The Trade Desk, Inc.

Greetings. Welcome to the Trade Desk fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. The 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 fourth quarter 2024 earnings conference call. On the call today are co-founder and CEO Jeff Green and Chief Financial Officer Laura Shenkine. 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 Q&A may contain 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 the risks, please refer to the risk factors mentioned in our press release and in 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 good afternoon, everyone. Thank you for joining us today. 2024 was a record-breaking year for the Trade Desk. Total spend on our platform exceeded $12 billion, the highest in our history. Revenue for the year surpassed $2.4 billion, growing nearly 26% year over year as we continued to significantly outpace the broader digital advertising market. We generated over $1 billion in adjusted EBITDA and delivered more than $600 million in free cash flow. These accomplishments underscore both the strength of our platform and our ability to drive value for our clients in the fast evolving digital advertising landscape. While we're proud of these milestones, I want to acknowledge upfront that for the first time in 33 quarters as a public company, we fell short of our own expectations. During COVID, we revised our expectations once along with the rest of the markets, but for the first time in eight years, we missed the expectations we set and it was our fault. When we were first contemplating going public about 10 years ago, many people advised me not to IPO. The most common reason was the valuations would be too low because no ad tech company had ever won Wall Street's trust and confidence for any reasonable period of time. I did that as a challenge then, and I still do now. I knew we had the business model, the TAM, the vision, the grit, and the people to break that mold. to do something that had never been done before. And the only way to do that was to make promises and keep them. Many people told us it couldn't be done. Our success to this point has been fueled at least in part by our ability to win trust with investors, partners, our industry, and our customers. There are very few things that rival that in importance to us. I want you to know that we take this moment seriously. And we want to assure our investors, partners, and customers that their trust is well-placed and deserved. Our brightest days are still ahead of us. But before I talk about that, I want to spend a few minutes sharing what we got wrong and the changes we are making to meet this moment and maximize our unique and growing opportunity. Starting off, let me explain it as I see it. What falling short of our own expectations does not represent This didn't happen because the opportunity isn't as big as we thought. In this case, it isn't because of our competition either. For Q4, the reality is that we stumbled due to a series of small execution missteps while simultaneously preparing for the future. If this were a sporting event, we'd still have a championship caliber team. But in this particular game, we turned over the ball too many times. That said, we see a larger and faster growing market than we originally expected, which is why we have been making changes and will continue to do so. Simply put, as you've seen before, as companies grow and become increasingly complex, they need recalibration to unlock new opportunities. We are recalibrating our larger company for an even stronger future. In that effort, I want to highlight four major changes we've made at the trade desk in the last few months. and some related initiatives that accompany them. First, we did the largest reorganization in company history in December. While we often make structural changes at the end of the year to improve our business, this was bigger than usual. For most people in the company, we provided a much clearer view of their roles and responsibilities, and for most, that also meant a change in reporting structure. Additionally, we streamlined client-facing teams, reducing complexity, and clarifying responsibilities. Some teams focus on brands, while others focus on agencies. Our commitment to agencies remains strong, but we are also expanding brand-direct relationships, particularly through joint business plans, which grow 50% faster than the rest of our business. Second, beyond structural improvements, we've placed a stronger emphasis on internal effectiveness and scalability. Over the past two months, leadership has spent more time discussing operational improvements than at any other point in our history. While we've historically been focused on external opportunities, we understand that this moment requires us to scale our internal operations and continue hiring senior talent to support long-term growth. These changes position us to execute at a higher level and capitalize on the expanding market opportunities ahead. Third, we have increased our resource allocation on brands. A broader shift is occurring in the industry. Advertisers are becoming more strategic and data-driven in their media buying decisions, and that's great for us. While this shift has caused short-term fluctuations, it's ultimately aligned with our long-term strengths. we recognize that advertising will ebb and flow. At the same time, as advertisers prioritize precision and efficacy, our programmatic data-driven platform is becoming more essential than ever to brands and agencies. This is evident in the growing number of joint business plans, or JVPs, that we've secured with over 100 of the world's leading brands, many of them in the second half of last year. JVPs provide a structured, mutually beneficial framework for brands, their agencies, and the trade desk, and they reinforce the long-term value we bring to the industry. They also historically grow faster than the rest of our business. Fourth, we revamped our product development process, shifting back to smaller, agile teams that release updates weekly instead of drifting towards waterfall methods. which are less conducive to our fast-paced and changing industry. Our engineering team is now divided into nearly 100 scrum teams with a system to more easily ship and collaborate with the business team on what has shipped and what will ship and when. I expect this to continue to accelerate Cochai enhancements and complete the transition of 100% of our clients from Solomar to Cochai during this calendar year. In Q4, there were a series of decisions we could have made to enhance the short-term performance of the company and neglect the long-term. We consistently choose to focus on the long-term opportunity and maximize our market share over the long term, as I believe this is in the best interest of all of our stakeholders. We are keeping our focus on the massive TAM and long-term opportunity. That makes this a good opportunity to bring up two other important and related initiatives. First, we continue to improve and protect the supply chain. First, we announced the Ventura operating system for connected television, which will create a better supply chain for all OEMs, content owners, consumers, and advertisers. Secondly, we announced in January the acquisition of Sincera, Syncera is a metadata company that is dedicated to improving the supply chain of the open internet. Joining Syncera's work with ours will accelerate a cleaner supply chain for the open internet and accelerate the work of OpenPath, which is one of our biggest efficiency efforts, both internally and externally. A better supply chain will free up resources internally and improve the ecosystem. The second major accompanying initiative I want to talk about is the investments we're making in AI. Of course, AI is providing next-level performance in targeting and optimization, but it is also particularly game-changing in forecasting and identity and measurement. We continue to look at our technology stack and ask, where can we inject AI and enhance our product and client outcomes? Over and over again, we are finding new opportunities to make AI investments. These changes have helped us start 2025 on solid footing. Not only is our platform the most advanced data-driven decision-making platform in our industry, the ramping of COCAI is advancing the ability of advertisers to find value and precision as they expand their audiences and grow their businesses. In last quarter's earnings report, we itemized 10 macro conditions that are working in our favor. Today, I want to briefly highlight 15 big things we're doing to benefit from those secular tailwinds. Last time we talked about trends. Today I want to talk about what we're doing about it. First, we're focused on scale. More accurately, we're obsessing about scale. We control $12 billion of ad spend in an approximately $1 trillion advertising industry. With every success we have and with every efficiency we find, Operationally and technologically, we follow it with a question. How can we make that scale quickly? While our share is growing faster than perhaps any scaled competitor, our opportunity is growing too. We can accelerate growth when we sufficiently orient around scale. Second thing, we are preparing for a world where Google exits the open internet. I'm confident that one way or another, Google will exit the open internet. I think they should. Most of their antitrust and regulatory problems come from the draconian ways they have engaged with the open internet in the past. In April of 2024, Facebook shut down their news program, thereby distancing itself further from one of the most important pillars of the open internet. Some evidence suggests the substantial majority of spend going through DB360 Google's DSP is routed to the Google-owned and operated platform of YouTube. Regardless of what happens with the pending trial decision, Google will likely distance itself from the open Internet. If and when Google exits the open Internet, they will leave a big hole and a big opportunity for the rest of us. Relatedly, let's move to number three. Third, we will promote and protect our objectivity more than ever. More and more, the only competitors we encounter today have the worst objectivity problems. Amazon is asking advertisers big and small for their advertising budgets. Meanwhile, Amazon competes with most of the Fortune 500 companies in some way, whether we're talking about Microsoft and Cloud or P&G and CPG products or UPS or Nike or all the rest. In our very first business plan 15 years ago, we argued that the objective Independent DSP should get the lion's share of the marketplace. They'd be the only company that can be trusted. We have a mantra that we've repeated again and again internally for years, and it's this. Every day that goes by, objectivity matters more and more. The fourth thing we'll do, leverage the supply and demand imbalance to make the ecosystem better. In advertising, there is more supply than demand. There always has been, and there always will be. This, by definition, makes it a buyer's market. By focusing exclusively on the buy side, we are in the strongest position in the market. Unlike so many players in tech, we are not using our position of strength to become draconian. We are trying to use our ever-growing influence and impact on the industry to make it better and to improve the supply chain. This is why we expect 2025 to be the year Open Path enters the steep acceleration phase of its S-curve growth. This is because many of the major CTV players around the world are aggressively implementing Open Path now. They understand that a more efficient supply chain means more money in their pockets. I would argue that higher CPMs through more efficient supply chains are the only way most of the streamers will get to sustainable and scaling profitability. To this end, Disney was among the first of the CTV scaled players early last year to embrace Open Path when they deployed it as part of Disney's real-time ad exchange, or DRAX. As Disney's SVP of addressable advertising said recently, they are working towards 75% of their ad sales being automated by 2027. with the vast majority of those impressions being biddable. Media leaders like Disney realize that the best way to fund their incredible content is through biddable programmatic advertising, which of course is great news for us and our partnership. And the best way to help advertisers value impressions and show publishers what they're willing to pay is an open market. And it is through a clear supply chain with tools such as Open Path that that can be realized. This also extends to the OEMs. Another CTV leader that has embraced OpenPath is Vizio, which has more than 24 million active devices in the United States and more than 300 ad-supported CTV channels. Vizio wanted clear line of sight into advertiser demand with as few intermediaries as possible. They deployed OpenPath and immediately saw impressive results, including 39% improvement in revenue from our platform and an 8x improvement in fill rate. Relatedly, Goodway Group is one of our largest independent agency clients. They've been working in COCAI to create a blue list, which is a custom market that they can curate using our tools on our platform to provide their customers to the best opportunities in the market as they see it. With their blue list in COCAI, Goodway was able to prioritize impressions with better clearer signal around factors such as genre, show title, and content quality. In addition, they were able to measure the number of supply chain hops in those transactions. They found that 94% of the impressions they bought had only one supply chain hop, which is well ahead of the industry benchmarks. All of this means that more campaign dollars can now be put to work more effectively in driving incremental reach. These examples provide great background for the pending acquisition of Sincera, which we announced a few weeks ago. I don't think there's any other company in the ad tech ecosystem that thinks about the digital advertising supply chain as passionately as Sincera, except perhaps the trade desk. Over the past few years, Sincera has established itself as an objective data company for the entire ad ecosystem. all with a mission of shining a much clearer light on where the value is, where value is being obscured, and what signals advertisers value the most in making effective decisions. For us, embedding those data signals into our platform will help encourage the right behaviors that lead to the best outcomes for our clients. For example, one of the most compelling use cases is showing in our platform which signals advertisers want publishers to provide so they can value ad impressions as accurately as possible. Using these data signals to improve the supply chain for digital advertising could not be more important as we head into 2025. And of course, that's even more important as Google likely becomes less involved with the open internet. The fifth action we'll take, make CTV the most effective channel in programmatic advertising by layering more data better auction mechanics, and capitalizing on the fact that CTV is the only channel that has nearly 100% of traffic logged in. CTV is the kingpin of the open internet. CTV should be the first place all brand advertisers spend, not Walt Gardens. If we expand Sincera's charter and capabilities to CTV and audio, CTV and premium video can reach its potential as a channel. It can be half the pie of the advertising can. So many companies like Disney, Netflix, Paramount, Max, Fox, and Peacock need to get the best out of programmatic advertising in order to maximize their opportunity. In order to do that, almost all of the streaming leaders have deployed UID2 as a way of providing advertisers with precision and addressability. This has laid the foundation for them and us to continue the expansion of CTV advertising around the world. CTV continues to be our fastest growing channel. And as you know, it is also our largest channel. However, neither us nor any content owner thinks the status quo is anywhere close to what end state looks like. The sixth thing we'll do, make 2025 the best year audio has seen yet. I maintain that audio is still the most on sale corner of the open internet. Companies like Spotify have been making changes to embrace the potential of programmatic advertising. They're making changes and we're using AI partnerships to bridge the creative creation gap. I think this is one of the biggest opportunities in programmatic and one of the biggest opportunities for companies like Spotify to take their company to the next level. The seventh action item will move 100% of our clients to Cochai this year. Now, the majority already have, but today we're maintaining two systems, Solimar and Cochai. This slows us down. Cochai is more effective in almost every way. We are producing case study after case study as clients continue to lean in to the features of our Cochai platform, every one of them showing the enhancements and effectiveness that goes up with the use of Cochai. As you know, COCAI represents our largest and most important platform overhaul ever. Some clients are still transitioning from our previous platform, Solimar, but well before the end of this year, I expect that all of our clients will be using COCAI exclusively. In all of the case studies coming out of COCAI, the consistent theme is accessing and acting on better data and signal. In CTV, advertisers act on authenticated logged-in user data rooted in UID2. The same is also happening in digital audio, where companies such as Spotify, SiriusXM, Pandora, and iHeartMedia have all recently embraced UID2 so that advertisers can act with precision on their logged-in audiences. And with retail data, advertisers can understand conversion rates and the impact of every ad dollar more clearly. Eight, we will change the way the industry manages deals. We'll help advertisers and agencies avoid bad deals, which generally consider too few ad impressions and force advertisers to buy impressions that they wouldn't otherwise want. And we can avoid these bad deals by using AI-powered forecasting. To do this, we are enhancing COCAI with some of the most game-changing parts, like deal manager, which lays groundwork for the forward market, which we think in the future will change the ecosystem and eventually upgrade the upfronts. Ninth, we will continue to invest in AI with provable upgrades and auditable results. We started our ML and AI efforts in 2017 with the launch of COA, but today the opportunities are much bigger. We're asking every scrum inside of our company to look for opportunities to inject AI into our platform. Hundreds of enhancements recently shipped and coming in 2025 would not be possible without AI. We must keep the pedal to the metal, not to chest them on stages, which everyone else seems to be doing, but instead to produce results and win share. Tenth, we will simplify our retail offering in 2025. So far, it's been powerful and a significant driver of our growth, but it has often been too complicated. We've studied what works and understand the changes needed to help retail media continue to meaningfully outpace our business. Achieving this will require a closer collaboration with our retail partners. In Kokai, we have the industry's richest retail data environment, including data from many of the world's leading retailers, to help advertisers understand the connection between campaign spend and consumer action. We will make this easier to adopt for our clients, both endemic and non-endemic to our retail partners. Consider the fact that our objectivity may be our greatest asset in this corner of our business as well, where retailers are reluctant to partner with walled gardens who are competing with them. While of course our objectivity as well as our clear mission, which makes it easy for them to know how we will partner and what our motives are, makes it easy for us together to create the greatest environment of retail data for advertisers on the open internet. We have some great case studies in Q4 around the world. Boiron, a world leader in homeopathic products, was able to measure a 267% return on ad spend or ROAS, on Kokai when using Kroger retail conversion data. This was well ahead of their typical benchmarks. In addition, of the almost 2 million households that their recent campaign reached on our platform, 94% of them were new to the brand. In Hong Kong, high-end skincare brand Sulwhasoo leveraged UID2 in Kokai to look-alike model prospective new audiences based on their most loyal customers. In doing so, they were able to engage with those prospects across the customer journey at all steps of the marketing funnel across a range of digital channels. As a result of this campaign approach, they were able to measure a 6x improvement in physical store visits, a 380% improvement in conversion rates, and an 80% lower cost per acquisition. Number 11, we will simplify our platform. As platforms mature, they add features, but that can make it more complex. We will continue to add features and powerful controls for the most sophisticated buyers in the world. However, we're finding ways to improve the experience and make decisions easier and also more intuitive for our users. 12, we'll use more data. We have another mantra, data-driven buying is better than guessing. Across all parts of our platform, we're using AI to help clients make better decisions, whether it is in making sense of complex data in real time when it may have previously taken weeks, or bringing retail conversion data to bear more often in enriching bid requests. Thirteen, as I said at the beginning, we will focus on joint business partnerships, or JBPs. JVPs are joint innovation partnerships where agencies and brands collaborate with us to grow our relationship and drive programmatic innovation. They grow about 50% faster than the rest of our business. Brands will generally continue to work with agencies, but they also understand that programmatic is becoming a larger and more important element of their campaign plan. As a result, programmatic decision-making is happening at a higher and higher level within brands, And this presents a tremendous opportunity for the trade desk to grow our brand relationships and share. Number 14 on our action item list, we have already revised and will continue to revise our product process. As we grow, it is essential that our product development process remains agile, even as it has to ingest more inputs for more stakeholders. We'll do this with a clear focus on what we're delivering week by week, which continues to be at the bleeding edge of ad tech innovation. And then lastly, number 15, we'll hire senior leadership to take us to the next level. I believe that over the next few years, we will double the number of senior leaders in the company, at the VP level and above especially, including some very key senior level appointments in my org. This is a natural part of a high growth company's journey. We want to scale the trade desk significantly in the years ahead, and that means ensuring we have the right kind of leadership rigor across the company while preserving the best elements of what we've done so well so far. To wrap up, the opportunity is bigger than ever. We need to keep evolving our company structure to meet that opportunity and realize our potential and the potential of the open Internet. We are obsessing about ways to drive differentiation and growth. We are constantly innovating our platform in order to do that, most recently with constant upgrades to Cochai. We're able to make these investments because of the profitability of our business model. That focus on constant innovation ensures that we are always prioritizing value for our clients and never standing still. We will always have a long-term view of where the value in our industry is shifting and how we can then innovate to deliver that value to our clients as rapidly as possible. I believe 2024 will be remembered as a pivotal year for our industry, where the premium open internet was beginning to transform as the clear choice for advertisers seeking data-driven precision and performance. But we've only just turned the corner on this shift, and it is why we are adjusting the company to be bigger and move the market in positive ways. I am not happy with our results in the fourth quarter, but there is so much opportunity in 2025 and the years ahead to help our clients take full advantage of data-driven advertising on the premium internet to drive growth and brand loyalty for their businesses. And that's why I'm confident the Trade Desk will eventually resume acceleration and continue the path we've been on for over 33 quarters as a publicly traded company. We are also the clear leader in the DSP race and perhaps the leader of the open internet. Thank you. And with that, I'll hand it over to Laura to discuss our financials.