ahead of ourselves the last couple years like I – it sounds like many companies did. And I think that’s really paid off for us. It’s given us the ability to stay the course and be deliberate about our investments, and including hiring, which is one of the largest ones that we will entertain. And so like we mentioned earlier this year, we expect to increase the pace of our investments as we focus on the long-term growth of the business, but we’re always going to stay mindful of long-term productivity supported by our business model. So with regards to hiring and how it affects expenses and such, our Q2 EBITDA was super strong and that included our first full company in-person event that we had in over three years. Our Q3 forecast reflects that investment thesis that we can continue to generate strong EBITDA and invest for the long-term. And we’re focused in hiring in areas that fuel our growth, whether that’s engineering or business development or account management roles. And so I’m comfortable with the trajectory that we’re on and where things stand. And I really think that we can pursue those investments in an operating expense structure that we believe is actually better than pre-pandemic. So I really like the position we’re in to drive more efficiency, more EBITDA and free cash flow, but also as we scale. And so I’m really excited about our situation there.

Thanks, James.

Okay. The next question is coming from Youssef Squali with Truist Securities. Your line is live.

Great. Thank you for taking the questions. And obviously congrats on a really strong performance all things considered. Jeff with the – with Netflix going with Microsoft and Xandr being SSP, but also DSP itself. What does that mean for the Trade Desk opportunity with Netflix over time? And as there is going to be a great deal of inventory coming into the CTV market from Netflix, and I guess others just, could that be a depressing factor for pricing for Connected TV in the short and medium-term? Then Blake, maybe just a quick one with Solimar’s adoption at now a 100%. I think that’s what you said in the prepared remarks. Anyway to help quantify the contribution of that software upgrade to the outperformance this quarter. Thank you. Thank you so much.

You bet. Thanks, Youssef for the question. I actually was hoping somebody would ask about Netflix and Microsoft, because I think it’s one of the most exciting scenes that’s happened in our space in it in the quarter. So let me first just restate something that, that Netflix stated on their earnings call, which I think is a direct quote, it’s still early days. So Netflix has been like learning about the advertising business or in the advertising business for only a few months as they’re – have established a very important, but early partnership. But I – for one was very excited when I learned that they had selected Microsoft for a number of reasons, as many of you know, I worked at Microsoft before I sold the first ad exchange to Microsoft. I in fact introduced the President of the ads division to – at the time, the CEO of AppNexus, which later became Xandr. So it’s been a part of my personal journey, as well as the fact that I’ve just been very close to AppNexus and Xandr, of course, Xandr now being owned by Microsoft. Xandr, as you point out Youssef, it has a small DSP, but it is primarily an SSP. They primarily focus on the sell side. If you look at the – if you were to stack rank the major players of demand for CTV, I think you’d find that we are the largest and somewhere around number 10 near the bottom of the top 10 list would be Xandr in terms of size. I would estimate that they provide less than 10% of the demand to other independent inventory or content companies. So as a result, what I think that means for us and for the open Internet is that the role…

And then with regards to your question on Solimar is a high. I’m really excited about the traction that we’ve seen that I think the product really separates us from the competition and we did reach a 100% usage. I think that it took us about a year to get there. I think the last major product update check like 50% longer in the amount of time it took. So it’s a real Testament to the team and the value that I think we’re providing the customers that are doing that upgrade. And so on a usage basis, the trends look good like average data elements used per impression, it’s more than doubled for the same customers on our previous platform. Average channel usage has increased over 50%. And then the AI, machine learning element that we have the adoption on that on Solimar, I think it increased around 50% versus the prior platform. And this is all about getting customers a better ROI. If we can do that, they’re going to return again for future campaigns and we think it – what that does is it spins the flywheel for everybody for us included. And so just really excited about the momentum here and really proud actually what the team was able to deliver.

Thank you, both.

Thank you, Youssef.

Okay. Up next we have Tim Nollen with Macquarie. Your line is live.

I peak my interest, especially about the spot market response a few questions ago being a forward market and how it’s different from scatter. You also mentioned in your prepared remarks about a forward market product. I wonder if you could help maybe explain a bit more, what that is. Is this something that sets you up for more of a upfront participation for CTV guaranteed deals next year or maybe just a bit more color on what that is. And then I’m assuming Unified ID 2.0 will factor in to all of this. And you said you’re optimistic about this becoming kind of a transaction standard for this year. Would UID2 be playing a more prominent role in measurement or attribution of CTV ads going forward?

Thanks for the questions, Tim. So maybe aside from CTV, my favorite topic to talk about is actually forward market. And I especially love to talk about it in the context of investors, just because you live the concept every single day, even though, it’s somewhat more into advertising. So first of all, the upfront this process where you commit to buy ads on television was a process that was created in the early 60s. In fact, we’ve sort of jokingly made comparison, maybe half jokingly made comparison to the fact that the audio cassette was invented the same year that the TV upfronts were and audio cassettes obviously have evolved, we don’t use them anymore in our daily lives, but the upfront hasn’t changed much and the process is exactly the same. You have a party or an event, where you commit dollars to advertising for the better part of the year with the absence of data and transactions like it’s just – in a way it’s even strange that as an industry it’s still happens that way. I mean, if we had a forward market for tulips, that was exactly the same as it was 400 years ago. We would look for ways to evolve. We would do something different. So the forward market that we’re developing with our partners is much more like a commodities market, where you have forward contracts, you use data and forecasting to get the benefits of commitment. And the thing that is really amazing about TV ads in particular is that publishers are willing to take less money if you’ll commit to buy it in advance. And advertisers are willing to pay more money, if they can have the assurance that they’re going to get it. I mean, imagine, you wouldn’t spend…

Okay. Next we have Shweta Khajuria with Evercore ISI. Your line is live.

Okay. Thank you very much. Let me try two, please. So, Jeff for the business, there have always been several growth factors or growth vectors from international to shopper marketing to CTV to Solimar to UID2. Now with Solimar fully integrated and CTV clearly driving growth. How about the other three, the UID2, international and shopper marketing? Does the extension of cookies – cookie deprecation change your focus or investment towards UID2? And then how are you thinking about international and shopper marketing in general over the next six to, call it, 18 months. And then a question for Blake, is possible to get the magnitude of contribution from retail or Walmart and other partnerships, as well as political spend for the third quarter. That’s baked in your guide. Thank you very much.

Yes. So I’m glad you’ve asked about just these other growth drivers and of course, how does UID affect it and especially just how does the deprecation of cookies affect UID and international expansion and shopper marketing? So I’m not certain that we made this as clear as we could’ve in the prepared remarks. Cookies and ads that are bought inside a browser, because cookies are only relevant inside of a browser at least directly relevant inside of a browser, represents a small percentage of our business. Display is a small percentage of our business. It’s – as a percentage, it’s shrinking, even though, we’ve seen growth, because growth in other areas are growing faster. It’s still continues to shrink. So it’s a small slice of the pie. What are much bigger are things like mobile, which don’t rely on cookies or CTV, which don’t rely on cookies. They have other ways of creating identity. That, of course, in CTV, nearly everything you do is on the other side of a login, meaning you log into Netflix or you log to Amazon or you log into Peacock or Paramount or Hulu before you view content. And that makes it very prone to be interoperable with something like UID2. So there’s no cookie problem to solve in TV, but everybody in TV needs more subscribers, and I believe everybody in TV needs to offer an AVOD solution for those subscribers that would rather pay with their time than with money. And especially when you have to keep providing or making rate hikes in order to pay for incremental content. So the cookie changes don’t slow down UID at all. And in fact, I’ve always said that the biggest threat to the walled gardens is the competitive nature of Connected Television. That’s…

And then to follow up sort to on your other questions, I think, on the shopper marketing component, we don’t break out that level of detail in our shopper marketing business. The only thing I could just say is that, we are seeing the spend ramp, it ramped into Q2 is more large brands, test our testing and adopting it and we expect that to continue. I think just the selection opportunity that our customers are going, are now having is going to be a flywheel spin for them that I debate in my head, whether they’re going to be able to get it very many other places, if any. And so I think that’s just such a long-term opportunity for us like Jeff said, I’m just; I’m super excited about it. And then with regards to your question on political, in the midterms, the spend will occur much closer to Election Day than we might find in a presidential year, like we expect to see that start ramping here over the late summer. I would say through November, there’s so many races out there that are going to be competitive, and we’ll just have to see how competitive, whether it’s the House the Senate, governor campaigns or whatnot. I think that our overall expectation, and is that the in Q3, we expected to be a low single-digit percentage spend in Q3. And that was in our prepared remarks as well. But overall just with regards to political, what I would say is, our goal is to it’s to run a better process, it’s to earn trust with our customers. We’ve been building this business over quite a few years. We’ve got really high retention rates with our customers. We do believe, we’re the go to platform for digital advertising now versus maybe other social media platforms. And so we do expect some tailwinds. That’s why we called it out in the guidance, but we’ll have to see how this all unfolds into the back half of the year.

Thanks.

And then John, we can squeeze in one more.

Okay. The next question is coming from Brian Fitzgerald with Wells Fargo. Brian, your line is live.

Thanks guys for squeezing me in this. Just as a quick follow up to the forwarded market concept. We wanted to ask about refundability or resalability of inventory, if you will. If an advertiser takes delivery, for example, finds out that an impression or a consumer is already a customer Jeff, are you envisioning that advertisers would’ve the ability to resale inventory and any thoughts on the dynamics there in terms of market liquidity, and participation, and really potential financialization of the market? Thanks.

You bet. So, I think at initially what you’re going to want to see is control from both publishers or content owners and advertisers in terms of who shows up? Who has access to it? But I do think that in the long term, and we’re talking years from now, one way that you can get buyers to sign up is if they buy too much, they can sell it to somebody else. And so I do think it’s possible to see a derivatives market exist sort of on top of that forward market, so that you can essentially transact in the rights to buy those so that you can secure inventory. But making them fungible makes it, or resellable, or both rather, as I think a really important part of the market in the long term. So, I do think that that component will exist in the long-term, but the most important thing in the short term is to take advantage of the fact that you can bring data to bear that publishers want guarantees and all the benefits of programmatic advertisers would like to reserve inventory and have all the benefits of programmatic, which includes the ability for them to bring their data into the equation. In traditional television, as well as in the scatter market, advertisers can’t really bring their own data to the table. So, the forward market would enable them to do that, which would help prices go up and is really going to benefit, both the buyer and the seller. I think there’s going to be a lot of rules that exist for years to prevent the resale of that. But I do think long-term the economic incentives are there for that to exist. It creates an amazing market. And I don’t think that there’s any company that’s better positioned to benefit from this market than The Trade Desk, because of the role that we play by looking at everything by looking at nearly all inventory, because we don’t own it. We make it possible to partner with all of it. And I think we can easily become once again, the world leader in providing demand, not just in the spot market, which we already are today, but also in the forward market, which is why we’re working so hard to create it, and leverage the relationships that we’ve been tending to for more than a decade now.

Thanks, Brian.

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