The Trade Desk, Inc.

Greetings. Welcome to the Trade Desk third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 2023 earnings conference call. On the call today are founder and CEO Jeff Green and Chief Financial Officer Laura Schenkind. 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 for 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 posted very strong growth in the third quarter. We reported revenue of $493 million, growing 25% compared with last year. Our third quarter again accelerated over the second quarter as we continue to significantly outperform the digital advertising industry. We're growing our revenues and maintaining profitability and a strong balance sheet, and making large investments, and most importantly, We're gaining market share as we're outperforming our advertising peers, both big and small. From a global view, our industry is nearing the $1 trillion TAM we predicted when we launched as a public company seven years ago. Inflation, a global pandemic, the streaming wars, and retail media have all accelerated the expansion of that global TAM. But it's especially accelerated the speed of the pace setter, the U.S. market. Magna Global estimates that the overall US advertising industry is growing at 5% this year, and digital spend, or the digital ad market pie, is expected to grow by 10%. Clearly, we are significantly outperforming the rest of the advertising market. This builds on our market share gains from last year, when we grew 20% plus each quarter, and our competitors were posting negative to low single-digit growth. Even with a bit more uncertainty than a usual Q4, we continue to gain significant share, and we are set up exceptionally well for times of relative stability. As I often share with the teams at TTD, we got here by aligning our interests with agencies and brands, the buy side. We align our interests with them, and then we obsessively innovate for them. We create more value than we extract, and we operate our business with a philosophy that is people first. Our bias is to find win-win situations in all of our partnerships, and our strong alignment with our customers is the foundation of our success, and that foundation has created the opportunity for us to be a leader and innovator for the open Internet. 2023 has already been the biggest year of innovation in the history of the Trade Desk, and I'd like to share six or seven major categories of innovation and investments. The first innovation I want to highlight today is a relatively new format for partnership. Our unmatched growth rate is fueled by signing joint business plans with major brands and agencies. JVPs represent joint innovation partnerships with our clients. Agencies and brands work closely with us to pioneer new ways of thinking about data-driven advertising, and they are locking in that commitment as part of these JVPs. Our largest JVP signed this year represent future annual spend of over a billion dollars per partnership. Yes, multiple partnerships have multi-year partnership agreements with omnichannel plans to spend a billion dollars plus in each of them. Our strong relationships and share gains coupled with durable EBITDA and cash generation means we can invest in innovation in service of our clients while also maintaining strong profitability. Our innovations in 2018 and 19 and 2020 helped us gain share during 2020 and 2021. And that's why I expect we will continue to gain share in Q4 of this year and 2024 and beyond. As a global company, in tough economic environments, we grab market share, and in vibrant economic environments, we aim to lead in absolute growth. The second area of innovation I want to highlight is in AI. We've approached AI the same way we approached building the initial buying platform 14 years ago. While everyone else was on stage talking about building, we were back at the office actually building. AI has immense promise. It will change the world again. But not everyone talking about AI is delivering something real or impactful. We have been going through every part of our platform and making investments and or plans to inject AI in the places where data sets are rich, big, and high quality. Large language models, the basis of ChatGPT, aren't the highest priority places for us to make investments in AI right now. Deep learning models pointed at bidding, pricing, value, and ad relevance are perfect places for us to concentrate our investment in AI. All four categories have private betas and some of the best engineers on the world pointed at these opportunities. We've expanded COA, our brand for AI products that we launched in 2018, and I believe this will unlock performance budgets on our platform in the years to come. We will begin to see the impact of these 2023 AI investments in 2024. When I first mentioned the massive wave of opportunity in 2019 and 2020, one of the major factors in the size of that wave was the rapidly emerging world of CTV. As we all know, the pandemic accelerated the shift to CTV from a viewer perspective, and now we're at a point where more viewers are watching streaming services than traditional linear television. The global changes of 2020 and 2021 ushered in a period of innovation in CTV. As an industry and as a company, we crammed more advances into two years than might otherwise have been played out over a much longer period of time. Where once the industry was taking a wait-and-see approach to the emergence of streaming, suddenly everyone was innovating fast. Fortunately, we had a history of innovating ahead. With that same foresight, I believe the walled garden strategy will not work for most companies, if any, at end state. Competition, innovation, and the benefits of globally integrated markets outweigh the benefits of draconian walled gardens. The surest way to prove the value of the open internet is to continue to innovate in the third and fourth and fifth innovations that I want to talk about today, CTV, identity, and retail media. Our innovations in CTV have fueled our outsized growth and made us a better partner for all of the content companies. The last few years, consumers and media companies have been in the new golden age of TV. Content companies have been competing for streaming subscriber growth, which seemingly has provided the scoreboard determining winners and losers in the new digital era. That competition to win subscribers has ratcheted up content costs. Higher content costs mean raising prices or finding some way to raise revenue per user. if media companies were going to continue to feed their content engines with a similar rate as before. Every premium video content company from Disney to Paramount to NBCU and Sky to Netflix have changed pricing and embraced advertising. Not all of them have yet embraced or centered around programmatic advertising, but we predict they will. In order to get incremental subscribers, they can't simply keep raising prices. Some consumers would rather spend a few extra minutes considering ads they watch than pay more for subscriptions. High price subscriptions alone will not provide the incremental subscribers media companies need to continue growing. As recently reported by Hollywood Reporter, and I quote, executives at every major streaming giant with both an ad supported and an ad free tier, including Disney, Netflix, Paramount, Warner Brothers Discovery, and NBCU, say that the total revenue per user is higher on the ad-supported plan than it is on the ad-free plan. Not only do media companies generate more revenue per user within an ad-supported option, but the potential for growth is much greater. Ultimately, there's a limit to how much viewers will spend on subscriptions. Economic pressures on the consumer right now are increasing the appeal of a free or low-cost option that is supported by ads. However, this model is only sustainable if the ad load is significantly lower than traditional linear television. And the only way we get there is if the ads are relevant to the viewer so that the advertisers are willing to pay more for each of them. It's why we work closely with the world's largest streaming services to fully realize the value of that exchange. This includes freeing up competitive biddable inventory, advancing new approaches to identity, unleashing the power of first and third party data, and of course, the technology infrastructure to transact and measure. In CTV, we have innovated by constructing a more efficient supply chain by creating a new product, OpenPath. It celebrated its first birthday this year and has already become a gold standard of transparency and auction integrity. We've also advanced TV measurement with the launch of TVQI, the TV Quality Index, to showcase the value of premium TV content over UGC platforms like YouTube that advertise on more questionable content for brands. We believe the ads we show in CTV in 2023 are more relevant in CTV than they've ever been before in TV or premium video. As the value of these innovations is proven out in the CTV advertising market day after day, we continue to see more premium inventory flow into our platform. Disney, for example, just opened Disney Plus inventory for us across Europe. More and more live sports inventory, perhaps the crown jewel for most streaming providers, is opening up for programmatic buying on our platform with billions of avails every single week. For the first few weeks of the football season, for example, we are averaging more than 300 advertisers activating on the NBC Sunday Night Football live stream. A great example of an advertiser pioneering new approaches to TV advertising with a focus on live sports is Old Navy. They have been a longtime participant in the upfront process. With their agency, PHD, Old Navy wanted to embrace ETV as more of their target audience has shifted to streaming. At first, they moved part of their spend from insertion order to programmatic guaranteed and consolidated spend on our platform. In doing so, they were able to mitigate audience overlap across TV providers and hold each provider more accountable for performance. But as Old Navy quickly found out, programmatic guaranteed has limitations. Programmatic guaranteed, or PG, does not allow Old Navy to get the full value of programmatic, such as frequency management, audience targeting, and the ability to layer on their first-party data. So they took the next step in the form of decision biddable buying within the private marketplace and focused on live sports inventory. CTV live sports advertising was appealing because it offered an opportunity to expose their brand against very high premium content that might be more restricted and expensive in a traditional linear environment. They were able to use COA, the Trade Desk's AI, to optimize pacing and frequency management across the highest performing inventory. As a result, they saw a 70% reduction in the cost to reach each unique household versus their programmatic guaranteed performance. And we're just scratching the surface. As recently reported in the current, NBC Universal has teamed up with the Walmart DSP, which partners with the Trade Desk, So brands can now deliver targeted ads on Peacock Live Sports inventory using Walmart shopper data. Brands can then measure and provide attribution on the results of those ads in terms of impact and in-store and online sales. Now, North America, which includes brands such as Dannon, Silk, and Activa, reported a 30 plus percent increase in new to brand buyers from their CPV campaign earlier this year. The next phase of innovation in CTV is the development of a forward market product on our platform. We are investing significant resources to build this product, which is akin to a futures market, but for premium CTV inventory. Here, we bring the best of the traditional upfront guarantee and combine it with the power of data-driven decisioning or programmatic advertising. Advertisers commit to certain levels of spend on specific audiences, in a decision programmatic forward market. We are already active in live data with a number of CTV providers and advertisers and expect the testing to steadily increase throughout 2024. We're excited to provide more details on our forward market innovations at our Forward24 event in the first half of next year. The advances in CTV in 2023 for the Trade Desk have been accelerated by the fourth category of innovation I want to discuss today, identity. With Google's latest disclosure that they plan to deprecate cookies in 2024, the industry has been more focused than ever on coalescing around a better alternative. Nearly all of the major streaming companies in the US have embraced UID2. They understand that if advertisers only advertise on users likely to be interested in their products, then advertisers will pay meaningfully more for those impressions. With UID2, content owners don't have to share data. Instead, advertisers can use their own data, and to do so, they're willing to pay more. One leading streaming platform recently implemented UID2, and the results have been remarkable. Their average daily revenue from the trade desk has increased 150%. Their average daily revenue, when those impressions are open and biddable, has increased 222%, and all because they are able to offer advertisers a much clearer sense of relevance and addressability. Again, because of rising costs of content and less appetite from consumers to pay for more subscriptions, every global content company in the world is now rolling out a programmatic advertising strategy and plan. As a result, more and more publishers and advertisers are now deploying UID2. Over the last couple of years, a who's who of major publishers, advertisers, and data partners have announced their commitment to UID2, and now we're seeing the positive impact of adoption on our platform. Luxury Escapes is a high-end travel agency with more than 7 million customers worldwide. They activated their first-party data on our platform and then used UID2 to help find potential new customers who shared characteristics with the most loyal customers they already had. In this way, their first-party data acted as a seed to grow their potential customer base. And the results were very impressive. In the U.S. alone, their conversion rate with UID2 was more than 400% higher than with cookies. Their return on ad spend was 900% higher. and their cost per acquisition was 83% lower. For the first time ever in 2024, we expect the majority of CTV and premium video impressions to be bought on our platform using either EUID or UID2. The fifth innovation I wanted to highlight today is the rapid innovating we're doing in retail media and retail data partnerships. The fusion of retail and programmatic advertising has accelerated in the wake of the pandemic. Our partnerships with Walmart, Target, Albertsons, Instacart, and many, many more have fueled the expansions of our TAM in the United States. Schwartz and Ocado have been notable catalysts in the EU. Incidentally, the EU programmatic advertising ecosystem is showing signs of improvement, in part brought on by the appeal of retail partnerships. And lastly, Big Basket and Tacopedia are examples of growing synergies between programmatic advertising and retail media in some of the largest APAC markets. Just as stay-at-home directives encouraged many of us to shift our viewing habits to binge streaming, they also forced many of us to shift our shopping habits to e-commerce. According to the U.S. Census Bureau, e-commerce sales boomed 43% in 2020 alone, and it has continued to grow every year since. As a result, advertising on e-commerce destinations has become more attractive, and the value of data collected about purchase behaviors has become much more valuable. All major retailers are working on activating that data for advertisers, so brands can understand how their advertising dollars impact actual sales, whether online or in-store, and most of them are partnering with us. The significance of this shift should not go unstated. All advertisers are focused at their core on driving sales growth. But until very recently, especially in the consumer space, advertisers have been missing the link between their advertising dollars and the real-world sales growth. Instead, they have had to use proxy metrics to showcase the ROI of their campaigns. How many click-throughs did their ads drive, for example? But now we can measure with much more precision whether the ad dollars actually led to a consumer purchase. We can attribute value to all parts of the funnel, not just the last touch. We can understand the relevance of every ad impression more clearly, and we can better prioritize the right channel at the right time for the right audience. The open internet is proving to be increasingly preferred by big brands as retail media makes the efficacy of the open internet continue to improve and scale. Rossman, a major European drugstore chain, came to us when they wanted to drive first sales for their organic food brand. They knew that if consumers tried their product, there's a 95% chance of them becoming repeat customers. The challenge was getting them to make that first purchase. Working with us, they were able to deploy their first party data and then find where their target audience groups might be across the open internet. With data driven precision, they were able to determine that 99% of their ad spend was hitting their specific target audience. And more major retail organizations continue to partner with us as the most effective way to enable advertisers to benefit from their data. Just last month, Instacart, one of the world's largest retail technology companies, representing more than 1,400 retail labels, announced that it will make its retail media data available to advertisers on the trade desk. At the same time, we continue to innovate in the retail space. As a part of COCAI, we have launched the Retail Sales Index, which allows advertisers to understand the performance of their retail campaigns across the open internet. It radically simplifies the measurement and attribution process in a rapidly evolving market, and we are just scratching the surface. As one of the few independent players at scale in our industry, we are in the pole position to continue partnering with leading retailers, standardize their data on our platform, and drive value for our clients. Let me conclude by making a few comments about the current environment and then connect the dots of innovation and our optimism for the future. We represent the vast majority of the ad age top 200 advertisers, the largest advertisers in the world. Starting in the second week of October, we have seen some transitory cautiousness across some of those advertisers. These include, for example, industries that have been impacted by recent strikes, such as the U.S. auto industry. Through the first week of November, we have seen spend stabilize and we are optimistic for the remainder of the year and for 2024. Both CTV and retail media continue to drive our business and we continue to win share. In terms of innovation, I am so excited to showcase the strength of this company over the next few years as we've innovated and built more this year than in any year in our history, while at the same time preserving and leaving room to expand our operating leverage. The many innovations I've discussed today are embedded in our newest version of the platform, Kokai. We've been launching Kokai innovations throughout the year, but many of the biggest innovations, including our new UX, are in alphas or private betas today and will roll out to all of our customers in the first half of next year. As we exit 2023 and look forward to 2024, I want to highlight several specific areas that make me extremely positive about our future prospects. So, let me sum up. First, agencies and brands are more deliberate with advertising budgets. They are shifting ad budgets to where they can be more flexible, agile, and data-driven in everything they do, especially in times of uncertainty. And this is driving them to sign JVPs with us at a record pace. Second, is the innovation coming from AI and the many, many opportunities we have ahead of us to find places to inject AI into what may be the most rich and underappreciated data asset on the internet, which we have here at the Trade Desk. Third, connected TV continues to be the fastest growing channel of our business and a key driver of overall omnichannel growth. And it's not just here in the US. CTV continues to grow rapidly both in EMEA and across Asia. The industry is evolving fast as providers shift inventory into biddable marketplaces to maximize ad revenue and as advertisers look to bring more precision and addressability to their TV campaigns. Fourth, retail media has become one of the fastest growing areas of our business and we expect this to continue in 2024. Retail media is revolutionizing the way many advertisers in the CPG space think about measurement and attribution and our innovation is at the center of this. Fifth, global expansion. We have made significant investments outside the U.S. over the last several years in our go-to-market strategy, in CTV and in retail media. We believe we are in a position to continue to accelerate our international growth in many of the markets we serve. Sixth is the rapid adoption of UID2 and EUID as the currency for relevant ads and personalized content that has been adopted by the infrastructure of the internet and nearly all of the biggest content companies in the world. Seventh is the upcoming U.S. political election. Since 2016, the Trade Desk has been a vital platform for leading political advertisers. In 2024, we expect to gain more share in this segment and we believe that spend will increase as the year progresses. And finally, we continue to be one of the few high-growth technology companies that consistently generate strong adjusted EBITDA and free cash flow that has steadily increased over the years. As a result, we have been able to invest in innovation and generate strong profitability. I believe the Trade Desk has been successful because we've always focused on delivering premium value to advertisers and agencies. Everything we do, including our latest Cochai innovations, are pointed at helping brands and advertisers get the maximum bang for every advertising dollar. I could not be more confident or excited about how we are positioned for 2024 and beyond. because of the many growth drivers that we've discussed today. We will continue to innovate to lead the market, and I'm confident that the world's leading advertisers will continue to default to our platform as they seek to drive their own business growth via advertising. And with that, I'll hand the call over to Laura, who will give you more color on the quarter.