Trade Desk Inc (TTD) 2016 Q4 法說會逐字稿

It's my pleasure to turn the floor over to your host, Chris Toth of Investor Relations.

Sir, the floor is yours.

Thank you, operator.

Hello and good afternoon.

Welcome to The Trade Desk fourth-quarter and full-year 2016 earnings conference call.

On the call today are Founder and CEO, Jeff Green; Chief Financial Officer, Paul Ross; and Chief Operating Officer, Rob Perdue.

A copy of our earnings press release can be found on our website at www.thetradedesk.com in the Investor Relations section.

Before we begin, I would like to remind you that except for historical information, the matters that we will be describing will be forward-looking statements that are dependent on certain risks and uncertainties.

I encourage you to refer to the risk factors included in our press release and 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 non-GAAP to GAAP measures can be found in our earnings press release.

We believe providing non-GAAP measures combined with our GAAP results provides a more meaningful representation regarding the Company's operational performance.

I will now turn the call over to Founder and CEO, Jeff Green.

Jeff?

Thanks Chris, and good afternoon and thanks everyone for joining us today.

2016 was a massive year for The Trade Desk.

We surpassed $1 billion in total spend, resulting in record revenue of $203 million, an increase of 78% compared with a year ago.

In 2016 according to PWC, digital advertising grew by about 14% while programmatic, according to the IAB, grew 19%.

We grew about four times that, while producing over 30% adjusted EBITDA margins.

2016 was also the year that our that our omnichannel offering became more mobile and more video-focused than display and we have significant momentum heading into 2017.

I recently spent time with a CEO of an important agency to us.

It was amazing to hear them say point-blank right in front of one of their largest clients, one of the biggest consumer brands in the world, that The Trade Desk is the best demand-type platform in the market today, and is easier to work with than any partner they've ever had in digital.

That was quite an amazing and humbling endorsement and it really illustrates what we are trying to achieve at this Company.

I was just as excited when a much smaller and more nascent technology company came to our corporate headquarters in Ventura, California just a few weeks ago.

The CEO explained that he is trying to make programmatic easier for the little guy.

His mission is to make it so SMB advertisers can buy the rest of the Internet the same way they buy Facebook.

He was so excited to explain that his company is growing 60% every month.

He's adding hundreds of advertisers every month, but he made it clear his business couldn't exist without The Trade Desk platform and especially the expressive APIs that power his entire business.

With those two businesses and hundreds of others, our mission is to change the way all of advertising is bought.

An industry which has now reached $640 billion according to the latest research from IC.

Unlike most technology companies, we're not trying to disrupt an industry; we are trying to enable.

In 2016 we powered more DSPs, more data companies, more agencies, more technology companies, and enabled more local aggregators than we ever have before.

And while we're known for powering CPG companies and automakers and our especially close partnerships with the big agencies, we are also powering more and more well-rounded and diverse group of enablers then we ever have before.

Many of the biggest players in digital advertising and some of the biggest Internet destinations claim that their success is a result of them both owning and selling media.

We think one of our strongest strategic assets is the objectivity that comes with not owning media.

We objectively help buyers look for value and are holistic about their media buying.

Today we are the only purely independent, scaled, omnichannel VSP in the world.

Our independence and allegiance to buyers makes it possible to objectively buy media from great companies like CBS, Google, the New York Times, and thousands of others.

I'm going to use the time we have today the same way that I plan to on most of our future earnings call; to expand upon our strategy.

First, I want to talk about our goals and priorities, in particular gaining share over maximizing profit in the near term.

Second, I'll highlight some of the growth opportunities in our mobile and video channels, as well as our global expansion.

And third I'll focus on having the best technology platform for media buyers.

And finally I'll talk about how we maintain a strong business model that can build The Trade Desk into one of the most valuable companies in advertising and the ad tech industry.

First, let's talk about our goals and priorities.

We are in this for the long haul.

We started seven years ago and we think there are adequate levels of price discovery on about 2% of that $650 billion, a subset of the digital transactions.

Its our view that the other 98% will eventually be transacted digitally with higher levels of price discovery than they are today.

Our highest priority is to grab land from the remaining 98%.

Winning more than our share of the new dollars coming into programmatic is paramount to our strategy.

This is why we will regularly highlight that we are growing so much faster than the industry.

We do not aim to maximize profitability today at the expense of gaining share, but we also realize we are in a very unique and fortunate position where we can rapidly grow while still remaining very profitable.

We are not tempering our growth to keep our EBITDA hot.

Our growth is not restrained by capital requirements.

We control our growth due to our desire to preserve our culture and maintain our customer retention rate.

We're focused on the long-term, which is why we are making significant investments in 2017.

This year we expect to keep our EBITDA margin percentages in line with some of the most scaled and most successful SaaS companies in the world while growing faster than most, if not even all of them.

So let's discuss our biggest growth opportunities: mobile, video and global.

Our clients coordinate programmatic dollars across multiple channel [south] of sites, channel stations for maximum efficiency.

And they do so holistically, which is the only way marketers can stay competitive.

We think the two most important channels of the future are in mobile and video.

For mobile, there are currently about three billion smart phone users worldwide, and as a result nearly all of our customers have moved to some amount of mobile advertising.

Most were spending nothing with us three years ago in mobile.

In Q4, all mobile including in-app mobile video, represented about a third of our business, and grew 135% in 2016.

While mobile advertising only grew by an estimated 46%, according to ZenithOptimedia.

At three times the growth of the industry, we are gaining share and our customers can reach billions more people than on desktops alone and we expect this trend to continue to grow around the world.

Another encouraging fact, according to Zenith, is that mobile users spend more than 300% more time on their mobile devices than they do on desktops.

And in the coming years this gap is expected to increase.

This is great news for the growth opportunity in mobile.

Our platform is allowing ad buyers the opportunity to significantly increase their mobile engagement.

Through our omnichannel offering, we can help random agencies measure the efficacy of their media decisions, including the cases where TV ads create awareness, and the mobile apps facilitate the transaction.

Nowhere is this one-two punch of video and mobile more pronounced that on Singles' Day in China.

On November 11, $17.8 billion were transacted in this 24-hour period, 82% of which was on a mobile device.

Preceding the day, there was a televised gala that is something like the Super Bowl and the Oscars rolled into one event.

Advertisers push in offers, coupons, lock in pricing, ahead of the big event to drive awareness and sales.

But the bulk of the transactions occur the next day on mobile devices.

While display is still an important opportunity and channel for us, mobile is clearly more important to our future.

As connectivity and time on mobile increases, we believe mobile apps will also become higher quality and better integrated into the user experience than they are today.

We also think mobile video is one of the most untapped opportunities in all of digital.

With all of these forces coming together in mobile, we enable unbiased data-driven decisioning to more users and return a better ROI for our customers, not just on one side or on one app, but across the entire Internet.

And perhaps the only thing I'm more bullish about than mobile, is the future of television.

So let's talk about TV and video.

We think about a few distinct categories in TV and video.

The first: there are web videos, which include premium content like full episode players from the major networks.

Then there are connected TVs, which include the Rokus and Hulus, and Apple TVs, and even the Sony Crackles of the world.

And there are the efforts to improve the transactions of linear TV; the third category.

However, the future of TV is fully addressable over the Internet, and that's where we are placing our biggest bets; in those first two categories.

And here's why.

The traditional TV model built on bundles, networks, set-top boxes, coaxial cables and audience panels, is under a lot of pressure.

Netflix, Amazon, YouTube and DVRs have changed the game and accelerated a market transformation.

As consumers cut the cord and move their TV habits to the Internet, every major player in television has been formulating and adapting their own strategies to this new reality.

In 2015 we saw major broadcast and media companies start to test new distribution platforms, and those tests left everyone underwhelmed.

In 2016, they decided they needed to monetize their own assets, and we saw large broadcast and media companies either buy sell-side platforms or take action to control their own distribution, as exemplified by the AT&T-Time Warner deal.

And now in 2017, we are starting to see this put into practice.

And this is why the independence of The Trade Desk is so valuable.

As broadcast and media companies go to the agencies, which is where nearly all of the TV advertising is bought today, and they asked the question where should I plug into the programmatic dollars?

The Trade Desk will benefit as we already work directly with most of the agencies, buying TV media and we are the one self-serve platform that can holistically buy TV programmatically without any competing assets.

While consumers love things like Netflix, the ads on the channels on connected TV are growing exponentially faster than the no-ad offering.

The future of TV is over the Internet, and it is ad funded.

As an industry, we have to show fewer ads and we have to make them more relevant and that is why we are so well positioned and optimistic about the future of TV.

We are frequently asked about how quickly traditional linear TV is going to transform into Internet-driven fully addressable TV.

We think the AT&T acquisition of Time Warner is a bellwether as to how this transition is taking.

When the deal was announced at the end of last year, the CEO of AT&T Randall Stephenson found that their aim is to provide a bundle to consumers of their favorite channels at significantly less that is what is on the market today.

Initially they talked about a $35 price tag.

He acknowledged their critical ingredient to this is working over the next several years, is to utilize (inaudible) these technologies and use the Internet to deliver all of the content.

Everything would be on-demand and menus that look more like Netflix than the current table grids.

But in order to offer the hundred channels at a lower rate, his plan is to make it up in fully addressable advertising.

He stated that his aim is to have this up and run running in 2018.

A big $85 billion bet, and a fast approaching date makes that an important indication of how quickly the media world is moving to addressable digital advertising which provides a significantly better experience than what today's coaxial cable providers can provide.

Already, leading connected TV companies like Roku and Hulu are embracing data-driven programmatic advertising with significantly higher CPMs.

And we believe these are the early adopters.

Approximately two-thirds of our customers spent on video in 2016.

Our video spend increased by 140% year over year, and connected TV grew by 40 times between January 2016 and December 2016.

Because of this sheer size of the market, this has the opportunity to move the needle unlike any of our other channels.

We are the only [sale] independent buyer of media in the video market, without the conflict of interest like competitors with large TV and video assets.

The activity and enthusiasm plus the ever increasing flow of (inaudible) we are seeing makes me very excited about the future of TV and video.

Our objectivity and independence matter in every channel, but it is more strategically valuable to working in TV than in any channel.

Next is global.

When we talk about global we are talking about getting your (inaudible) convert their existing advertising to more effective ways of transacting.

However, the biggest opportunities in the world are in Asia.

The same transitions are happening in Asia as are in Europe but we predict adoption will be faster since GDP growth is faster there than anywhere else in the world.

Today Asia is nearly one-third of the total global ad spend, and the region is expected to see the fastest programmatic growth in the coming years.

eMarketer estimated that China grew programmatic 70% in 2016, compared to 19% in the United States.

In our Southeast Asia business, according to Magna Global, countries such as Indonesia and Vietnam are expected to grow programmatic ad spend six times and eight times where it is today.

We've had our offices in Japan, Korea and Hong Kong and Singapore for years.

Last year we announced that in the first half of this year we would open offices in other spots in the world.

Were pleased to announce that in Q4 we opened our Jakarta, Indonesia office and so far in Q1 we have already opened our Paris office in France and our Madrid office in Spain.

In 2016, our international markets represented about 10% of total spend.

But collectively grew about two times faster than the United States.

Mobile, mobile video and audio and native are significant drivers of revenue growth outside of the US.

We are extremely bullish on growth in Asia and we believe we are the first in the region with products specifically for each market and deep relationships with many of their large global agencies with a presence in Asia.

Our independence is proving to be just as valuable in international markets.

We are pleased to share with you today that we've recently entered into two large and meaningful inventory partnerships with two international companies, Ambien in Indonesia and Baidu in China.

We are excited to be one of the few advertising technology companies in the world to partner with both Baidu and Google.

We expect to announce other big partnerships like this one throughout the year.

While the move to programmatic in the United States has been [quick], the industry still struggles with channel conflicts.

We don't see this happening in the international markets because there aren't large established sales teams and channels for advertising like in the US.

We are seeing customers like American Express go all-in for programmatic in places like Asia.

I believe international markets will play a much bigger role in our business in 2017 than they ever have before.

We are seeing this with rapidly growing content providers like Spotify which has figured out that a price-plus ad-funded revenue stream is the way to go.

This represents a tremendous opportunity for us in our Asia growth curve and we are very excited to work with these early adopters.

Now I'd like to speak a little bit about our platform.

We are at the beginning of a massive change for our business and the state of our industry.

In December 2014, we crossed the threshold of evaluating up to one million ad impressions per second, or QPS, also known as queries per second.

Last quarter we saw a peak of 5.7 million QPS.

Programmatic did not grow over 500% in two years.

That increase in options is caused because of the advent of header bidding.

Header bidding is a term used to describe the technical implementation, which simply creates competition and enables publishers to run multiple options for the same impression.

Essentially publishers figured out that header bidding, or this running multiple options for the same impression, was good for them.

They can make more money.

Advertisers now have to be more careful than ever about which ads they buy, even which auction they buy them in.

The value equation has changed.

We evaluate and analyze over 400 billion-plus ad opportunities every day in real time.

And we help our customers carefully decide which ads are best for them.

The barrier to entry for the competition goes up when more ad opportunities come into the digital transaction world because costs are incurred whenever you look at a net opportunity and will make money only when you win.

In 2017, we project QPS could increase upwards of 600 billion ad opportunities every day.

This makes the rate to profitability even farther way for anyone that's not growing faster than the industry.

In Q4 we grew revenue 70% off of a much higher revenue base while the industry only grew at roughly 19%.

And our GAAP profitability grew by 81% year over year.

The way the industry is shaping out, this provides us with a massive opportunity, but to continue to capture the opportunity we need to build the best user experiences.

We need to improve our platform and continually develop and release innovative products to keep The Trade Desk far ahead of our competition.

In 2016 our Engineering Team nearly doubled in size, and in 2017 we plan to continue this growth and hire more engineers than any other previous year while ensuring we operating with maximum efficiency.

Internally we are calling 2017 the year of development.

This year, we will lead with product and product marketing.

And we plan to roll out a brand new user experience for our customers with a focus on workflow efficiency during the year.

Our goal is to give people time back so they can optimize and better leverage our platform.

Finally, I want to switch gears and talk about how we built a strong business model.

As I stated before, we don't believe that growth has to come at the expense of profitability.

We expect to do both, and have since 2012 and we just reported record profitability for the most recent quarter and year.

In 2016 our financial performance was more than we hoped for.

Even with our pedal-to-the-metal aggressive investments in mobile, video and our global growth as well as the investments to go public, we kept adjusted EBITDA margin at 32% and increased adjusted EBITDA dollars to $65 million.

An increase of 66% over the prior year.

In addition free cash flow for the year was also positive, which marked a first for The Trade Desk.

This is a testament to the value we provide to our customers and the leverage in our model.

We continue to set a high bar, the industry is continuing to see ad dollars shift to programmatic and our customers are expecting to spend significantly more with us than they did in 2016.

For 2017 we expect gross spend on our platform to be over $1.45 billion and revenue to be about $270 million.

In the year ahead, we view the aggressive investments we are making in high growth areas such as mobile, video and global as critical to grabbing share and deepening our engagement and strategic importance with our customers.

This will cause our expenses to grow at a faster rate in 2017, and as a result we see our adjusted EBITDA margin at about 26%.

We are not aiming to maximize profits this year, but we believe we are doing the best thing for the growth of our business and the ultimate profitability over the long term.

Now I'm going to turn the call over to Rob to discuss our quarter in more detail.

Thanks, Jeff.

Good afternoon everyone.

Our business continued its strong trajectory in the fourth quarter, and we ended 2016 with strong momentum.

Total fourth-quarter revenue increased 70% year over year, led by our mobile in-app channel which grew by over 400% on a year-over-year basis.

Our focus in Q4 was to continue to improve our scale and deliver results for advertisers in our seasonally strongest quarter.

We delivered on those goals and one of the best indicators of this came during the holiday season, where we generated significantly more business from everyone; from large consumer product brands to smaller performance businesses.

All of our customer groups use The Trade Desk platform as a core part of their holiday advertising through their agencies.

One of the biggest highlights for the quarter was the increasing importance of mobile and video, as Jeff referred to earlier.

One example of this shift is, one of our customers which is a connected TV application customer, that through their agency spent $5 million on our platform in Q4, 96% of which was either mobile or video.

We also had an API customer spend over $1.5 million in the fourth quarter, by aggregating spend from over 400 SMB advertisers.

And 56% of that spend was on mobile.

More and more, advertisers of all sizes and across all industries are shifting significant spend into video and mobile.

Now, as I described last quarter, from an operational perspective we really have three core priorities.

Number one, and that is to be our customers' independent trusted advisor.

Number two, focus on growing our omnichannel presence.

And number three, continue to grow our international footprint.

Starting with the first item, our goal is to be our customers' trusted advisor.

I want to emphasize that The Trade Desk is the only scaled self-service and dedicated buy-side platform in our industry without any conflicts of interest.

In 2016, we focused our hiring efforts on the first half of the year, so that each employee was fully trained and ready to advise and contribute to our customers' success during the higher volume second half of the year.

And our efforts paid off.

As we exited the year with 566 active customers, a continued customer retention rate of over 95%, and an overall cohort growth of 71%.

To help achieve these goals we ended the year with 467 employees worldwide, with the vast majority of them being customer-facing.

Our dedicated sales, account management and training teams work side-by-side with our customers to maximize the value that they derive from our platform as they log in every day.

As a result, our annualized revenue per employee totaled $435,000 for the full-year 2016, which continues to stand out amongst other stats and ad tech industry peers.

Annualized revenue per employee is a key metric which shows our business model was designed to scale efficiently and that we continue to execute strongly.

Next, I want to focus on our commitment to growing our omnichannel presence, which greatly helps media buyers become more holistic in how they buy advertising.

In 2015, display was nearly 60% of the total spend on our platform, but as we have developed more robust offerings across mobile, video, native and audio channels, display is now less than 50% of our total spend.

The strong growth we have seen in areas such as mobile and video have enabled a higher level of coordination and strategic targeting advanced by proprietary data and technology, including both first-party and third-party data across all of these channels.

And it's making a real difference for our advertisers and agencies.

Cross-device targeting is growing rapidly and has seen an almost 200% increase in the second half of the year, when we compare that to the first half of 2016.

As an example, last year a large technology company, through their agency, used cross-device targeting as a way to increase retargeting scale and find the same users across multiple browsers and devices.

As a result of using cross-device targeting on this campaign, the Company saw a 63% increase in subscription conversions, which greatly increased their ad spend ROI.

Our video growth, which includes things like full episode players, connected TVs, set-top boxes, and web video in total grew by 140% over the prior year.

Connected TV, while still in its infancy, grew well over 100% in Q4 versus Q3.

As advertisers realize the opportunity to utilize data-driven decisioning to target cord cutters on early programmatic video adopters, like Roku, Apple TV and PlayStation.

Given that TV budgets are about half the global advertising pie, and this is only getting started, we continue to view this as one of the most promising areas of growth for our business.

Also in the fourth quarter, we launched several more native inventory suppliers on our platform.

Our team spent significant time training media buyers and agencies early in the year on how to incorporate native ad units into their ad campaign strategies, and as a result we saw over 700% growth in native spend in Q4, as compared to Q3.

Now digital audio, that also remains one of our fastest growing channels.

It's still the early stages of audio but adoption is growing more rapidly at this stage than most of the other channels we've introduced in the past.

We are currently playing audio ads in more than 100 countries around the world, in large part due to Spotify at this stage, but we're also adding new audio partners such as Triton and AdsWizz in the coming year.

One of the more interesting stories of the November election in the US, is that while one cannot bring signs and solicit voters near the polls, we were serving ads to Spotify users while they were in line to vote, illustrating the power of programmatic and cross-device targeting.

The third priority we are focused on is widening our geographic footprint to make sure we serve our customers locally in the markets that are important to them.

In every quarter of 2016, our international spend growth percentage has outpaced that of the US.

And exiting the year, our international business amounted to about 12% of our total billings.

When you think about places like Japan, which is the third largest media market in the world, and where we've been on the ground for over two years now, that's the market that has only about 5% programmatic adoption to date.

There is just really a massive amount of opportunity for growth in Japan.

And then there's Indonesia, where we just opened an office in Jakarta in Q4.

Indonesia, which is the fifth largest country in the world by population, has the fastest growing middle class and a very concentrated set of publishers.

All of these characteristics make it very right for programmatic adoption to happen quickly.

Those are just two examples of many international markets of size and scale, and that we think have large potential going forward and will continue to drive our international growth in 2017.

Overall, we continue to make real progress advancing our strategy and achieving our operational goals.

Our revenue in key metrics are growing nicely, and as we look ahead to 2017 we're very confident in the direction of our business.

Now I'm going to turn the call over to Paul to discuss our financials.

Thanks, Rob, and good afternoon everyone.

We are all really pleased with our Q4 performance against our key financial metrics, growing revenue 70% year over year, growing adjusted EBITDA 53% year over year, and GAAP net income 81% year over year, all while investing aggressively in areas critical to our future growth and positioning the Company to maximize long-term financial return.

We ended of the year with over $1 billion in spend on our platform, from approximately $550 million a year ago.

The increase in spend was driven by video and mobile video, which each grew 111% and 300% respectively.

Even display, which is now less than 60% of our total business, grew 57% for the year, three times the estimated rate of industry growth.

Revenue for the fourth quarter was $72 million as previously mentioned, up 70% year over year.

This growth reflects both expansion of our share of spend by our existing customers and the addition of new customers.

Approximately 87% of our fourth-quarter gross spend came from existing customers and we define existing customers as those that have been with us for more than one year.

On a yearly basis, revenues for the FY16 was $203 million, up 78% year over year with 91% of our year-to-date gross spend coming from existing customers.

Our operating expenses increased in parallel with the growth of our business to $48 million in Q4 2016 from $25 million during the same period in 2015.

The increase in operating expenses was primarily due to our increased investments in personnel and stock-based compensation and in our newer offices.

Lastly, we recorded $12.7 million of income tax expense associated with our taxable income.

Our effective tax rate in 2016 was 53%, primarily due to the non-deductibility of warrant expense and the non-deductibility of stock compensation expense, both of which are non-cash.

Absent any meaningful tax reform in Washington, we now expect that our tax rate will remain elevated throughout 2017, and this is due to two factors.

The first is the non-deductibility of stock compensation expense which is increasing due to the IPO and of course our higher share price.

The second is due to our international structure, where our international entities may still be operating in a loss position but we don't get the deductibility of those losses in the US, which of course has the impact of making our effective tax rate appear high on the face of the income statement.

Should the new administration and Congress pass any corporate tax reform, The Trade Desk will be a huge beneficiary as we generate most of our profitability in the US and have no [NOLs], and therefore pay corporate income taxes at the full statutory rates.

One item I'm often asked about is stock-compensation expense, and during Q4, stock-based compensation was $4 million, an increase from prior quarters, primarily as a result of the Company's new employee stock purchase plan.

We are expecting to keep stock-compensation expense to mid single digits as a percentage of revenue, and have budgeted about $13 million for 2017.

GAAP net income was $10.3 million for the fourth quarter of 2016, or $0.24 per fully funded share.

For the year, GAAP net income was $20.5 million, an increase of 29% compared with 2015.

Our adjusted earnings per share was $0.33 per share for the fourth quarter, compared with $0.28 in the prior year.

For the full year our adjusted earnings per share was $0.89, up 46% compared with the prior year.

We use adjusted EBITDA as a core metric for our business.

And we calculate our adjusted EBITDA by excluding stock-compensation expense, and in the case of 2016, also the non-cash warrant expense.

Adjusted EBITDA was $28.6 million with a corresponding margin of 39% of revenue during Q4, as compared with adjusted EBITDA of $18.7 million or 44% of revenue during the same time last year.

The increase reflects growth of our top line, and of course our operating leverage, offset by our increasing investments in product, people and global expansion.

For the full year, our adjusted EBITDA was $65 million, or 32% revenue in 2016.

Adjusted EBITDA increased 67% from $39 million in the prior year, reflecting the leverage in our model and of course offset by the investments we're making in our people and technology in the second half of the year.

Net cash provided by operating activities was $75 million in 2016, compared to net cash used in operating activities at $37 million in 2015.

This represents a $112 million positive swing in our working capital situation, as we have scaled significantly.

During the quarter we paid down $25 million in debt and closed the year with $133 million in cash.

We also have an additional $95 million available on our revolver.

Our operating cash flow in Q4 exceeded our internal projections and was the result of initiatives to better align our DSOs and BPOs, as well as the favorable timing of collections, which were much greater in December than anticipated.

Our DSOs for FY16 were 105 days, an increase of 12 days from the same period a year ago.

Our BPOs for FY16 however, increased by 22 days to 84 days, from the prior year, thereby narrowing the gap between DSOs and BPOs.

While cash flow from operations can fluctuate meaningfully from quarter to quarter due to seasonality and timing, our net cash position of $108 million and our revolver are more than sufficient to manage the ups and downs.

Looking ahead to 2017, we expect full-year revenue to be $270 million on total growth spend of at least $1.45 billion and adjusted EBITDA to be $72 million, or a little bit above 26% of revenue.

For Q1 of 2017, which of course is seasonally the slowest in our industry, we are expecting revenue of $43 million and adjusted EBITDA of breakeven, plus or minus $2 million, depending on the timing of investments in our personnel, technology and new offices, such as in Shanghai, Paris and Madrid.

So with that I will hand it back over to Jeff for any final comments and of course Q&A.

Thanks, Paul.

Before we take your questions, I want to provide a few highlights on the news we issued concurrent with our earnings release today.

Today we filed a registration statement for a follow-on offering.

I want to stress that this offering is 100% secondary, with zero primary shares being offered and therefore zero dilution to shareholders.

The offering allows us to provide more liquidity for our early investors and employees and opportunity to diversify a small amount of their investment in the Company.

We also expect it to increase our flow and therefore reduce the volatility in the stock.

In 2016 connected TV ads grew by 40 times from last year.

Mobile and video are now the majority of our revenue and growing faster than the rest of our business.

Our international growth outpaced the US by more than two times in 2016.

And finally, one of our strongest strategic assets is the independence and objectivity that comes with not owning media, and it significantly differentiates us from the competition.

This is opening doors for us around the world, and notably helped us partner with Baidu, which is being implemented and rolled out shortly.

We enter 2017 with the wind at our backs and with fewer competitors.

We continue to surpass our own expectations and are extremely pleased with our results during the quarter and for all of 2016.

We have executed well and we are hitting on all cylinders as we enter 2017.

With that we look forward to your questions.

Operator, shall we begin?

(Operator Instructions)

Shyam Patil

Hello, good afternoon, guys.

Jeff, could you talk a little bit about how you arrived at the gross spend in revenue guidance for the year?

It looks like you're implying growth around or even less than two times to market, after growing much faster the past few years?

Certainly [a lot of] large numbers, but aside from that, can you talk about the thought process you uses to get to the guide?

And I have one more follow-up.

So first, I'll say this.

We've guided a little bit conservatively historically, simply because so many things have gone right for us, 2016 was an amazing year.

In part because we had the Olympics in 2016, we had an election in 2016.

And the election pushed some of the retail dollars into the later part of the year, which is what made our Q4 really strong.

We also were able to make a bunch of investments for the long term.

We know that in 2017, we're making investments, some of which won't pay until 2018 and beyond.

And so with all of those things together, and primed to [win cross] to Wall Street, we know that we need to guide conservatively.

I know we put out a lot of numbers throughout the report that we just gave, but a couple of it I will highlight.

We grew connected TV by 40 times.

Of all the numbers we've talked about in the last 30 minutes, that's the one that I'm most excited about.

Between January 2016 and December 2016, 40 times growth in what I think is the most promising channel in media today.

We also are able to make investments in Q1.

We previously guided that we would open offices in the first half of the year, and the fact that we were able to get to Jakarta in at the end of last year, meaning open the office, doing significant revenue there as well as Madrid in Spain, so far this year.

We are super excited about the impact that will have on the long term.

If you put all that together, we are extremely bullish and frankly, bold in predicting that we'll continue to grow at least double the industry.

Great.

Just a follow-up on the spending?

When you look at the implied spending of OpEx for this year, how much of that to you consider to be investment?

Can you talk about what specific areas you consider investment this year?

You bet.

First, it is hard to distinguish.

Because growth is business as usual for us, for our business.

And if you're not capturing share, in particularly the new channels, you're going to be shrinking, not growing.

So its hard to actually think of it as like, what is your base and where's the growth?

It's all the same thing to us.

And because we've never known a time where we didn't have 95%-plus client retention.

It's always an investment in retaining and growing the clients that we always have.

That's first and foremost.

But by hiring more engineers in 2017, than we ever have before, those are certainly investing for the future.

The international.

I think it's fair to say that we invest about double what they contribute in all of our international markets using round numbers So all of that is investment for the future.

Inside of television, we are certainly putting more engineering muscle behind creating a foundation.

But if you were to measure it on its own, it's probably not profitable in 2017.

But the land grab that represents is obviously massive.

Not sure if Rob or Paul, you got anything on operating costs.

Thanks, Tom.

Next question, operator.

Brian Fitzgerald

Thanks for taking my question, this is John on for Brian.

First off, congrats on the quarter.

A follow-up to the previous question.

Once you've made these investments in international and headcount and on the R&D side also, can you talk to the leverage in the model of how that flows through maybe 2018 and beyond?

Then I have a quick follow-up, thanks.

You bet.

So every market is different.

Some markets, like Singapore, have been pretty linear, where from employee number six on, we're profitable.

And then there are other markets like German and Japan where we invest for two, three years before we get that return.

Part of that depends on how aggressively we're willing to spend in any individual market and how much confidence we have that it will ultimately pay off.

In markets like China, which we expect to be a big investment area for us in 2017, we will go all in.

And I expect to (inaudible) that part to look more like Germany and Japan.

And so those will take us beyond 2017, in order to pay for themselves.

But the way that we think about is, how certain are we that its going to return?

And then how much opportunity is there, if we invest now?

Because for instance in China, we think it's on land grab time.

Where people are hungry for a global omnichannel, non-conflicted solution.

And so it actually is something of a no-brainer for us to just make a big investment.

Great.

Thanks guys.

Quickly on take-rate?

It looks like, in your guidance that it is stepping down a little bit.

In the past you have talked about, as you expand into digital video and audio, that's expected to happen, so just curious your thoughts on, is that trend playing along the line with your initial thoughts and any updates there?

Thank you.

You bet.

I was hoping someone would ask this question, for a couple reasons.

Number one, I just want to reiterate that we, internally, don't use take-rate as a core metric of our business.

And my hope is that over time, we will develop the trough with Wall Street that we moved to what I think our [third core] metrics in our business.

Particularly the growth of EBITDA and revenue which, in our case, is net revenue.

So the fact that we operated at a 32% EBITDA margin for 2016, I think should give people the confidence that I think take-rate has been a [thought] before in other [places]meaning, for other businesses that have never been profitable, take-rate becomes a really core metric to their business because of the profit for profitability.

Now that said, as it relates to take-rate, there are a number of things that can create slight adjustments for take-rate.

One is volume discount, another is differences in channel mix and customer mix.

And there are -- I expect in 2017 to be slightly more volume discounts, and that's just the byproduct of a 95%-plus client retention and cohorts that are super strong.

So we're going to give discounts to those who spend more, and we've always done that to incentivize them to put more [effect] on the system.

So I do think that will have very slight impact on take-rate.

However, I just want to point to what again, are the core metrics, which are during that time EBITDA and revenue will be growing at a very healthy pace.

And that's the thing that we are optimizing for, not that [property] percentage.

Mike Mahaney

Okay, I think that's me, it's Mark Mahaney.

Two factual questions, please?

I think you said it, but the percentage of your revenue or gross and gross spend in 2016 that was international.

And commentary over what's implied in your guidance for this next year?

The percentage that comes from international, both with spend and with revenue?

Thank you very much.

So the first one, I'll just give raw numbers.

The spend for 2017 in terms of the percentage coming from international markets is roughly 10%.

Comes from international markets with again meaningfully over-investing.

For instance, roughly 20% of our employees are in international markets.

Just commentary on how we're over-investing.

And because its growing at roughly double the pace, more than double pace in the US market.

We expect that to be something more like 15% in 2017 in (inaudible).

Youssef Squali

Two questions.

On the margin longer term, how should we think about your ability to hit that 40%-plus that you guys talked about at the IPO?

Has the increased level of investments that your were talking about for 2017 either making that potentially harder to get to?

Or does it just push it out but in the meantime, we're getting hopefully higher top-line growth?

And can you parse out the growth in the fourth quarter, that 70% is still very impressive, between maybe pricing and volume?

Thanks.

Make sure I answer all the questions.

(Multiple speakers) No change in terms of maybe 40% EBITDA margin.

Just again, check where we are in our journey.

We say all the time, we're 2% done.

So at the stage we are at, and particularly because of the competition that header bidding is creating, now is definitely the period of time where we want to be land grabbing.

So the road, in 2017 in some ways is more of a priority than its been in recent years for us.

So now is the time for us to invest and go get further ahead.

And that's why we're focusing on engineering, that's why we're opening so many international offices.

Last year we opened one international office, this year I think we will open five.

With that investment, we're going to grab land.

But steady-state, we still think we are approaching that 40% EBITDA.

There's just so much to go to 2%.

We're still in heavy growth mode, and over the next several years we'll be continuing to affirm towards 40%.

And by the way, we view the investments we're making now as somewhat of an insurance policy to make us more like we could get to that 40% in the out years.

What was another component to your question?

Q4 growth, pricing versus -- (multiple speakers).

Was Q4 growth, more of the results was more of a result of us chasing volume, versus giving price discounts -- help me understand your question again?

That's it, that's exactly it.

I'm trying to understand the dynamics going on in the marketplace competitively?

And how are volume and pricing driving the top line, relative to prior quarters -- if there has been any change?

Maybe there hasn't been.

You bet.

I would say in 2016, we started using a mantra, frankly, with our clients and with our own team, that we hadn't in years past.

And that is, it is not our goal to be the cheapest platform in the world, its our goal to be the best.

So many years ago, we might have tried to under-price others to win business, as we try to defend the business that we've already won, the way that we do that is in efficacy, and the value that we add, not trying to be the cheapest product.

We spent a lot of time with our customers, pointing to the value that we have, not the price that we offer them.

And because we think we add so much more value, its really all a byproduct of volume and growth.

So it wasn't us lowering the price so that we can grow faster than everybody else.

There's no way we could have put up the profitability numbers that we did last year if we had taken that approach.

So I think we were able to thread the needle, which is create possible growth, which is our first priority while remaining as profitable as any independent asset company ever.

Okay.

Helpful.

Thanks, Jeff.

Kerry Rice

Thanks a lot, great quarter, guys.

I noticed in the K that you did provide some qualitative data on cohorts.

Can you talk a little bit more about that?

If you can give us any growth rates of any your key cohorts?

The second question is, maybe relates to the previous question about volume versus pricing, with the header bidding being a key trend in the marketplace, did header bidding raise CTM prices?

Was that beneficial to you?

Can you talk a little bit about the impact of header bidding in Q4 and think about it in 2017?

Thanks.

Great.

So let me start by talking about the cohorts and then if I leave anything out, Rob, if you'll just add to it.

I'm really glad someone asked about the cohorts.

In part because I think it's the way a lot of people are thinking about the modeling exercise that our Company is.

So giving the color around it helps predict what's going to happen.

Just a reminder that 2012, 2013 cohorts represent the smaller customers.

So when we refer back (inaudible) small agencies, small jobs we can pack with and not make big mistakes -- improve ourselves, and create case studies.

So that we can then go to the biggest buyers in the world.

And where we really started to see success on that was in 2014.

In 2015 it became much easier for us to win the biggest buyers and particularly the business agencies in the world.

Because we think that those businesses are going to continue to do well, I think there's a case to be made that our 2014 and 2015 cohorts will be some of the strongest cohorts for our future going forward.

So I think it's fair to assume that (inaudible).

In 2016, and this was helped by the IPO, it's perhaps the first time that we started winning on stages in the spotlight instead of just in conference rooms.

It's fair to say that all of our wins up until the IPO came in conference rooms.

And we have a little bit of wind at our back since then in terms of creating more awareness and winning more customers in the middle size.

And as a result, those are growing just a little bit faster than our data.

But still I don't know that will ever have a cohort as competitive as our 2014 and 2015 cohorts.

Did I leave anything else out?

The only other perspective I would call out is what we talked about during the roadshow is, remember it's still early.

Still the a majority of brands are not spending programmatic in any serious way.

So we see a lot of growth from brands shifting more dollars from digital into programmatic and frankly from non-digital directly into programmatic.

So it is still early days, both in terms of the number of clients if you look at all the brands out there, who is betting programmatically.

And secondly, the share of their total advertising spend that's in programmatic, so we think the cohorts have a long way to go, the ones we have today.

And frankly the cohort that we signed on in 2016 is the strongest one we'd ever signed.

And we expect a lot of growth to come from them in the future too.

And then as it relates to the second half of your question.

Which is really complex and not an easy question to answer, which is the effect of header bidding.

Because it creates more competition as well as because we are able to see more of the premium inventory as a result of header bidding.

Its a naturally valid to move prices upward.

So we benefit from that, versus any of the costs that the additional volume brings.

So in other words, because we have to look at more ad opportunities because in some cases the same impression is representative of multiple options, in fact that's often the case now.

That does increase our costs to examine each individual impression and then figure out the right answer.

And because the price has also gone up that one, because we typically operate on a percentage of spend, we benefit from the raising prices.

But it hurts us that the volume has gone up.

And when you put those two things together, they roughly offset each other.

So its hard to say what the net effect was, because it's almost zero.

But the most important piece is that the value add that we provide to our customers has gone up meaningfully.

Because of the water can become a little bit more choppy, if you will, so the need for you to examine everything and use data to make sure that you're making the best choices has gone up.

And the pause of being successful without being data-driven have gone down.

And so all of that looks like good news for us.

And if you also think that puts pressure on our competitors, most of which are not profitable because of that dynamic, and particularly if you're not growing as fast as we are, which I think there was a strong case we made that's an art.

That we separated from the pack while having very little impact upon our profitability and expenses.

So overall especially on a competitive basis that header bidding dynamic benefits us probably as much or more than every other company in advertising in the world.

(Operator Instructions)

Aaron Kessler

Thanks, guys, congrats on the quarter.

A couple questions.

The Q1 guide, I believe that implies roughly 40% sequential decline?

Should we think about the obviously there's seasonality in the business but there's a little more conservatism built in there?

Maybe an update on thus far, what you're seeing through mid February?

And I think previously you talked about you've touched about 10% of the brands?

Where does that statistic stand now?

Finally, I think you mentioned international is up 10% today.

What's your thoughts on what that looks like, in two to three years?

Thank you.

I'll take the first part of the question and I'll ask Rob to speak to the 10% brands questions.

I can relate to the guidance in Q1, for Q1.

It is definitely fair to say that Q1 is the hardest quarter for us, [with respect to] forecast and guidance.

And it's because there is a seasonal nature to advertising.

People tend to start the year reconsidering how they allocate budgets.

And while we're an install inside the agencies and technology providers that we power, that doesn't mean that they are not susceptible to that seasonality.

And then when you are coming off of the election year, the Olympics and all of those things that made 2016 unique, forecasting for the year is hard.

Particularly when you have such an amazing year like we did.

We want to make certain that we provide guidance that we know that we can hit.

So while we're super excited to report that we are growing at least double the industry, we also recognize that we have a lot of trust that we have to gain on behalf of the ad tech community, and we know that has to reflected in the guidance that we provide.

Great.

I'll jump in.

In terms of brand adoption, the programmatic we touched on briefly, earlier, just to reiterate and be more clear on that one.

So yes most of the big agencies that have rosters of advertisers in the hundreds, they are still double digit 10%, 20%, 30% of the brand.

Inside many of the agencies that have adopted programmatic in a serious way.

There's another incremental percentage that is experimenting with small, very small parts of their advertising budget.

So when we look at the penetration within the agencies and then their brand that they aggregate and service, we just see a long way to go.

It's way less than the majority of brands that are spending in programmatic in any serious way.

So we think in our cohorts that Jeff talked about in 2014, 2015, and 2016 as we sign most of the large global agencies, there's just a ton of runway to go in terms of brands adopting programmatic and then working on The Trade Desk platform.

And I think the last question you asked was around international growth and I think Jeff mentioned it early in the call.

Roughly about 10% by the end of last year, and we're over-investing, particularly in the key international markets like China and Indonesia.

We've got really strong positions throughout Southeast Asia with our presence in Singapore.

We've been in Korea and Japan for three years, we've been in Europe for four years.

We expect all of those to continue to grow much faster than the US, and therefore take relative share as a percent of our total business.

So I think we talked about heading towards a 15%-ish percent by the end of this year.

Got it.

Great.

One quick follow-up.

Election sounds like it was a decent traction with election in Q4.

Can you give us a rough sense of gross spend was in the election that you benefited from?

Yes.

Directly, it was in the low single digits.

So it wasn't like some massive amount of our spend.

So as we think about the future it's not like you should massively downgrade what would happen in 2017 because there aren't any US elections, there's nothing like that at play.

That said, when you combine the advent of header bidding with the increased competition that comes from having the election, and most notably as a consumer I'm sure everybody on the call, if you're looking mostly, noticed that there was way less retail advertising prior to the election in November.

A little bit of sense of making up for lost time, particularly in [set or] TV.

That had an interesting dynamic on prices that had a bigger impact on our business than just low single digit percentage [throughout] the election.

Got it.

Great.

Thank you.

There appears to be no further questions at this time.

This will conclude today's conference.

We thank you for your participation.

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