Greetings. Welcome to The Trade Desk First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin.

Thank you, operator. Hello and good day to everyone. Welcome to The Trade Desk first quarter 2023 earnings conference call. On the call today are Founder and CEO, Jeff Green; Chief Financial Officer, Blake Grayson; and Executive Vice President of Finance, Laura Schenkein. 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. These forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. Actual results may vary significantly and we expressly assume no obligations to update any of our forward-looking statements. Should any of our beliefs or 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. With that, 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 our press release, we are off to a very strong start in 2023. We reported first quarter revenue of $383 million, representing growth of 21% compared with last year, again exceeding our own expectations. And has been in the case in the last few quarters, we continue to significantly outperform the digital advertising industry. We are gaining market share as advertisers embrace the precision and relevance of data-driven advertising on the open Internet via our platform. Even as most brands and advertisers continue to deal with some level of uncertainty, they are increasingly shifting more of their campaign dollars to decision, data-driven opportunities, where they can have more confidence that those dollars are working as hard as possible. As a result, we are signing multiyear joint business plans, JBPs; with the leading agencies and brands, some of which represent spend projections that exceed $1 billion. From the beginning, our goal has been to align our incentives with the buy side. This continues today. Because we do not own any media and because of our unwavering commitment to the demand side, our clients trust that we represent their interest alone and we continue to innovate our platform to bring maximum value and ROI for their brand and agency campaigns. With that in mind, I'd like to focus my comments today on a few key areas. First, CTV; second, AI, including generative AI; third, agility; and fourth, the combination of OpenPath and identity. So first, the transformational impact of CTV. In the first quarter, video which includes CTV, was the fastest-growing channel of our business. And our CTV growth is not just here in the United States. CTV continues to grow rapidly, both in EMEA and across Asia.…

Thank you, Jeff, for the kind words. And good afternoon, everyone. I am immensely proud of our achievements as a company and it has been an honor to work with Jeff and the leadership team as well as so many talented individuals at The Trade Desk. I'm leaving for a new challenge knowing the company is well positioned for the future. Laura is an extremely well-respected and accomplished colleague and has my full confidence as she assumes her new role. Now on to our results; Q1 was an exceptional quarter of financial performance and execution for The Trade Desk. Q1 revenue was $383 million, a 21% increase year-over-year. Our Q1 performance was bolstered by the growing trend toward unbiased, data-driven advertising on the open Internet. This shift has played to the strength of our platform as marketers become more agile and deliberate with their digital advertising. While some macro uncertainty in the market has led to relatively uneven ad budgets, we are seeing increasing numbers of marketers embrace our platform to take advantage of our flexible and data-driven approach. Our success in Q1 was demonstrated by several key achievements. Our performance in the CTV space remains robust and we continue to achieve strong momentum in retail media, further solidifying our position as a leading player in the industry. Strong growth returned to many of our key international offices. The growing adoption of UID2 by major advertisers and publishers speaks to the value that is placed on identity in the open Internet ecosystem. In addition, we deepened our partnerships with clients by expanding our joint business plans on a global level, a testament to our unwavering commitment to providing outstanding value and results for our customers. In addition to strong top line performance, in Q1, we generated $109 million in adjusted…

Thank you, Blake. And thank you, Jeff, for the kind words. I'm incredibly excited to be taking on the CFO role starting next month. I feel fortunate to have worked with Blake these last 3.5 years. It's because of his and Jeff's mentorship that I feel well prepared to take the baton and build upon the strong foundation they've set for CTV's future. Turning now to our outlook for the second quarter. While macro conditions remain uncertain, visibility has improved slightly since the beginning of the year. We are cautiously optimistic and estimate Q2 revenue to be at least $452 million which would represent growth of 20% on a year-over-year basis. Excluding U.S. political election spend which represented a low single-digit percent of spend in Q2 2022, our estimated revenue growth rate in Q2 of this year would be about 21% on a year-over-year basis. We estimate adjusted EBITDA to be approximately $160 million in Q2. As Jeff has outlined, with the large addressable market in front of us, we see significant growth opportunities and continue to invest thoughtfully in the business. We continue to be one of the few technology companies capable of consistently generating high top line growth, significant adjusted EBITDA margins and free cash flow. This enables us to continue distancing ourselves from the competition in areas such as platform renovation, customer service identity and supply chain optimization. In addition, this year, we remain focused on hiring to support future growth, although at about half the rate of 2022 as we expect our year-over-year headcount growth to continue to decelerate as we progress throughout the year. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

[Operator Instructions] Our first question comes from Shyam Patil with Susquehanna.

Congrats on the strong performance. And Laura, congrats to you. And Blake, all the best. I just have one question. Jeff, we're hearing a lot about walled gardens starting to open up and this is something that you've talked about for a while now. Could you just talk about what you're actually seeing on this front? And how you think about the benefits and the timing of benefits to Trade Desk from this move?

Thanks, Shyam. I appreciate the kind words and also the question. So let me start by just restating something that I've said many times over the years. I do not believe the walled garden strategy is a good long-term strategy for anyone. That includes even the biggest, the Googles and Facebooks and Baidus, Alibabas and Tencents [ph] of the world. But it's especially bad for the smaller walled gardens. And there are a lot of players that have been essentially comping the Google, Facebook playbook and creating friction to buy their inventory. And as I've said before, I think that the cracks in that strategy or in those walls show up in proportion to size and they're the result of sort of economic pressure that when you have more supply than demand, you want to welcome more demand and not make it harder to buy your inventory. So it's natural that in an environment where there's a lot of pressure and, certainly, the advent of CTV makes, so there's more options in the open Internet than there's ever been before that, that puts pressure on all walled gardens but especially those that are smaller. So you might be commenting on a number of specific companies who've been more public in the market, talking about how they're opening up. And they're using phrases like "We're opening to other demand." And that's very exciting for us and I do think that's indicative of what's to come. One thing I just want to encourage everybody to do, though, is to scrutinize the type of demand that they're opening up when inventory is available in price discoverable ways, where we can bid on it and understand exactly what we're bidding and not just plug into an API and transfer budgets but to actually know what we're buying and do what we do in the rest of the Internet and with our core business. That is extremely exciting to us. When you can layer on top of an identity which, of course, we're going to talk more about in UID undoubtedly, that also creates just opportunity for higher prices for them, more price discovery for us and that's the sort of everyone wins situation. And we're seeing more and more talk about moving in that direction. We're seeing some movements heading in that direction. I'm very optimistic that, that will continue. But right now, there's a lot of early discussions and that's just the byproduct, I think, of just some of the economic pressures and the alternatives and also the advent and success of UID2. So all of that together, I think, is really creating yet another secular tailwind in our favor. So very excited about it and appreciate the question, Shyam. Thank you.

Next question comes from Justin Patterson with KeyBanc.

Great. I'd also like to issue my congratulations to Laura and best wishes to Blake. My question for Jeff. There's a perception that shopper marketing is just a new form of targeting. Could you express your views on this? And just how measurement in the approach to marketing efficacy has changed with this approach versus that retargeting model of the past?

Thank you, again, for the kind of words. And I really appreciate this question. If I do this well, I can avoid writing another offense because this is something that's been on my mind for a little while. And I'm just -- I'm so glad you've asked the question. So those that have argued that shopper marketing is just a new form of retargeting don't really understand the significance of what is happening in shopper marketing. So if you, first of all, sort of visualize the purchase funnel, where at the top, you're creating awareness, it's also where most of the surface area of the funnel is and at the bottom is where a purchase gets made. Retargeting is a small sliver in the middle of that purchase funnel, where somebody has expressed interest with the shopping cart. They filled it out but then they didn't actually purchase. And so then you -- if you do it badly, the way often our industry does, you just harass the person until they buy it. If you do it well, then you do that in a metered approach. But it is just a small sliver of the marketing budget that is spent to get the customers that almost got to the finish line but didn't. Shopper marketing is the entire funnel. It is a new segment that widens the entire funnel, where, first of all, you're able to measure all the way to the very bottom of the funnel. So you're able to see who actually went to Walmart and bought the razor. And if they did buy the razor, now it can look alike model and go find 100,000 people that look just like them. And then I go create new awareness and I move them down the funnel. Will retargeting…

Okay. The next question comes from Vasily Karasyov with Cannonball Research.

Wanted to ask a question about OpenPath and SPO. When I read the industry blogs and press. It seems like the peering DSPs and SSPs against each other's competitors. There is a narrative we talk about each player trying to disentimidiate and charge the other players. So it seems very hostile environment in the industry right now according to the industry press. So Jeff, could you provide us your view on what really is going on there and where we're going with respect to supply chain optimization here?

Absolutely. Thank you for the question. It's funny. The last one I said, thanks for saying in Open, almost done with the open in this one which will come out early next week on the current. But I really appreciate the question because I do feel like there's a phenomenon here that feels a little bit like reality TV or something, where there's just so much effort to create drama in our space including in places where there is in drama, that I appreciate the chance to clarify. So let me just reiterate what we said in the prepared remarks. OpenPath is a product that directly integrates with publishers and content owners so that they can see the demand that we're bringing. It is not us getting into yield management, where we're providing the service to publishers and content owners to get them the highest CPM possible. Because for the most part, we're trying to get lower CPMs on behalf of buyers. They want the best value which is they want something that's going to perform and give them great brand equity but they want to pay as little as they have to, to get that. That's for the most part, the exact opposite of what publishers want. So we can't play both sides without creating the conflict of interest that we're extremely critical of in walled garden. So we wouldn't sign up to go do that, given how public we are in our criticisms of those that try. And so -- but I will say that the supply chain of digital advertising is extremely convoluted and there's lots of inefficiencies and complexity. I think it's one of the most complicated supply chain of any scaled market in the world. And I do believe that it's impossible to talk about…

The next question comes from Youssef Squali with Truist.

And congrats on the solid quarter. Blake, best of luck. And Laura, congrats on the new assignment. So Jeff, on AI, I think we can all see the potential impacts on content creation, ad copy, A/B testing, et cetera, et cetera. I'd love to hear your thought as to how AI is likely to potentially impact the competitive landscape within your industry. Does that give a potentially competitive advantage to those that have been investing in the technology maybe a little longer than others? And how are you guys, in particular, how is Trade Desk kind of inserting more and more of the new capabilities into your product road map?

Amazing. First of all, thank you so much for the question. If I could have chosen the questions today, I probably would have chosen those similar to this, I probably would have moved AI actually up. I'm almost shocked that we got through 3 questions without talking about AI, so I'm so excited to talk about it. I've never seen a topic that is so hot or hotter than what AI is right now, not cloud, not blockchain. I don't even know that dot-com 20 years ago was hotter than AI is right now. So I'm excited that we're talking about it but this is not a new topic for us. So first of all, when we first wrote our business plan, we talked about how this was the fusion of man and machine. And the analogy that we used in the very beginning was that a pilot and copilot, where human beings are often good at creating hypotheses and especially given that we operate in an industry that is about essentially predicting and influencing human behavior but there is always an opportunity for human beings to create the emotional and make it an emotional appeal. But after you do that, there, of course, is a role for machines to play. And following the data and learning, revising those hypotheses and iterating, testing blue creative versus the red creative. And of course, blue and red in terms of the different types of creative have evolved into all different types of generative AI, where creatives can do a whole bunch of different things. There's so much opportunity for AI to play a significant role. You may also recall that when we launched a new product in 2018 that we call it Koa and it was our AI solution that helped advertisers…

Next, we have Jason Helfstein with Oppenheimer.

Jeff, I'll ask one. How are you thinking about the benefits to advertisers from using Trade Desk offering for connected TV PMP or kind of like the upfront product versus what the SSPs are pitching? Is there kind of PMP but they're their kind of direct product? And then kind of what the downside risk would be to the publisher from either solution?

Yes. So there is this opportunity for buyers to look across all reach and frequency and all the different places that they buy and summarize that all in one place and that is one of the benefits that the Trade Desk brings to the table, is that people tend to come to us and say, "I need to have a holistic view." And because CTV in particular, is fragmented, as I've said before, perfectly, meaning that it's not too small that there's millions of websites, we have dozens of outlets but it's not too aggregated so that we only have one place to buy which is not that dissimilar from what search is, where you buy from one place or what much of social is. So by having it fragmented, that makes it so needing somebody to look across, everything becomes very important. Now in the cases where you're buying programmatic guarantees or you're buying at a fixed rate and you're not controlling frequency across all these different things, then you lose a lot of the benefits of programmatic. And in fact, you lose decisioning. So what is sometimes happening is people are buying at a fixed rate. They're going to the seller and saying, "Hey, in the short term, I don't need to control reach and frequency. I don't even care about decisioning. I'll let you, the seller, decide which impressions I get. I just need to move this over from broadcast or traditional television into the digital ecosystem." And in that, given that you've sort of weakened the value proposition of programmatic, it is a bit of a jump haul. You could do that with an SSP or a DSP because you've gotten rid of all the benefits or the best benefits of programmatic. So that's where others…

The next question is from Tim Nollen with Macquarie.

I've got a CTV-related question as well. I was listening to the Disney call just before your call started here. And Bob Iger said some very interesting things related to CTV and programmatic, I mean, including saying that they've added 1,000 new advertisers using programmatic. 1/3 of them are -- 1/3 of advertisers are trying programmatic. They're talking about their pricing tiers, seeing the value of programmatic ads in driving advertising revenue for them for their ad-supported tier and so on. My question then is, given the Forward market event that you had a month or 2 ago and the talk -- the conversations you've had, Jeff, with both sides, maybe if you could just give us a bit of insight into how you're working with -- is it Disney? Or if you don't want to talk about Disney, specifically other network groups as to how to get them to offer more of their ad inventory inhabitable format, not just doing the insertion orders and if this is something that you're participating in actively in the upfront market which is due to start next week.

Absolutely. I really appreciate the question and I heard some of those remarks before I jumped over, of course, to focusing on ours and we're very excited by the remarks that Bob made. Let me first just say I'm so proud of our partnership with Disney and what we've done there. I'm also excited about the fact that both Paramount and MBC announced their adoption of UID2 in Q1. So as it relates to all the major content owners in the United States, everyone now has spoken publicly about their adoption of UID2. And I think all of this, whether Bob's comments or the adoption of UID2, is a commentary on the state of streaming competition. So -- and actually, the numbers with Disney are also a commentary on that. They're trying to grow but also be profitable and there's a lot of pressure on the current environment and on cost. So what that means is that people need to do more with less. And especially the content owners, they need higher CPMs so that they can fund all the content and make the same money that they've been making as people continue to make more and more content and the market gets more competitive. The only way to do that is to make the ads more relevant and more effective for the advertisers. The only way to do that is to leverage same-site UID and transparency and biddable marketplaces so that we can participate and get that increased value. What we're most excited about is all of these are moving more towards biddable. So in light of what we just said in the last question when we were talking about how -- when people don't want decisioning, then they can use dumb pipes to execute that. That's not in…

Next question is from Matthew Cost [ph] with Morgan Stanley.

This is Chloe [ph] on for Matt. Just as we think about OpEx leverage throughout the year, are there any areas that you would call out in the second quarter and going forward, where you're looking potentially to gain a little bit of leverage in the model? And then second, on the key investment priorities, it sounds like you have so many exciting products and so many moving parts between CTV, the retail media opportunity, UID2, OpenPath, like there's a lot to unpack there that you're focused on. But what do you think is going to contribute most significantly to growth this year? What are you prioritizing? And then what's a little bit more of a longer-term project?

You bet. So on the OpEx, I'm going to ask Laura and take the first part of it and then I'll add a little color on that and then I'll also talk about the investment opportunities or feel free to chime in on both.

Absolutely. Thank you, Chloe, for the question. When we look at the big picture for Q2 and the rest of 2023, we're excited. We have a great luxury. We're high growth. We've got profitability and we've got cash flow. I'm proud of how we stay disciplined with our investments over the past few years as it's really paid off. Unlike many of our ad-funded peers and other high-growth tech companies, we've responsibly managed our headcount and operating expense growth since 2019. And since our revenue is still growing well in the double digits while others are contracting or in the low single digits, we intend to and can stay the course and grab share even while our peers are pulling back. So we do expect for 2023 that our operating expenses will increase year-over-year both with and without stock-based compensation and we continue to be extremely deliberate in our investments and our hiring. So our headcount will grow this year but roughly half the rate as it did last year which sets us up nicely for the rest of the year and for 2024. And on the second part of the question, we still see significant opportunities to invest in areas like CTV, data and retail media. So as we've seen in the past, when we outperform on the top line, that usually drops through to the bottom line. We saw that in Q1. And we are comfortable with where things stand and cautiously optimistic about growth this year and say that, especially as we think about significant tailwinds in 2023, that set The Trade Desk apart from other companies and that can help offset anything we see in the macro environment. And by that, I'm talking about a strong GBP pipeline which bodes very well for future growth. CTV as a channel continues to grow incredibly fast. And in the big picture, we still have a relatively small amount of share and lots of room to grow. And then as we've been talking about retail media, we're really just scratching the surface of a $100 billion plus incremental TAM opportunity and all of that makes us extremely excited. Jeff, I don't know if there's anything you would add.

That was amazing. Very impressive, Laura. Thank you. I don't have anything to add on the OpEx. On the investment side, I'll just add, let me first just say I am so excited about the moment that we're in right now in the ecosystem as well as just all the macro conditions that sort of frame this moment for us. And I recognize that there's lots of uncertainty and managing that day to day isn't always fun. But overall, it just creates this amazing opportunity for us and I just want to explain why. So first, we have an opportunity to continue to invest in our people and to grow our culture. So during the pandemic, managing our team and preserving our culture was really hard. Everybody was remote and things like that. It's just -- it was very difficult, in part because of the decisions that Blake and I made to make certain that we didn't invest too aggressively. We were -- we never had to do a layoff. We never had to hit the brakes too hard. And now we're in a moment where we get to continue to hire and he's really set things up well for me and Laura to continue on that path. We are hiring today. And unlike 1.5 years ago, where we were competing with every other company seemingly in the world, especially in Silicon Valley, now we're hiring from those companies and we're not competing with them at all. And so we're able to very carefully choose people because we were one of the first to come back to the office. We were -- we have a culture that's really well intact and we're hiring into that and that allows us to grow. And when you're trying to hire engineers, especially when…

John, you can close out the call.

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