The Trade Desk, Inc.

At least half of Netflix subscribers are outside the United States. So the implications to this move has global ramifications to the world of CTV. But there will even be more to this part of the story. As Netflix explores advertising options, they will be unburdened by legacy processes that some of their competitors are working through. For example, they will be able to structure their advertising operations so they don't have sales channel conflict. They can be data driven from the start in everything that they do, using data to ensure that they maximize yield on every ad impression. In all of these dimensions, and likely many others, I believe Netflix will continue to innovate and set the pace And as with any market, others will have to adapt accordingly. Many of them already are. We are working on these opportunities with leading CTV providers every single day. HBO Max, Disney Plus, and Netflix are all public about their intentions to implement ad experiences. This adds pressure to all content owners to accelerate the move to data-driven buying and selling and finding ways to make the most competitive consumer experience. which means limited relevant ads with high CPMs. For CTV to continue to produce the amazing and expensive content that is driving this new golden age of television, relevant ads are the only way to fund and preserve it. This requires CTV to participate in the open internet because in walled gardens, one cannot control universal reach and frequency. Additionally, I believe this means every CTV company around the world is racing to create this optimal viewing experience. TV has historically competed regionally due to the licensing and broadcast regulations. Netflix and YouTube have made this a global race. We're seeing content owners all over the world quickly adapting to these recent moves. Recently, I've personally spoken about this directly with some of our content partners in the United States and in Europe. They are already feeling the pressure to move fast and to improve their ad experiences. This messaging from Netflix, Disney+, and HBO Max is requiring everyone to embrace biddable environments and move away from legacy models like upfronts and even programmatic guaranteed where advertiser choice is limited. These changes in the TV landscape also have adjusted marketers' mindsets. As advertisers are seeing reach and impact erode from traditional cable television, they are focused on moving to premium streaming content. Increasingly, this is the most important buy on the media plan. Marketers want to advertise against premium content as much as possible. It's content they can trust. It's content that reflects their own brand. It's content they can activate on and measure against with precision. As advertisers prioritize ads on premium content on our platform, they are beginning to start their campaign planning there too. As a result, user-generated content is increasingly getting the leftovers. With the explosive growth of premium CTV over the last few years, especially the last year, the trend is clear. We see it clearly reflected in some of the UGC data that's been reported out in the last few weeks. And it's also why CTV remains by far our fastest growing channel and why premium video in all of its forms has become the largest segment of our business. This trend will be equally apparent internationally where there is also a flight to premium content. We work with many of the Fortune 500 companies, almost all of whom direct their advertising campaigns at multiple international markets. As more premium supply comes online, particularly premium video, we have more than enough demand to satisfy it. And we could not be more excited about what this shift from Netflix, Disney+, and HBO Max means in terms of opening the door of AVOD supply. Not only in major markets that have already embraced CTV advertising, such as Western Europe and Australia, but also in many other markets where AVOD will be a vital driver of subscription growth because of tighter economic pressure on consumer wallets. Premium video, where everything is authenticated, is one of those key areas where the future of Internet identity is being forged, not just for CTV, but across the open Internet, including inside the browser. That may not seem obvious, as cookies are not present in CTV, and so you'd think they'd be less affected by the potential phase out of cookies next year. But CTV needs persistent identity to have effective and high CPM ads, and they need high CPM ads to fund that content. It's economics that's driving that process. As more CTV leaders embrace advertising, they want to ensure that they create as much addressability as possible because that's the only way that they can maintain high CPMs. An advertiser will pay, say, a $12 CPM if they know the viewers are watching the latest hot reality show. But they will pay three times that if there's a reasonable chance those viewers are interested in their product. And that's why they will be among the pioneers of the new identity framework or the open Internet. I'd like to wrap this up by bringing us back to the market opportunity in front of us. The global advertising industry is moving rapidly towards a $1 trillion TAM. As the market grows, the majority of that spend will be digital, and all of it will ultimately be traded programmatically. At the same time, the industry is making important progress in several dimensions in building the internet advertising ecosystem of the future, one that no longer relies on cookies. The internet is getting an upgrade. We're moving from an opt-out internet to an opt-in internet. Everything is founded on a better identity framework. On that foundation comes better controls for consumers, more choices for consumers on how to pay for CTV subscriptions, whether that's with money or with ad time, and better measurement and data. As the ecosystem continues to evolve and move away from walled gardens led by CTV, we will unleash the power of programmatic for our advertisers and for our publisher partners. It will be an improved experience for everyone, consumers included. The innovations we are driving to help accomplish this are already delivering performance improvements for us today. They are a key factor in why we are off to such a positive start in 2022 and why we are so optimistic about our growth opportunities looking forward. As I said earlier, advertisers are increasingly gravitating to our platform as the de facto DSP of the open internet, led by CTV. And we will continue to innovate to reinforce that leadership position and deliver more value to our advertisers. Our profitable business model allows us complete flexibility to make these investments and continue to drive growth. In doing so, we will help build a better internet for all stakeholders And all of that is what makes me so excited about our growth prospects. With that, I will hand the call over to Blake, who will take you through more of the financial details.

Thank you, Jeff, and good afternoon, everyone. As you have seen in our results, 2022 has started out strong with solid Q1 financial performance and execution despite the current macro environment. Q1 revenue was $315 million. a 43% increase and an acceleration in growth from a year ago. In Q1, we benefited from a digital advertising environment that is leaning increasingly towards data-driven advertising and measurable results. This was evidenced by the continued strength in CTV, which again led our growth from a scaled channel perspective. Solomar adoption is over 80%, and we continue to see promising results as customers are utilizing Solomar to leverage more data elements than they did previously. More data-driven precision improves ROI for customers, and we believe this helps spin the flywheel of our business faster. We are also starting to see green shoots in our retail media business, with Q1 representing our first full quarter of operations in this space. We have brought on additional retail media partners into the platform and are cautiously optimistic as spend continues to ramp up. With the durable top line performance in Q1, we generated 121 million in adjusted EBITDA, or about 38% of revenue. The 121 million in adjusted EBITDA represents a 72% increase from a year ago. In Q1, we continue to benefit from temporarily lower than expected operating expenses, partly driven by the virtual environment. Even recognizing that, I'm proud of our continued ability to consistently grow our top line revenue while generating meaningfully positive adjusted EBITDA and cash flow that has enabled our cash and short-term investments balance to end the quarter over the $1 billion mark for the first time. In the current environment, our demonstrated ability to invest for growth and self-fund our high growth rates through profitable long-term cash flow generation sets us up well for the future. From a scaled channel perspective, CTV, by a wide margin, led our growth again during the quarter. For Q1, video, including CTV, represented our largest percent of share on the platform, followed by mobile. Video and mobile each represented about 40% of spend. Display continued to grow well in Q1 and represented about 15% of spend, and audio represented about 5% of spend. Geographically, North America represented 88% of spend, and international represented 12% of spend. International's overall share, while relatively small for our overall business, dropped slightly from Q4 and the prior year. Historically, our growth has been driven by the strong position we have in CTV, particularly in North America. That said, our CTV business internationally continues to grab share. with European CTV spend more than doubling over the prior year in Q1. We did see a larger gap between our North American growth rate and international growth rate, particularly in the second half of Q1, mainly due to spend in Europe. However, through April, Europe has recovered to levels we saw early in Q1, although there is still some room to improve. I'm excited about our opportunities to grab share, as we have proven that as our customers become more deliberate and data-driven with their ad spend, much like they did in late 2020. The Trade Desk is in a great position to help those customers and also spin our plywood. It is still early days for us internationally, but we are optimistic about our market position and the long-term growth opportunity that we have. In terms of the verticals that represent at least 1% of our spend, nearly all of them grew in the double digits during the quarter. Both travel and pets more than doubled compared with a year ago. shopping, and food and drink were all also very strong. We believe there is still the potential for share gain and improvement in most of our verticals. Turning now to expenses. Excluding stock-based compensation, operating expenses were $207 million in Q1, up 30% year-over-year. We continue to see significant operating leverage as we scale the business and improve our efficiency. Our income tax benefit of $2.7 million in the quarter was mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. Adjusted net income for the quarter was $105 million, or $0.21 per fully diluted share. Net cash provided by operating activities was $146 million for Q1, and free cash flow was $136 million. DSOs exiting the quarter were 88 days, down five days from a year ago. The POs were 72 days, down three days from a year ago. We exited Q1 with a strong cash and liquidity position. Cash, cash equivalents, and short-term investments ended the quarter at $1.1 billion. We have no debt on the balance sheet. Turning to our outlook for the second quarter, we estimate Q2 revenue to be at least $364 million, which would represent growth of 30% on a year-over-year basis. We estimate adjusted EBITDA, to be approximately 121 million in Q2. With a large available market in front of us, we see significant opportunities ahead and continue to be motivated to invest thoughtfully in the business, placing a high importance on hiring to support future growth. This enables us to continue distancing ourselves from the competition in areas such as technology, identity, supply chain optimization, and customer service. I am pleased that over the past couple of years the operating expense structure of the company has improved and is significantly better than it was prior to the pandemic. Doing so allows us to invest meaningfully in opportunities for growth while still generating strong adjusted EBITDA and free cash flow. In closing, we are excited about the momentum of our business with significant long-term growth drivers including CTV, our international business, our retail media opportunity which is only just beginning, our recent platform upgrade in Solomar, and the upcoming U.S. midterm election cycle, we remain highly optimistic about the long-term prospects for our business in 2022 and beyond. We continue to generate strong free cash flow, and the strength of our business model and balance sheet have positioned us well in the current environment. I believe we have the structure in place to continue driving long-term growth while scaling our business efficiently, and I'm cautiously optimistic about continued improvement in the future. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 if you have any questions at this time. And please hold while we poll for questions. And the first question is coming from Sham Patel from SIG. Sham, your line is live.