Greetings. Welcome to The Trade Desk Third Quarter 2024 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 afternoon to everyone. Welcome to The Trade Desk third quarter 2024 earnings conference call. On the call today are Co-Founder and CEO, Jeff Green; and Chief Financial Officer, Laura Schenkein. A copy of our earnings press release is available on our website in the Investor Relations section at thetradedesk.com. Please note that aside from historical information, today's discussion and our responses during the Q&A may include forward-looking statements. These statements are subject to risks and uncertainties and reflect our views and assumptions as of the date such statements are made. Actual results may vary significantly, and we expressly disclaim any obligations to update the forward-looking statements made today. If any of our beliefs or assumptions prove incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. For a detailed discussion of risks, please refer to the risk factors mentioned in our press release and our most recent SEC filings. In addition to our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures is available in our earnings press release. We believe that presenting these non-GAAP measures, alongside our GAAP results, offers a more comprehensive view of the company's operational performance. With that, I will now turn the call over to Co-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 again posted very strong growth in the third quarter. Our revenue grew 27% compared with Q3 last year, marking strong revenue growth acceleration on both a sequential and a year-over-year basis. Quarter after quarter, we continue to gain market share, outpacing the industry and our peers, both large and small. Even though it is now a considerable part of our business, CTV continues to be our fastest-growing channel and it shows no sign of slowing down. Partners like Disney, NBCU, Walmart, Roku, LG, Netflix and many others are deepening their relationships with us around the growing CTV opportunity. I could not be more excited about our position in CTV and the size of the growth opportunity for us in the years ahead. With our leadership in CTV as well as other areas such as retail media, identity, measurement and data, we are winning more business with both new and existing customers. We are signing more multiyear joint business plans with leading agencies and brands. In fact, over 40% of our business this year will fall under JBPs, representing spend projections in future years well into the billions of dollars. I have great optimism that The Trade Desk will continue to outperform the market and gain significant share. Exiting this year, we are set up exceptionally well for 2025 and beyond as we continue to execute in areas such as CTV, retail media and in markets outside of the United States. I want to start the core of my remarks by explaining why I believe our industry is changing at an unprecedented rate. I believe there is more opportunity for The Trade Desk than ever before. But in order to understand the significance…

Thank you, Jeff, and good afternoon. As our third quarter results demonstrate, The Trade Desk is executing at a high level, outpacing peers and capturing increased market share. We achieved robust accelerating year-over-year revenue growth while delivering outstanding profitability and cash flow. Key investment initiatives, including performance advancements in our Kokai platform, expansion in CTV, retail media and supply chain innovations like our OpenPath technology, are not only strengthening our foundation, but position us for durable growth in 2025 and beyond. Turning to our results. Revenue in Q3 was $628 million, representing growth of 27% year-over-year, accelerating from the prior quarter and year-over-year. We continue to win more share of our clients' advertising budgets as they increasingly prioritize platforms like The Trade Desk that deliver high-value results, especially in premium video and CTV. This trend is a familiar dynamic in our industry that we witnessed many times over the years. When CMOs faced pressure to achieve more with less, they turn to platforms like ours for flexibility, precision and measurable results. During the third quarter, CTV led our growth from a scale channel perspective once again. We saw strong momentum in retail media as we continue to win incremental shopper marketing budgets. International spend growth outpaced North America once again with notably strong performance in CTV. With the strong top line performance in Q3, we generated approximately $257 million in adjusted EBITDA or about 41% of revenue and free cash flow $222 million. From a scale channel perspective, CTV by a wide margin, led our growth again during the third quarter. In Q3, video, which includes CTV, represented a high 40s percentage share of our business and continues to grow as a percentage of our mix. Mobile represented a mid-30 percentage share of spend during the quarter. Display continued to…

[Operator Instructions] The first question today is coming from Shyam Patil from Susquehanna. Shyam, your line is live. Please go ahead.

Hi, guys. Great job on the strong growth and the results. I just had one bigger-picture question. Jeff, can you talk a little bit more about kind of what you're seeing in terms of the near-term macro for 3Q and 4Q? And then for next year, how you view the macro and set up for Trade Desk? Thank you

You bet. Thanks, Shyam, for the question. And for the kind words. So first, I just want to point out that the most significant macro vectors that I can talk about are the things that we itemized in the prepared remarks. So we've taken more time this time to talk about the macro vectors that are affecting us, especially into next year in the prepared remarks this time. So I just encourage everybody to spend a little bit more time with them because we spent a little bit more time preparing them. As it relates to the here and now, though, I'm incredibly proud of our performance in the third quarter, and we are currently firing on all cylinders, whether that's what's happening in CTV, it being both our largest channel and our fastest growing, which -- those two things don't usually go hand in hand or the amazing efforts in Kokai. It started the year as an engineering effort and has since turned into both an engineering effort as well as our sales and client services teams getting that adopted. The adoption has been phenomenal. The product is the best that we've ever shipped. So a lot going for us in that. UID2 has become the primary currency of identity in the open Internet. And then, of course, we have so much going for us in retail media and supply path optimization. I really do believe we're in a stronger position than we have ever been. As it relates to the macro market sort of in the here and now, I do want to just highlight that CMOs are dealing with a lot of uncertainty and a lot of scrutiny. And the uncertainty they've seen a lot of over the last few years, but the scrutiny, I don't know…

Thank you.

Thank you. Your next question is coming from Vasily Karasyov from Cannonball Research. Vasily, your line is live. Please go ahead.

Hi Jeff, I have a question about Google. As they remain under pressure from regulators, what are you seeing in the market in terms of how -- is it easier? Is it harder for you to get -- to win spend from brands? And then with Google Network business continuing its negative or – negative growth, does The Trade Desk really have any preference on what happens in this DOJ trial? Thank you.

You bet. Thank you. I appreciate the question. So first, a little bit of context. As you know, the Department of Justice already concluded one of its trials against Google on that of search. And the Department of Justice won. And I would argue that the case the Department of Justice has against Google on the ad tech side is even more compelling. It is more compelling, but it's also more complicated, which makes it a little bit harder to predict, but I think the case is incredibly compelling for the government. But regardless of what happens, I believe we will win. And I do want to underline the things that I said in the prepared remarks, Google is a phenomenal company. I think they have a tremendous amount of opportunity ahead of it as it relates to search and cloud and AI and Gemini. But it is clear that they have been deprioritizing network, and it has not performed the way that the rest of their business has. If I were in Sundar shoes, I would deprioritize it too, because of the opportunities that they have on those other fronts as well as just the nature of their business, which is pretty dependent on them making very high margins on media that has a cost of goods sold that is incredibly low. And the premium content of the Internet does not have a low cost of goods sold and therefore, makes it hard to move the needle on a P&L as big as Google's. So I anticipate that they will deprioritize it. But even if they don't, what I think is inevitable is that Google has to play more fair. What has clearly come out in the trial is that they have not always played fair, and that might be the understatement of call. But we have managed to win in an unfair market. I believe they will be forced, whether that's from government or just by their own choosing because this risk-reward is not worth it. So by their own choosing, I think they would make the market more fair and therefore, make it easier for us to do well. So that's why I maintain that regardless of what happens in the trial itself, I believe that we'll do well and that we'll continue to win. I think there are scenarios where the landscape looks very different depending on what happens to Google and regulation, especially on the supply side, which is at the core of the government's case, which underlines the fact that I don't think anybody is disputing as it relates to the trial itself, but The Trade Desk will continue to do well. So I think we're in a great position. I'm very excited to see the outcome, and I think we win no matter what. Thanks for the question.

Thank you.

Thank you. Your next question is coming from Jessica Reif Ehrlich from Bank of America. Jessica, your line is live. Please go ahead.

Thank you. Hi, Jeff, we've seen The Trade Desk deploy many initiatives over the years focusing on the supply chain from the gold standard for SSPs to UID2 to S&P 500+ and now OpenPath. Can you wrap this all together and speak about how the work you've done on the supply chain with OpenPath, and what this initiative means -- can mean to the value of The Trade Desk with its partners over the next several years? And I guess like secondarily, when do you scale? Because as you said, during the crawl phase with many of the users of OpenPath, I mean just starting like Disney and Fox, et cetera, and some that you've mentioned like Netflix, not even on the platform yet.

Thank you so much. Appreciate the question. A lot to unpack there. So let me first just give a little bit of history so that you and I bring everyone along in this question. So I love that you know about it because we weren't very public about the gold standard back in 2017, but we certainly talked to SSPs and at exchanges about it. I would essentially summarize that effort as us saying to the sell side, here's the sort of signal that we would like to see, and we are just going to tell you in advance. When we see this signal, we're more likely to bid up because these are the things that give us indication of value. We haven't always done that in the past. But we did start doing that in 2017. As you know, UID2 was an effort to make identity ubiquitous across the Internet. When we first announced it, a number of companies suggested that we would never be successful because they thought we'd have to get 2 billion consumers to sign up for us to have any sort of footprint. And we explained then that our play was not to go sign up 2 billion consumers or to go direct but instead to partner with the infrastructure of the Internet, and we've done that across the board. Then as you point out, in the last two years, we've launched two initiatives. One is the Sellers and Publishers 500+ as well as the OpenPath. Sellers and Publishers 500+ is meant to make it easier for people who are currently buying private marketplaces, which often have really slowed or small trickles of inventory and they don't necessarily realize how much they've limited their decisioning power by only considering a small amount of inventory. So…

Thank you.

Thank you. Your next question is coming from Shweta Khajuria from Wolfe Research. Shweta your line is live. Please go ahead.

Thank you for taking my question. Jeff, I have one on CTV growth. So it's your largest and fastest, you have a lot of catalysts that enable healthy sustainable growth in CTV. So when we think about the drivers over the, call it, next two to three years, how would you rank order the impact of secular tailwinds to third-party partnerships that you may expand to your forward product, international expansion, rising levels of ad tech or AI that will be used in measuring or anything else? Like can you please help us on back key drivers that will allow you to sustain growth at a healthy clip in the near to midterm? And then the follow-up is how do you see Amazon evolve as a DSP over the same timeframe?

Thanks for the question. You did a pretty good job of laying out all the other key secular drivers for us, the tailwinds that are helping. The first and foremost, over the last few years has been at times anxiety about will there be walled gardens in CTV, , not because we ever thought that was a viable path because I believe that is not a viable path because it's too fragmented. But instead, what all of the major players have come to understand is that when you have a premium product, the very best way to get the most out of it is to auction that off. And of course, to describe it in great detail. When you're not selling an average product, you have to describe it better in order to get the premium that you deserve. And that's true, whether you're selling cars or art or ads. And I would also add that conflict of interest is an even more inferior playbook in CTV than it is in any other channel or any other corner of media. So as a result, I would argue that Amazon operates at a much bigger disadvantage in CTV than in any other channel. So we've argued against Google's lack of objectivity in every other part of the open Internet and they've been less of a competitor in CTV. Amazon has been more of a competitor in CTV, but I think Google was a more formidable competitor in the other parts of the open Internet than Amazon is in CTV and that is simply because of that conflict of interest. They are going to be pushing ads on premium content that they own, meanwhile, neglecting premium content that others own, while we have no dog in the hunt, and we're just trying…

Thanks Jeff. That is helpful.

Thank you. Your next question is coming from Laura Martin from Needham. Laura, your line is live. Please go ahead.

Okay. Great. So Jeff, I'm just going to ask you one and it's the hardest question I guess. And that is that Trade Desk is growing two to three times faster than other SSPs and DSPs, even those that are public. Is there a tipping point would you eat too much of your competitors, you take too much share. And there isn't an open Internet for you to compete with or trade with and therefore, your growth gets limited by the fact that you must have trading partners on the other side and on the same side of the open Internet? Thank you.

Laura thanks for the question. I like this one a lot. I didn't see this one coming. So big picture, I believe that the advertising ecosystem around the world is about a $1 trillion industry today, especially when you include retail media. I think it's about that today. Lots of different numbers out there that aren't that too far away from that, but it just depends on whether you include retail in that or not. If you look at what we're doing, $13 billion, $14 billion a year at this point, we're just over 1% of that $1 trillion. I look at it as we have 99% of the pie left and there's so much opportunity for us to do more. As I'm looking at that pie and say, how do we not get distracted by all the different ways that we could go and all the different things that we could build and parts of the pie we could pursue, how do we stay focused, I look at the biggest piece of the pie and say, okay, there's the U.S., there's CTV and of course, up and coming channels like audio, but those represent, I think, the most premium opportunities for us to go pursue. I would point back to the comments in the prepared remarks about, we think that every company in ad tech needs to add more value than they charge or extract. Some of the companies in ecosystem don't think that way. They think about charging rents or extraction. And there's often a mindset that is ride the wave while it lasts instead of how do I build something that really lasts, that I'm adding more value over time, creating more consumer surplus where your consumer or your client gets more value over time and therefore, making it more, more and sustainable and making your customers more and more loyal. I think there's a lot of pressure on the companies in the middle, including some of those that you referenced, and that they have to be focused on adding more value than they extract. I think if we do the right thing for advertisers and then give visibility to publishers that will create a more effective supply chain and that is the biggest impeder or roadblock for our growth is an inefficient supply chain. So we need to make certain the supply chain is as efficient as possible. And that means partnering with all of those companies that are adding more value than they extract and continuing to obsess about the supply chain, but I don't have any worry that we can cannibalize the market. We're 1% of it. So I think there's just so much opportunity for us ahead.

Thank you. Thanks, Jeff.

Your next question is coming from Justin Patterson from KeyBanc. Justin, your line is live. Please go ahead.

All right. Thank you. Jeff, I wanted to touch on the audio opportunities some more. Obviously, we also had Spotify ad exchange announcement. When you kind of step back and you compare where we were at with audio versus CTV, what are some of the key things that need to change in the industry for this to become a much larger percentage of the business? I think audio is still roughly 5% of your spend today? Thank you.

Yes. Thanks, Justin, for the question. I think audio is in a slightly different position than CTV, in the sense that when it was a more legacy business, meaning before the Internet changed everything. The distribution models were more around local and the way radio sold ads was just different than the way TV sold ads. And there is less a sense of national. And of course, in CTV now, there's more of a sense of even global. And of course, in audio, there's a very global sense inside of businesses like Pandora and Spotify. So because things are being redefined, I think people have wrongly defined the TAM as being something quite small where when you look at time spent and you look at the amount of engagement with audio content, it is really off the charts and represents a tremendous amount of consumers' time. So that's why I mentioned in the prepared remarks, if companies like Pandora and Spotify and so many others execute well. I think there's just tremendous upside for them. And of course, I watch carefully when I see in their earnings that 10% to 13% of the revenue comes from ads but most of their most of their subscribers or most of their users are asking for ads. And so I think that represents a tremendous opportunity for them. I'm a big believer in Daniel and Alex, and I believe they're on the on the path to get there. But there's a lot of work ahead. There's a lot of development that has to happen. This is going to be a multiyear process but I'm extremely optimistic about what that means for the future and think that it can represent a greater percentage of our business than it does today. And I think that audio can be a bigger percentage of the overall pie than it's arguably ever been before. I don't know that, that will necessarily take or cut into CTV and premium video at all. But I do believe from some of the other channels, it will and should. So I'm pretty optimistic about the future of spot of Spotify and audio, but we all have a lot of work to do.

Thank you.

Thank you. Your next question is coming from Dan Salmon from New Street Research. Dan, your line is live. Please go ahead.

Okay, good. Thanks. Good afternoon, everyone. Laura, you highlighted that political was strong as expected. Any more you can do to quantify its expected impact for 2024 revenues implied by your guidance? I think it was a mid-single-digit impact in the last presidential cycle. And Jeff, you called out how some advertisers will step out of the market or get crowded out by higher pricing in some ad markets. Do you think those dollars that left can offset political -- partially offset it? Just trying to think about the impact of that on our 2025 model. And maybe just one quick follow-up to slip in. If you could just give us your updated views on CapEx for the remainder of the year and how you're thinking about it into 2025? Thank you.

Thanks for the questions and absolutely happy to answer. We went into the last political cycle, the last big one back in 2020 saying that political spend was in the mid-single digits, and we believe for this year of 2024, it will be in the low single digits as a percent of our overall spend. When we think about how we consider political in Q4 and then go into thinking about how we're modeling going into 2025, it's a really nuanced, but important question this year. Typically, what we see is that Q1 is, on average, a 22%, 23% sequential decline from Q4. And in political years, it's critical to exclude that political contribution in Q4 which we believe, again, will be a low to mid-single-digit percent for that quarter as we go into modeling Q1 of 2025. On the second part of your question, which includes capital expenditures for 2024 and 2025. We've said been consistent that we expect CapEx to increase in 2024 and 2025. But in both cases, it should be around 5% of revenue and that hasn't changed. We invest primarily in two areas. The first thing, our infrastructure, which includes data centers and the second being our offices around the world as we have employees who are coming into work every week. So again, I just want to reiterate there that we don't expect any significant changes in CapEx this year or next year relative to the last few years.

And Dan, as it relates to the part of the question, that was directed to me, the 2024 that was taken out, meaning those advertisers that spend a little bit less in 2024 or Q4 because they don't want to be to be next political, will that back in 2025? Of course. In fact, in many cases, in Q4, it didn't go anywhere. It just got postponed or moved to other channels. So it doesn't necessarily go anywhere just reallocates its form. But in 2025, we think the cycle is a bit more typical and rates are more predictable, then it's also a little bit easier to predict the shape of the curve throughout the quarter simply because you don't have a big change on November 5.

Great. Thank you both.

Thank you. Next question is coming from Jason Helfstein from Oppenheimer. Jason, your line is live. Please go ahead.

Thanks for taking the question. So Jeff, you highlighted or I guess, in the press release, Yahoo -- the Roku integration in the quarter. And I guess I want to ask, how does this play into your broader CTV strategy around UID and buying unduplicated reach and frequency. And it's fair to assume you'll have similar integrations with top, whatever it is, three or four CTV platforms? Thank you.

You bet. Thanks so much for the question. I'm so proud of what we've done with Roku this year. We've had a long-standing relationship with them, but it's really borne fruit in this year. And it really represents a significant change for them as it relates to adopting things like UID2 and some of the principles of the open Internet. But of course, the Roku channel has grown tremendously for them, and they have become not only a partner for us as a distributor of others' content, but also a premium publisher themselves. I'm so excited by what they've done with UID2 and because of some of the assets they have with ACR and whatnot, I expect our partnership to continue to grow in the coming years. So I'm very optimistic about our partnership with Roku. I expect that to continue to expand and very much appreciate the question.

Thank you.

Thank you. Our final question today will come from Matthew Swanson from RBC Capital Markets. Matthew, your line is live. Please go ahead.

Yes. Thank you so much for taking my question. If I can maybe marry up a couple of the vectors you talked about, Jeff, specifically the idea that CMOs are under more pressure. And then also some of the capabilities and the traction you're seeing from Kokai. I guess, what type of work does it take to help CMOs and the users understand the metrics coming out of Kokai but also to kind of gain trust around them? I know that's been a challenge in some other walled garden platforms, so people trusting the attribution data.

Yes. So it's -- I really appreciate the question because I think this is one of the more nuanced ways that we have just so much opportunity in front of us. And honestly, we were contemplating adding other macro vectors that are helping us and one of them is the state of measurement, which would have been number 11. But the state of measurement is that walled gardens have essentially been grading their own homework for many, many years. And one of the things that they've done really well is convinced people to use their own metrics and kept things quite simple. But at times, that's been really difficult for some of the biggest brands in the world because they'll be told by a walled garden, we help you sell 101 toothbrushes, when the company actually only sold 100 toothbrushes total. So when you have that phenomenon, you start to doubt the credibility of those metrics. We have a very different dilemma or challenge, which is that we've been sharing so much data with them and given them so many options about the way to attribute success and attribute sales we've overwhelmed them with complexity and with numbers and there are so many different ways for us to answer those questions. But because we're committed to doing that with integrity and with objectivity, we'd rather have a conversation with them about how do you want to measure success. There's a whole bunch of different ways to do it. Let us help you put together the one that makes sense for you. So as CMOs and CFOs get closer together and their offices, in some cases, moved closer together. As they get closer together, there -- a lot of our discussions, in fact, some of our biggest wins in last quarter and this one have come from us understanding what the CFO is looking for from the CMO so that we can go back and put together the metrics that prove we're creating incremental sales or growth. So it's largely about figuring out what they are looking for and us getting better at not making everything bespoke and reinventing the wheel. But at the same time, not oversimplifying it, assuming that we have all the answers and just create our own homework with a single metric. So I'm very optimistic about what that means for the future because I do think there is a very important principle that we have been saying since the day we went public, which is objectivity matters a lot today, but it will matter more tomorrow and it will matter more the day after that. And as time marches on, we think that, that continues to be one of our greatest strategic advantages over the biggest names in tech.

Thank you. This does conclude today's Q&A session and conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.