The Trade Desk, Inc.

Good morning, ladies and gentlemen, and welcome to the Trade Desk Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on the listen-only mode, and the floor will be opened for questions and comments after the presentation. If you have a question or comment, please press star 1 to join the queue. To withdraw, press star 2. 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 third 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 our operations, in addition to potential supply chain disruptions that could disrupt advertising spend, 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 filing. 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 today. I'm here in Europe this week meeting with some of our colleagues, customers, and partners, and I'm thrilled to be joining you from our recently reopened London office. For Q3, I'm pleased to report that the Trade Desk had another very strong quarter. Revenue was $301 million, a 39% increase from a year ago, once again exceeding our own expectations. Excluding political spend related to the U.S. elections in Q3 of last year, our growth was about 47% from a year ago. This performance builds on our momentum year to date. I'd like to start by sharing five major highlights from this last quarter. First, video, which excludes connected TV, accounted for nearly 40% of our business, our highest ratio ever. And our CCTV growth is not just here in the U.S., Like last quarter, CTV spend grew more rapidly in EMEA than any region in the world. Second, in Q3, our international growth once again outpaced the domestic growth, a trend that we expect to continue over the long term. International expansion also continued at a strong pace. Third, the Walmart VFC recently launched, which is, of course, built on top of the Trade Desk platform. It is early days, but we are starting to see test budgets from some of the largest brands in the world flow through the platform. And perhaps most exciting, these budgets are incremental. Fourth, Unified ID continued its strong industry-wide momentum and is reaching critical scale in the market. And fifth, Our mobile business continues to be resilient. As we predicted, the most recent iOS changes have had no material impact on our business, and we expect that to remain the case. With that, I'd like to give you our perspective on the state of the market and then get into a few ways in which we're innovating to drive growth in this market. I get asked every day about where this market is heading. Because the pandemic has changed everything. Because it has massively adjusted the media and tech landscape. It has accelerated the shift to CTV. It forced brand marketers to embrace data and has driven a higher focus on real-time agility for everyone in our industry. I think this is an important backdrop to why we're doing so well and why our prospects are so bright for the future and why I'm so optimistic about the future of the open Internet. Just as a reminder, according to IDC, the total advertising market today is estimated to be at about $750 billion. In just a few years, it is estimated to exceed $1 trillion. And over time, I believe that nearly all advertising will be digital and nearly all of it will be executed programmatically. As that shift happens, accelerated by the pandemic, our commitment to the open Internet only intensifies. Everything we do in terms of our investments, our engineering priorities, our partnerships, and our go-to-market model are designed to create a better Internet. And we want an Internet that is open, privacy safe, and competitive, not one that's just owned by a few companies. And as we work to advance the open Internet, we have a level of support from ad agencies, advertisers, industry bodies, TV content owners, and independent ad tech that is unprecedented. We never thought that our vision would be shared by so many companies outside of our own company. More than ever, companies and marketers are concerned about the Internet being fair and competitive. and many of them are looking to us to help the Internet reach its potential. It's also in that context that many people in recent weeks have asked about our response to the unredacted version of the antitrust complaint against Google filed by a multi-state coalition led by the Texas Attorney General. Of course, the majority of the complaint alleges, among other things, that Google has engaged in unfair and anti-competitive conduct using its market power built on top of DFP, which is Google's ad-serving product for publishers, I expect that Google will take steps to make the market fairer, given the scrutiny that they are under. While that would be a positive development for the industry, as well as good for the trade desk, I want to remind everyone that we have been, we are, and we expect to continue to do very well, regardless of Google's policy choice. A very small percentage of our business runs through Google's ad exchange, and we are not dependent on Google for our business. The bottom line for us is that the market will always ultimately gravitate to transparency and competition over time. And we will continue to innovate to drive the industry in that direction and to deliver more value to our advertising customers. And if we get that right, and I believe we are, as you can see in our performance, we will grab more share of ad spend. To that end, I'm obsessed with the supply chain. The healthier the supply chain, the more competitive and transparent the open Internet will be, certainly in contrast to Walt's Gardens. Of course, we only serve the buy side, and that will never change, but serving the buy side demands that we do our part, working with the industry, to make sure the supply chain is as efficient as possible so that everyone in the ecosystem provides more value than they extract. And we are innovating in the supply chain in ways that are not always obvious. In the last few months, for example, we've been working with the supply side to further reduce the duplication of ad inventory. Because publishers use multiple supply side platforms or SSPs, we often have access to the same inventory from multiple sources. We've asked those SSPs to put in place a solution that identifies duplicative inventory so that we ensure bidding on the right impression at the right time all the time. There's been overwhelming support and adoption for this approach as it increases the overall efficiency of the supply chain. In the same vein, I also want to address the future of identity for the open internet. UID is setting new benchmarks every week and every month. The growth is phenomenal. As I've said before, I've never seen the industry come together like this around a common agenda, collaborating on new technology that benefits all participants. The daily avails on our platform with UID reached an all-time high just last week, having broken records dozens of times through August, September, and October. The scale we have been able to build in a relatively short amount of time has been outstanding, and it's thanks to unprecedented industry-wide commitment and collaboration. Everyone in the open Internet is aware that Google has announced that they intend to get rid of third-party cookies in 2023. I maintain that this is a strategic mistake for Google to do that, but their policy changes have created collaboration among the open Internet that probably wouldn't have happened otherwise. When fully implemented, we believe UID creates a better Internet for consumers with higher standards for consumer privacy than anything possible with cookies. And the momentum and adoption of UID2 underscores that. Even some of the walled gardens are passing an encrypted version of UID2 in their marketplaces and ecosystems. But one amazing new milestone is that many of the largest advertisers on our platform are now transacting on UID2 or are in the process of implementing it. As you'd imagine, some of these are among the biggest advertisers in the world, and nearly all of the major ad agencies and holding companies like Omnicom, Publicis, IPG, and even independent agencies like Horizon have also adopted UID2. And the case studies are just starting to roll in. Because a common currency makes it easier for a brand to use first party data than cookies ever could, they are using that data more often and more safely. One early case study is with Made In. Made In is one of the fastest growing cookware companies in the US. They're using UID2, the new industry identity currency, in their campaigns and seen amazing results. They have seen a 20% improvement in cost per acquisition. Not just that, but they're seeing their time to convert per user improved by 33% compared to when they don't use UID2. That means they're driving campaign precision and putting their advertising dollars to work as hard as possible. As a reminder, UID, too, started with us, but it belongs to the Internet today. It is open source and being used around the world and across many functions of the Internet, from payment companies to cloud companies to beverage companies to agencies to exchanges. UID is making the open Internet more effective. Meanwhile, CTV is expanding the open Internet in new ways. Since March of 2020, everything has changed about TV. The move to CTV over that time has been the fastest secular shift we've seen at the trade desk ever. Before the pandemic, CTV was getting premium CPMs because of scarcity of AVOD inventory. Now AVOD inventory is growing rapidly and premiums require improvements in efficacy. That means advertisers need an objective platform more than ever, a platform that does not own content or its own content channels. a platform that helps advertisers decide what to buy objectively while managing reach and frequency. And that's a major reason so much CCV demand is gravitating to the trade desk. Lastly, concerning the state of global advertising market today, roughly two-thirds of the total advertising market is outside of North America. That's why we invest so heavily in key growth markets globally. In recent months, We've established a presence in markets like India, Italy, and the Nordics, and Taiwan. And we're making very encouraging strides in every region where we are located. To wrap up our perspective on the state of the market, I'd like to circle back to where this all started for us. I believe digital advertising is still a relatively young industry. I got into this business initially because I thought there was a better way to price advertising, that we could build something like the stock market or the markets for commodities, where there is transparency of information and mechanisms that drive efficiency. Because these are the kinds of characteristics that any market demands, that any mature market creates over time. This approach remains central to our mission at the Trade Desk. We believe that an open competitive market for digital advertising is the only way that we build long-term trust of marketers. It's how we unlock that $1 trillion industry TAM, the bulk of which will be digital. But now given all the opportunities created for us in this fast-changing landscape, I'd like to talk about a few things that are driving us to win more share during this unique moment in time. On 7.7, we launched the biggest upgrade to our system ever. In terms of adoption, we're exactly where we expected to be. By the beginning of 2022, the majority of impressions on our platform will be bought via Solomar. Feedback from our customers has been very positive. They value the platform's ease of use, the ability to be more granular in setting goals, and how Solomar activates on those goals. Everything from campaign optimization to more meaningful measurement. Just as important, the use of both precise goal setting and activation for first-party data has increased the ability of our AI to better optimize every campaign with data. Our goal is for advertisers who activate Solomar to utilize more data per impression and achieve measurable improvement in return on ad spend. In doing so, that helps the advertising flywheel spin much faster. We're also getting very positive feedback from industry analysts. Gartner just released their Ad Tech Magic Quadrant for 2021. The Trade Desk continues to be a market leader, scoring highest for completeness of vision. Perhaps more interesting though, Gartner measures all participants across four critical capabilities. The Trade Desk ranks number one for three of those, media planning, campaign piloting, and campaign results analysis. Each of these are key elements of Solimar. When you consider that we're going up against some of the tech industry's heaviest hitters, such as Google and Amazon, it's pretty remarkable to be leading the pack in these categories. And that's credit to our amazing engineering and product teams and the work that they put into Solimar. It also speaks to the focus we have on customer service. We're always looking to provide more value than we extract. But I think what's perhaps less well understood is the role that Solomar is playing in driving innovation for our customers and for the industry. Solomar is allowing us to advance ideas and efficiencies that are benefiting the entire digital advertising ecosystem. One of those areas is our measurement marketplace. Instead of only using our metrics, we've created an entire marketplace to measure success. Having this marketplace makes end-to-end measurement possible at unprecedented scale. And nowhere is this more apparent than in retail. You all know about the partnership with Walmart which is now available to many of the world's largest advertisers. Major brands such as PepsiCo are already active testing campaigns in the Walmart DSP. Walmart is clearly a pioneer here. What they are doing is unleashing their shopper data so that advertisers can understand the relationship between their advertising tactics and actual in-store or e-commerce activity. We think about this as closing the loop. For many of our largest CPG advertisers, for example, the bulk of their products are still sold in physical stores. If they run an ad for toothpaste, they can now get a much better sense of how that ad actually drove sales, thanks to in-store shopper data. This means that advertisers can be much more precise and agile in everything they do at every stage of the advertising funnel. Advertisers can understand the impact of their campaigns at a micro level, in a particular region, a specific store, or at different times of day. They can also look at their impact across different channels, which ones are working and what kind of creative. But it's not just Walmart. We are now working with many of the major retailers in the United States and many more around the world. They will each approach it in their own way, but major retailers everywhere are looking to make the most of their own shopper data. so that they can provide the same kind of closed-loop measurement via our platform to the buy side. And they are joining forces with us because they trust us. They know we don't compete with them, and they know they will retain control of their data. Similar to when an operating system is upgraded, there were many upgrades to key features on Solimar. One of those features is called predictive clearing. What this means is that we use our data tools and our AI to predict the clearing price of first price options. Advertisers can then bid as close to the winning price as possible without overpaying. With SolarMars' upgraded predictive clearing, we've massively upgraded the product to use AI to help our customers save collectively tens of millions of dollars. That's because this upgrade allows us to be much more aggressive in bidding and budget management. significantly lowering CPMs and increasing an advertiser's return on ad spend. We are seeing predictive clearing improvements resulting in the reduction of CPMs across the board of customers that have activated this feature, thanks to the Solomar upgrade. These kinds of efficiencies are important to all of our customers, but they are particularly attractive to the brand marketers who are increasingly paying attention to programmatic and to efficacy. One long-term effect of the COVID pandemic is that there is more pressure than ever on brand marketers to show ROI for their marketing investments and to show how their campaigns are driving business growth. As a result, brand marketers are putting a premium on data and measurability. And Solomar is proving to be tremendously beneficial here. One area where we are making a great deal of progress is new ways of thinking about the marketplace for data and how Solomar ensures we surface the right data at the right price. Of course, our customers have always used data to drive their campaigns, but the market for that data has not always been efficient. Advertisers would have a sense of what kind of data they want to apply, say ad group or geolocation, and they would go find the data for the campaigns in a fairly analog way. With Solimar, the process of finding the right data for each impression is way more automated. Because of more first-party data usage and more precise goal setting in Solimar, our AI tools automatically find the right data for each impression that our platform is bidding on. What that also means, though, is that Solimar may surface many more points of data that are relevant and valuable to a campaign and its goals. If an advertiser has been using two or three data points yesterday on Solomar, they will be using more. As a result of more data, the ad impression is much more enriched. It's more valuable and precise and drives better return on ad spend. The last area I'd like to touch on is our continued growth in CTV. I spoke at an event a few weeks ago called Media in Montauk. Because of COVID, it was actually held in the tent in Manhattan. and a few of you may have actually been there. The event brought together many of the leaders of the media industry, and there were some fascinating discussions around the future of TV. I noted that when I commented, as I have before, that linear or cable TV is a ticking time bomb, and soon everyone will consume content via CTV, there was much more agreement than in years past. The notion that TV is moving to the Internet is not nearly as controversial as it was two years ago. What's clearly not lost on the industry is that COVID has accelerated the consumer shift to digital streaming platforms. I think perhaps what may be a little less appreciated is the scale, the speed, and the permanence of that shift. It's happening fast. In terms of scale, we've already reached the tipping point. Today, we reach more U.S. households via CCTV than via traditional linear TV. But the point about speed was really driven home at the Adweek conference a couple weeks ago. Our Chief Revenue Officer, Tim Sims, was on stage with brand leaders at Anheuser-Busch, Volkswagen, and Colgate-Palmolive. And unprompted, Those advertisers said they believe that the majority of TV advertising will be executed programmatically on CTV within three years. It was a fascinating insight into the future of TV that's worth a lot of replay if you want to understand where this industry is headed. Pre-pandemic, we had a much longer sense of the time horizon for that kind of transformation. But changing consumer habits have accelerated everything so that we have access to the best and broadest portfolio of premium CTV inventory, both here and around the world. Nowhere is that more apparent than in live sports. For a long time, many TV industry insiders felt that live sports would be the tent pole that would prop up linear TV. But once again, consumers have voted and they are switching to digital platforms to watch their favorite teams. We added the NBA League Pass package from Turner Sports to our CTV inventory list this season. Viewership on this platform increased around 50% last season, and their head of digital strategy, Seth Litesky, believes that digital viewers are much more leaned in. To quote him directly, the digital audience we see tends to be stickier because they're really seeking out the content specifically. There's deeper engagement versus someone sitting back on the couch and watching it. eMarketer estimates that there are almost 60 million digital sports viewers in the U.S. right now, rising to more than 90 million over the next three years. The notion that live sports will save linear TV is fanciful, which is why so many broadcasters are pivoting rapidly. The number of impressions we see for the NFL, for example, is up almost sixfold this year. We're also very excited that we recently added Peacock, which in addition to amazing original content, also boasts premium live sports franchises such as the NFL, the English Premier League, and of course, the Olympics. As you can see from our results, demand for CCTV continues to outpace all other channels, both inside and outside North America. I don't see that trend changing for the foreseeable future. Video is the most effective way to reach consumers' hearts and minds, and advertisers are following the TV audience to new digital platforms. At the same time, content providers are working with us directly so that we have access to premium CTV inventory at scale. I'd like to wrap this up by bringing this back to the market opportunity. The total advertising industry is moving rapidly towards that $1 trillion. The bulk of that will be digital, and marketers are embracing data-driven decisioning more aggressively than ever. Our long-term investments have positioned the company to capture this opportunity in the years ahead. Solomar is an innovation platform that is creating new value for advertisers because of how it unleashes data and drives greater return on ad spend. UID2 is becoming a more widely used identity currency across the entire global open internet. And we continue to invest so that we can lead NCTV the fastest growing channel in digital advertising. Consumers are driving advertisers and TV content providers to rethink the future of TV and that's going to be data driven. These are our priorities because this is how we see the industry evolving. I hear the same things in every customer conversation I have regardless of industry or geography. And that's why more of the world's leading advertisers are standardizing on our platform and our retention rate remains over 95%. It's why the major holding companies are embracing UID2. It's why Walmart is partnering with us as they unleash their retail data. It's why SSPs are working with us to optimize the supply chain. I could not be more excited about our growth prospects as we close out this year and head into 2022 and beyond. Now I'd like to turn the call over to Blake before moving to Q&A. Blake?