Trade Desk Inc (TTD) 2017 Q4 法說會逐字稿

Greetings and welcome to The Trade Desk Fourth Quarter and Full Year 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Chris Toth, Head of Investor Relations.

Thank you, operator.

Hello, and good afternoon.

Welcome to The Trade Desk Fourth Quarter and Full Year 2017 Earnings Conference Call.

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

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, the matters that we will be describing will be forward-looking statements, which are dependent upon certain risks and uncertainties.

I encourage you to refer to the risk factors included in our press release and 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 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.

Good afternoon and thanks to everyone for joining us today.

Q4 was an outstanding quarter for The Trade Desk and the capstone to a terrific year where we again exceeded the goals we set out to achieve.

In 2017, we surpassed $1.55 billion in total spend, resulting in annual revenues of $308 million, which is an increase of 52% year-over-year.

This growth is almost double the rate of the programmatic industry's 27% according to Magna Global.

Just as we did the previous year, we believe we continued to gain more share and price-discoverable programmatic advertising than anyone.

The growth, share gain and momentum of our business heading into 2018 reflects the investments we have made over the past several years and our focus on serving agencies and advertisers objectively.

We generated an adjusted EBITDA of $95.5 million for 2017, which reflects an adjusted EBITDA margin of 31%.

This $95.5 million is a record for The Trade Desk that came even as we aggressively invested in developing products, growing channels and expanding global business that we expect will deliver strong ROI in the coming years.

Q4 2017 revenues were $102.6 million and up 42% from Q4 2016.

Q4 2017 adjusted EBITDA was $39.5 million or an adjusted EBITDA margin of 38.5%, again, demonstrating our operating leverage.

As we have each quarter since our IPO, we have once again exceeded our guidance.

While these numbers are great, they only tell part of the story.

Our execution in Q4 is especially meaningful because our Ventura headquarters and team were significantly impacted by the fires and mudslides that ripped through Southern California.

We came together as a team during this challenging time, not only to help each other and the community, but also to close out another record-breaking Q4 for The Trade Desk.

I am in awe of this team's resilience, courage and generosity and thank everyone at The Trade Desk for pulling together in such a powerful way.

I'd also like to thank our customers and our partners and investors for their outpouring of support during that time.

Before we discuss 2018, I'd like to talk about some of the highlights of 2017, especially from the second half of the year, because I think it will illuminate why we have so much momentum and so much confidence heading into 2018.

I'd like to first update you on the progress of the key growth initiatives that we outlined in our last Investor Day.

There's 5 that will drive our growth for the next couple of years.

First, we will focus on growing spend across all channels, being omnichannel is the only way to win, but we believe ultimately every theme is a dress rehearsal for the migration from traditional TV to Connected TV and online video.

In a minute, I want to discuss our significant progress on this front during Q4 of 2017.

Second, to serve the biggest brands, we must be global which requires our expansion into China.

Third, as an independent player, meaning we don't own any media, we can lead an industrywide identity footprint, which is necessary to be the best at our fifth initiative.

Our fourth strategic initiative is to increase our data offering.

And our fifth initiative is to build the tools to revolutionize media planning and buying.

I'll elaborate a bit on our progress on all 5 of these initiatives.

As a preface, I'd like to highlight that IDC estimates that global advertising will be $704 billion in 2018, which is up by 4% from their prediction for 2017.

Additionally, Magna Global expects our RTB programmatic advertising to grow by 21% this year.

To understand why these growth initiatives are so important to us, you have to understand our vision.

We maintain that eventually all advertising will be transacted programmatically.

With current growth rates, global advertising will be $1 trillion industry in less than 10 years.

Our vision is to make it better by making all advertising transactions data-driven programmatic choices.

We are in a land grab mode and we expect to grow meaningfully faster than the industry for as far as we can see into the future, which is why these initiatives are so important to our growth.

Our first initiative is growing our omnichannel offering to advertise across channels and devices in a coordinated and objective way.

We see our long-term omnichannel strategy validated by strong growth in multiple channels.

For 2017, we hit a major milestone.

Mobile surpassed display as the largest channel on our platform for the first time.

In Q4 alone, 40% of spend was directed towards mobile and in-app advertising, growing 67% over the previous year.

Display advertising continues to be a go-to for many brands, but we're seeing a much broader mix of channels in their media buys.

This expansion is represented by the massive growth in channels we had on the platform in 2017 such as native, which grew by 600% or audio which grew by 1,000% and video, a channel we've been in much longer than native or audio, grew by 70%.

As advertising dollars flow into channels beyond traditional display, we are reaping the rewards of the investment we made early on in these channels.

And while I'm very positive about our prospects in mobile, perhaps the only thing that I am more passionate and more bullish about than mobile is Connected TV.

A change of this magnitude is rare.

I don't think we will see a transition like this again in any of our lifetimes, the convergence of the Internet and television.

10 years ago, only a trickle of TV content streamed through the Internet.

But today, nearly all of the world's leading linear TV networks are providing app-based content through smart TVs and mobile devices.

The $225 billion in annual worldwide TV ad spending according to IDC is shifting along with the content.

We have seen these trends develop and we are building on the solid foundation we established in Connected TV over the last 2 years.

When we committed to CTV, we invested in our platform and formed our initial inventory supply partnerships.

And then, from Q2 2016 to Q2 2017, our available CTV inventory grew by 1,000%, which I stated at the time was the most bullish number we could share about our business.

Then from Q4 2016 to Q4 2017, CTV spend in The Trade Desk platform increased 535%.

In fact, the month of December 2017 over the month of December 2016, the growth rate was even higher at almost 1,000%.

This is probably the most bullish fact we can share about our performance in 2017.

We continue to grow our inventory partnerships, add audience targeting data, refine attribution and integrate CTV into our overall omnichannel strategy.

During this phase of growth, we are expecting CTV spend to at least double in 2018 and we see tremendous upside beyond that as we move closer to the large publishers and emerging streaming services.

We are confident that the most efficient way for any publisher to optimally monetize inventory and get as much demand as possible is by partnering with an objective platform such as ours that brings so many advertisers together.

It cannot be ignored.

The phenomenal growth of CTV also sets us up for success as we continue to focus on another massive market opportunity for The Trade Desk, to expand our business into China.

Our second strategic growth initiative is to grow internationally.

It is land grab time on this initiative more than ever.

While our international business is growing at almost double the rate of our North American business, China represents the biggest long-term international opportunity for our company.

China is the only place where the CTV evolution may be ahead of the United States.

So China is a place where our 2 biggest initiatives overlap, international growth and CTV growth.

In 2018 according to eMarketer, China is expected to have nearly 250 million CTV users compared to only about 180 million in the U.S. The beauty of CTV in China from our perspective is that it is primarily based on long-form content and ad-funded, which gives advertisers tremendous opportunity to reach the fastest-growing middle class in history.

There is no debate that programmatic in China is growing faster than in the United States.

That is why we are investing heavily in China and why it is a key piece to The Trade Desk's long-term global growth plans.

2018 is a year of strengthening relationships and trust in China.

We established a major office in Shanghai last year and we are building a solid in-country leadership team.

We continue to grow partnerships with some of the most prominent firms in China, highlighted by our partnership last year with Baidu and our recent partnership with Alibaba's Youku.

Youku is the largest online video provider in China according to Digiday.

With over 580 million unique views per month.

Advertising represents about 80% of its revenue.

We are especially excited about our new partnership with Miaozhen, China's leading digital advertising measurement and optimization firm.

The data-driven insights that its platform can provide will help users of The Trade Desk find, target and refine audiences and hone in on the most effective advertising strategies.

The key to growing business in China is cultivating relationships for the long haul, which has always been The Trade Desk strategy in every market.

We are on the ground not only in Shanghai, China, but also in 6 other major media centers in the Asia-Pacific region.

Because of the importance of these markets to The Trade Desk's future, in 2018, I expect to spend more time than I ever have in Asia to build our team and the strategic relationships that will form the foundation for our success in the region.

We are all-in on this opportunity.

While we are bullish on China and Asia-Pacific, we are equally bullish on the rest of our international markets.

Over 2/3 of the worldwide advertising spend is outside of North America and we expect The Trade Desk's revenue to reflect that trend as these markets expand over the long term.

In 2017, the international revenues for The Trade Desk grew at just over 2.5x the 45% rate of North American revenue growth.

In Q4, that international revenue growth rate was 3x that of North America.

We also saw especially strong growth in our European markets where every office in that region increased their business by 100% or more.

Our German office grew its business by over 200% in Q4.

We've incorporated into our business plans for the region development such as GDPR and look forward to continuing our strong expansion.

In both Asia and Europe, we see our international business as a key growth driver for 2018.

Our third strategic growth initiative is working with other companies in the industry to create an identity footprint that is far broader than even the biggest walled garden approaches in the marketplace.

Some of the largest publishers, ad exchanges and SSPs in the world have signed on with our Unified Open ID effort to ensure a fair and transparent marketplace.

It also ensures we have a common consumer-safe ID so that we can leverage exponentially more data.

Although we are still in the early stages of adoption, we are already starting to see some of the benefits in 2018.

Related to our efforts in IDs, the integration of our first acquisition, Adbrain, is going extremely well and we expect it to start paying dividends the second half of this year.

Our fourth growth initiative is to increase our data offering.

In 2017, data spend on our platform grew by 65%.

Data represents a large untapped opportunity.

The Trade Desk is firmly committed to aggregating the very best data wherever we find it so that agencies and brands can get measurable results.

When it comes down to driving campaigns with either data or guessing, we believe data wins every time.

We have only scratched the surface on what we can do with data products and are implementing several initiatives in 2018 to make certain significantly more data is used on every impression.

As a part of our fifth growth initiative, in 2018, The Trade Desk will launch an enhanced user experience in our platform based on data visualization that we believe will be a game changer for our customers and the industry.

We will also unveil robust media planning tools that will leverage our data to model optimum campaigns.

Both of these significant releases are now in private beta and will go live over the next few months.

You'll hear more about these exciting developments in future calls.

We're not stopping there however.

We've grown our engineering team so that it is now the largest group in the company.

We invested about 40% of our development budget in 2017 into products that will not ship until 2018.

And these products will enable us to deliver more software and more user value than ever before.

In this area, we have chosen to trade current earnings for what we believe will be accelerated future revenue growth.

Another highlight from 2017 was in close collaboration with our agency partners, bringing spend from some of the biggest brands in the world on to our platform.

Exiting Q4, nearly half of the top 200 global advertisers spent at least $1 million on The Trade Desk platform.

It is our goal to deliver high ROI to the brands and agencies using our platform so that they realize more value with us than they expend.

As this happens, The Trade Desk wins more share and builds more credibility with the agencies and advertisers.

As our transparency, objectivity and solid business model earns trust, these brands continue to scale up with us.

We are seeing their spend in 2018 growing significantly as The Trade Desk is built into their media plans.

We have also made significant progress on marketplace quality.

In what we believe is an industry first, we partnered with White Ops, one of the most sophisticated cybersecurity firms out there today, to scan every single impression, about 9 million a second, offered through our platform before we ever make a bid on it.

With this partnership, we can prevent fraud before it occurs to create the safest programmatic environment in the industry.

In conclusion, we are pleased to report that Trade Desk had a strong Q4 and a full year 2017, and we look forward to continuing strength in 2018.

The biggest brands in the world continue to shift their advertising spend to programmatic through our platform.

And our Software-as-a-Service business model has been proven solid and capable of generating alpha in revenue and market share growth.

We continue to have a customer retention rate of over 95%.

Our product teams continue to rapidly develop and deploy the tools the ever-evolving market needs.

In 2018, we expect gross spend in our platform to be over $2.1 billion, resulting in revenues of at least $403 million.

We are one of a few high-growth Software-as-a-Service companies of similar size that is consistently profitable, and we intend to use that strength to invest vigorously and prudently in our growth.

We have proven the value of investing ahead and getting in early to key markets and channels.

With the investments we are making today, we anticipate reaping additional rewards of increasing revenue growth in the years to come as a result.

In the year ahead, we are making incremental investments of $15 million to $20 million in high-opportunity areas such as mobile, Connected TV, global expansion and creating a safer programmatic environment.

All of these areas are critical to grabbing share and deepening our engagement and strategic importance with our customers.

For example, our expanding data partnerships and offerings will put data to work at scale, particularly in the CTV and mobile channels.

Our commitment to building teams where business is growing, such as China and other international markets, lets us respond rapidly to trends in global ad spending.

Investments and initiatives such as ads.txt, the White Ops partnership and our Unified Open ID effort lead to not only programmatic being a safer place to invest ad dollars, but to The Trade Desk creating the safest scaled digital ad marketplace that has ever existed.

We expect our adjusted EBITDA for 2018 to be 29% of revenue.

Since we have historically proven our operating leverage, we see this as a time to invest.

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

We expect to continue the momentum we had in Q4 into our Q1.

We expect our Q1 revenue to be $73 million and Q1 adjusted EBITDA to be $7.5 million.

Since the secular tailwind is strong and revenue has been biased to the upside, should we see any revenue upside in 2018 as we did in 2017, we can expect much of that to drop down to the adjusted EBITDA line as it did in the past year.

The Trade Desk is in a fortunate position.

We have a strong business whose model hasn't changed since inception, and we have continued product momentum.

We are executing well.

We are poised for growth.

And 2017 was an excellent year.

We expect 2018 to be even better.

Now I'd like to turn over the call over to Rob for his comments on our operational performance.

Thanks, Jeff, and good afternoon, everyone.

Our business continued its strong trajectory in the fourth quarter, and we exited 2017 with strong momentum.

Total fourth quarter revenue increased 42% year-over-year, led by our mobile channel, which grew 67%.

Mobile is now our largest channel by total spend and we expect it to increase further in 2018.

Our native channel also had an amazing quarter, increasing over 200% from the prior year.

Our audio channel grew over 600% compared to the prior year, and video grew by 61%.

And as Jeff mentioned, Connected TV grew by 535% versus a year ago.

Throughout the year, we put a lot of focus on things like growing our network infrastructure, adding features to our platform, hiring our newest employees and building out our global management structure, all with the goal of improving our scale and being ready to deliver results for agencies and advertisers in Q4, which is our seasonally strongest quarter.

We delivered on those goals and one of the best indicators of this came during the holiday advertising push in November and December where we generated significantly more business from many of the advertisers on our platform from many industries, including retail, technology, automotive, finance, CPGs and across many, many SMBs.

Expanding our omnichannel presence is a key part of our operational goals, and some of our bigger highlights from the quarter included the emergence of significant spend on our Connected TV channel and the breakout spend growth in our native channel.

An example of this was a major technology company that, through their large global agency, initiated ad spend across our channels in mobile, audio, display, native, video and, for the first time in Q4, Connected TV, to dramatically increase their scale and find the same users across multiple browsers and devices.

By expanding their omnichannel approach, the advertiser was able to achieve their marketing objectives and we saw the advertiser's spend increase over 100% from November to December.

Now that's amazing considering that, that 100% increase was off a multimillion-dollar ad spend base in November.

Now as I describe every quarter, from an operational perspective, we are focused on 3 core priorities: Number one, to remain the objective and independent trusted partner for our customers; number two, focus on growing our omnichannel presence; and three, to continue to grow our international footprint.

Starting with the first item, our goal is to build trust with our customers and partners by remaining objective and independent.

I want to emphasize that The Trade Desk is the only truly objective, scaled, self-service and dedicated buy-side platform in the industry.

Now trust starts with our people, and each year, we focus our hiring efforts in the first half of the year so that each new employee is fully trained and ready to advise and contribute to our customers' success during the higher-volume second half of the year.

We exited 2017 with 657 active customers and over 36,000 advertisers on the platform.

We achieved a continued customer retention rate over 95% for the 16th quarter in a row and a combined cohort growth of 40% for the year.

We also had the biggest year ever in terms of onboarding new customers who brought in nearly $125 million in new spend.

To help achieve these results, we onboarded 246 employees in 2017, ending the year with 713 employees worldwide.

30% of our team is now outside the United States.

Our team, many of whom are customer-facing, earn the trust of agencies and advertisers every day by continuing to highlight the benefits of The Trade Desk and proving it, not only with deep marketing insights, but also with measurable results.

A great example of this came in Q4 from a large global restaurant chain that had historically run their programmatic campaigns with a large competitor of ours.

They were open to testing our platform and so we seized that opportunity.

Based on our review of their marketing goals, we recommended optimizing the test campaigns by referencing the frequency of purchase by repeat customer.

Our approach worked as it enabled the advertiser to increase their number of customer conversions by 65%, while at the same time decreasing their cost to acquire those customers by 46%.

That is a massive difference in ROI on their marketing spend versus the incumbent competitor, and it's representative of what our team does every day.

Even as we have increased our headcount to propel our growth, we maintained our annualized revenue per employee of about $435,000, which continues to stand out amongst other SaaS and industry peers growing at our pace and at our size.

Annualized revenue per employee is a key metric that shows how our business model was designed to scale efficiently and we continue to execute strongly on that front while we provide the best customer service and support in the industry.

Now next, I want to focus on our commitment to growing our omnichannel presence.

Empirical evidence, across industries and across any type of campaign goal, firmly supports the view that buying advertising in a coordinated way across multiple channels, when combined with intelligent targeting, makes a meaningful difference in marketing performance for advertisers.

As we have developed robust offerings across mobile, video and display channels and built trust through delivering results, we have seen many advertisers expand their omnichannel spend on our platform.

As a result, we see very strong growth from our most promising channels, audio, native and Connected TV, which all grew multiples faster than our larger, more mature channels.

These emerging channels collectively made up over $100 million in spend on our platform in 2017.

Today, as we exit 2017, over 50% of the advertisers on our platform use more than half of all the ad channels in their campaigns, which is up significantly from a year ago.

In Q4, our total mobile spend, including in-app and mobile video, represented 40% of our total business and grew 67% year-over-year, while overall mobile advertising in 2017 was expected to grow by about 30%, according to Zenith.

At over 2x the growth of the industry rate, we continued to gain our share of incremental ad dollars moving to programmatic and into the mobile channel specifically.

We expect this trend to continue.

Every day, more people around the world are spending more time on their mobile devices, and advertisers are shifting their budgets to reach them through in-app advertising, mobile video and on mobile browsers.

We are also seeing fantastic traction in our Connected TV channel.

While still in its infancy, Connected TV grew well over 6x compared with a year ago.

Our customer-facing teams have been working closely with agency trading teams to incorporate more Connected TV buying into their clients' overall programmatic strategy, and I want to call out a few success stories from Q4.

The first is a large digital media company that has increased their spend 600% year-over-year, mainly due to increases in spend on Connected TV.

They are one of our biggest adopters on the platform.

One of the key factors that has enabled their growth was our access to a variety of scaled inventory sources in our private marketplace, including on content providers like Roku and Hulu or Apple TV, just to cite a few examples.

Our client also appreciated how easily Connected TV campaigns can be activated on our platform and how they could count on us for the strategic and technical support to make sure their campaigns ran successfully.

Another success story is from a large well-known brand where we won a large amount of new spend, and spend from ad dollars that traditionally had been spent on linear TV advertising that they were moving into Connected TV.

Connected TV now represents a core part of their advertising strategy and is core to their programmatic spending goals.

This is because CTV allows them more precise audience targeting, broader channel expansion and much better campaign performance measurement versus linear TV advertising.

Through their agency, they turned to The Trade Desk to use our platform tools, access premium inventory and measure the impact of their Connected TV buys.

They used both audience targeting and Nielsen OTT measurements to exceed the brand's key performance metrics centered around reaching on-target audiences.

I also want to touch a little on our inventory and data partnerships.

We believe that adding new partnerships is a major differentiator for us.

You regularly hear us talking about Connected TV inventory such as Hulu, Sling, DIRECTV, Roku or audio inventory with Spotify.

We launched these partnerships more than a year ago, but we are constantly adding new partners.

Just this week, we announced a partnership with Pandora for new scale digital audio inventory.

We're also excited about new Connected TV inventory partners, including the NFL Network, TNT, the FX Networks and the Travel Channel.

These are just a few of the examples that we brought onboard recently.

Exiting 2017, we have more than 135 data partners on our platform and have more than 72 inventory integrations, many of which are supply-side platforms.

We've built a repeatable process where we can quickly add new inventory sources and new data companies in our platform for our customers to then use in their ad campaigns.

This enables us to offer better targeting and performance through the use of data and more access to quality inventory all over the world.

As a result, during 2017, advertisers on our platform had access to more addressable inventory and used more data than all of 2015 and 2016 combined.

While we move forward with expanding our partnerships on inventory and data, we are also pushing forward with our third priority, which is expanding our geographic footprint.

In Q4, international spend outpaced that of the U.S. by more than 3x.

Exiting the year, our international business amounted to just about 13% of our total spend globally.

Nearly every one of our offices outside of the U.S. grew over 100% for the full year 2017.

Today, Asia is nearly 1/3 of the total global ad spend and is expected to see some of the fastest programmatic growth in the coming years.

eMarketer estimates that China grew programmatic spend by 49% in 2017 compared with about 28% in the U.S. In Southeast Asia, which eMarketer defines as Singapore, Indonesia, Thailand, Malaysia, Vietnam and the Philippines, digital mobile ad growth of about 60% is expected in 2018.

We are extremely bullish on growth in Asia.

We believe we are the first in the region with products built specifically for each market and we have deep relationships with many of the large global agencies that have a meaningful presence across Asia.

But Asia is not the only area where we believe growth will come from.

Europe is also expected to grow rapidly.

Programmatic digital ad spend in the U.K. is expected to increase 20%, and in Germany, 30% year-on-year, according to eMarketer.

We have been growing at rates 4x or 5x faster than that in each of those markets and are seeing share gains from other platforms and increased ad budgets from new customers as well.

The Trade Desk is one of the only places where sophisticated advertisers at scale can buy the whole digital universe objectively and at scale without being locked inside one of the large walled gardens.

And our customers are doing just that on our platform across more channels, from mobile, to Connected TV, to audio, than anywhere else.

As we continue to leverage our greatest asset, which is objectivity, and add more inventory and features worldwide to our platform, we will dramatically improve the quality of ads for consumers and the efficacy of ads for advertisers.

We are very confident in our strategy, the direction of our business and the opportunities ahead of us in 2018.

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

Thanks, Rob, and good afternoon, everyone.

We are extremely proud of our performance in 2017 as we continued to execute and deliver solid results against our key financial metrics.

We grew revenues 52% year-over-year; adjusted EBITDA, 46% year-over-year; and GAAP net income, 148% year-over-year.

We did all this while continuing to invest aggressively in areas critical to our future growth such as adding engineering talent and expanding our global reach.

We continued to gain market share ending the year with over $1.55 billion in spend on our platform, up from approximately $1 billion a year ago.

Mobile spend was the primary driver of our growth, increasing 87%, and 2017 marked the first year that total mobile spend was greater than display.

Now turning to our financials.

Revenue for the fourth quarter was $102.6 million, up 42% year-over-year.

This growth reflects both expansion of spend by existing customers plus the addition of new customers.

Approximately 87% of our fourth quarter gross spend came from existing customers who have been with us for over 1 year.

On an annual basis, revenue for the 2017 fiscal year was $308 million, up 52% year-over-year, with 91% of our gross spend coming from existing customers.

Adjusted EBITDA was $39.5 million, with a corresponding margin of 38% of revenue during Q4.

Margins are typically the strongest in the fourth quarter given the seasonal strength in advertising spend.

For the full year, adjusted EBITDA was $95.5 million, for a 31% margin, reflecting our revenue over performance even as we increased our investments in product, people and global expansion.

In Q4, stock-based compensation was $8.9 million, an increase from prior quarters, which was primarily the result of the company's employee stock purchase plan.

For the year, stock-based compensation was $21.3 million or just under 7% of revenue.

Our effective tax rate for Q4 was 40%.

And for the full year 2017, our effective tax rate was 20.3%.

GAAP net income was $16.8 million for the fourth quarter of 2017 or $0.38 per fully diluted share.

For the full year, 2017 GAAP net income was $50.8 million or $1.15 per diluted share.

GAAP net income increased 148% compared to a year ago and 2017 marked our fourth consecutive year of positive GAAP net income.

Our adjusted earnings per share was $0.54 for the fourth quarter compared with $0.33 in the prior year.

For the year, our adjusted earnings per share was $1.60, up 80% compared with the prior year.

Net cash provided by operating activities was $31 million in 2017, and we closed the year with $156 million in cash.

As of today, we have approximately $200 million available on our revolver.

While cash flow from operations can fluctuate wildly from quarter-to-quarter due to seasonality and the timing of payables and receivables, our cash from operations on a trailing 12-month basis continues to trend positively.

Our net cash position of $129 million at year end and our revolver are more than sufficient to manage the ups and downs of our working capital.

Our DSOs for 2017 ended at 119 days, and our DPOs were 104 days.

The 15-day spread between our DSOs and DPOs exiting the year is the lowest it has ever been and is a result of internal initiatives to better align our payables and receivables.

Finally, I would like to share our guidance for the first quarter and full year 2018.

For Q1, we expect revenue to be $73 million, and adjusted EBITDA to be $7.5 million.

And for 2018, we expect the full year revenue to be $403 million on total gross spend of over $2.1 billion, and adjusted EBITDA to be $117 million or about 29% of revenue.

We believe our forecasted adjusted EBITDA at 29% of revenue provides adequate reserves to spend on the growth opportunities in front of us.

In 2018, we are planning to invest $15 million to $20 million of incremental dollars in such areas as platform operations as we scale up our infrastructure; in our tech and dev teams to deliver product in high-growth areas, such as Connected TV and mobile; and in sales and marketing as we build out our account teams, especially in Asia.

As in the 2017, for any revenue upside we see in 2018 relative to our investment plan, we could again expect much of that to drop down into adjusted EBITDA.

Our business model and the profitability we generate put us in a really advantageous position, and it's prudent to reinvest now for these massive potential future growth opportunities.

We expect total other expenses for the year to be about $4 million, and we expect our full year tax rate to be about 33%.

We expect about $32 million in stock-based compensation expenses for the year and share count is expected to be about 46 million as we exit 2018.

And finally, we expect our capital investments to total about $19 million, and the depreciation and amortization expense to be about $11 million for the year.

I will now turn the call back over to Jeff for final comments and, of course, Q&A.

Jeff?

Thanks, Paul.

In closing, let me reiterate that while we are excited about The Trade Desk's current performance, we see even more potential for the future.

As the worldwide advertising market grows to $1 trillion, we believe it will move to programmatic.

Programmatic is the fastest-growing segment of advertising, and The Trade Desk is growing faster than anyone in programmatic.

When we see surprises, they tend to be to the upside.

Now is the time to invest to grab market share, and revenue, and The Trade Desk will do so in 2018 and beyond.

That concludes our prepared remarks for this afternoon, and now operator, we'll open it up to questions.

(Operator Instructions) Our first question comes from Youssef Squali, SunTrust.

Two, if I may.

First, Jeff, just piggybacking on something you said towards the end of the call about the investment that you're looking to do in 2018.

As we look at the guidance, it looks like, taking into account the $15 million to $20 million additional spend, the margins should see some deterioration.

Should we be looking at 2018 as an investment year?

And then starting in 2019, we start coming out of that?

Or is this somewhat of a perpetual kind of state of affairs as long as you can continue to drive the top line above the original expectation, you'll continue to spend, potentially at the expense of the margin -- maybe not in absolute dollars, but certainly at the expense of the margins?

And second, the take rate implied in your 2018 guidance suggests less than 100 bps compression.

Just trying to understand what gives you the confidence in that number, considering all the pressure ad agencies are under and the 500%-plus growth you spoke to with regards to the Connected TV where take rates are lower.

Just any clarity there will be great.

You bet.

First, thanks for the question.

So in relation to the first question and essentially margin compression and are we focused on growth or are we focused on bottom line?

I just want to be super clear.

It is land grab time in advertising.

So we, again, believe that price-discoverable programmatic represents a little more than 2% of the global advertising pie, which is growing, and will be $1 trillion in less than 10 years.

I don't know that there will ever be a transition like the one we're experiencing now where transactions are going from inefficient pieces of paper and handshake deals and martini lunches to digital transactions.

And anything -- any focus on bottom line, I think, would miss out on the opportunity, which is to grab land.

So that is our focus.

One of the things that we think is really beneficial about our business model is that because there's so much operating leverage built into the business model that at times, it's been difficult for us to invest as aggressively as we want to.

So that inadvertently has exposed our operating leverage and just showcased what we're capable of, even though we want to be investing as much as we possibly can.

That's exactly what happened in Q4.

On the second question, "Hey, a little bit of change to the take rate.

Are you worried about that being any lower?" So just a couple of things.

Number one, as it relates to take rate, that is not something that we optimize our business to.

We're trying to grow as fast as we possibly can, and we do care about revenue, of course.

But we want that number to be as big as we possibly can.

So I'd rather have a bigger number in revenue and that number be 18.6% instead of 19-point-whatever.

It doesn't matter to me as long as we're growing revenue as much as we can and we retain that operating leverage and continue to be one of the highest EBITDA margins in the Software-as-a-Service industry.

All of that said, I do think that you're right that there is margin compression happening at the agency and there is an expected lower take rate inside of television, which is why we do see some small amount of margin compression or take rate compression in our models for 2018.

But we don't seeing that being anything drastic.

And again, because we're focused on building the biggest revenue line that we possibly can, it's incidental as far as we're concerned because we're going to grow that number as aggressively as we can.

We said from inception, we think at end stage that number is between 15% and 20%.

And there's no change to our business model, as long as we stay in that range, we keep doing what we're doing.

And the last thing I'll just add on this and then go to the next question is, if you look at the number of features and functions that we are shipping, and how much product we shipped, especially in 2017, we talk all the time inside of our business about the concept of consumer surplus, which is that we give more value to our customers than we extract in cost.

The consumer surplus is higher than it's ever been and that's why we feel so comfortable in our client retention rate and feel good about our business going forward.

So it can be easy to look at take rate and get really distracted or get your eye off the ball in the little tiny moves in that area instead of recognizing that as we add more products to our product suite and charge essentially the same amount for it and we get more spend per customer, that we're creating more client retention and creating more consumer surplus, which we think is the very best thing that we can do in our business.

Thanks again for the question.

Our next question comes from Brian Fitzgerald, Jefferies.

Jeff, during your prepared remarks, you highlighted the potential for walled gardens to continue coming down.

And we've seen Twitter starting to work with third-party DSPs as well as telcos talking about building up their own ad tech stack.

With that as a backdrop, how would you see 2018 playing out in terms of your access to inventory?

Do you think you'll start to have greater and greater access to inventory that was previously siloed?

And then one additional one we had was, as you ramp data spend, how does that impact the overall business model in terms of cost to serve inventory, cost to service customers?

You bet.

So as it relates to the first question, which is essentially, will our inventory access be bigger or smaller in 2018 than it was in 2017?

Especially as we expand into China, it's really exciting to see how open the equivalent of Google and Facebook and Amazon are in those markets, in Baidu, Alibaba and Tencent.

And we're super excited about those discussions.

And we think we're in a unique position where we can be a company that partners with both Baidu and with Google, and can partner with Tencent and with Facebook.

We don't think there are very many companies in the world that can do that.

And especially as you see TV companies getting more aggressive, in fact most TV companies, and this is true with Comcast and Disney and AT&T, the core of those businesses are sell side.

So they're making their inventory available.

And so there will absolutely be more inventory available to us than there was in 2017.

Now one thing I just want to be explicit about, it is economically irrational to maintain walled gardens around any piece of inventory forever.

So I do believe that, eventually, even the walled gardens of Google and Facebook come down just because it is a better way to monetize YouTube to get as much demand as you possibly can than it is to monetize it yourself or you provide all the supply and all of the demand.

I do think 2018, I said this at our Investor Day and I've said it many times since, I think 2018, you will see some of the walls come down around especially social media companies that are smaller than Facebook.

So I do think that, that is going to happen and there's no question that we'll have access to more inventory in 2018 than we did in 2017.

As it relates to your second question on data spend, the team is so great about making data-driven decisions.

It's like the ultimate form of operating leverage, where when we make a more data-driven decision, it almost always outweighs the cost of the data.

And so one of the things that we are pushing really hard for in 2018 is to get our customers to use more of their own data as well as more of other people's data.

And the great news is when they do that, they typically add more value in the choices that they make and the products that they sell and the efficacy of the media that they buy than it costs them to buy the data or use the data or deputize the data.

So more direct data-driven decisions is the lowest hanging fruit that any of them can pick as it relates to choices that they make.

In some cases, that represents higher margin for us.

But I want to be clear on this as well, and I do this with our own team as it relates to our strategy, while data can contribute to our bottom line, that's incidental and not the primary goal of adding data to the decisions that people make on our platform.

We look at it as we want the flywheel of them buying media to accelerate and we want them to buy more through our platform.

So I'm fine to not make any incremental money on that as long as we're getting more and more spend.

So either we're going to get more money because they give us more and they spend more and we benefit in growing the pie or we can charge for it because we do -- we are adding more value when we do that.

But I'm much more focused on growing the pie and grabbing land.

Our next question comes from Kerry Rice, Needham & Company.

Quick question on just how guidance is allocated throughout the year.

It looks like, based on your guidance, Q1, a little bit heavier contributor than it has been in the past.

Is there anything to take from that?

Are you more confident in Q1?

Is it more existing customers?

Or is it just the way it happened to play out?

And then Jeff, it'd be great to get your view.

You're taking market share.

Where do you think you're getting that market share from?

If you have any insights on that, that would be great.

You bet, thanks.

So you are right that we're allocating just a little bit more to Q1.

In general, I would just say that we see a little bit of shift happening in the seasonality of advertising.

And I think, in part, that is because programmatic has stopped being just the redheaded stepchild or the tiny little portion of the plan and more and more see it as the future and absolutely the place where they need to deploy more dollars.

And because of the real time nature of price-discoverable programmatic advertising, it does make it so that you don't have to plan nearly as far in advance.

So if you're promoting a movie, you don't have to do it 3 months in advance.

If you want to heavy up on the week before the movie releases, you can.

And the same thing is true in Christmas season and everything else.

Secondly, as you may know, we over-index in a number of the sectors of the economy that tend not to spend as much in the second half of the year as they do in the first half of the year, like CPG or automotive.

Some of those segments of the economy, we tend to over-index in those.

And so as a result, they tend to spend more in Q1 and Q2.

So that too has flattened the curve just a little bit.

Last thing that I'll just highlight is that Japan, Australia, Germany, and with Japan being the best example, they tend to follow a different calendar in terms of the way that things get allocated, and their Q1 looks like the rest of the world's Q4 or much of the rest of the world's Q4.

So it's a little bit different.

So as more and more of our revenues come from international, that too will help it to flatten a bit.

As it relates to your second question, like, where are we getting market share?

I think we're taking from everywhere in the sense that I think that all other forms of digital are less effective than the programmatic line item.

And so I do think that we have been taking dollars from digital, especially from the inefficient forms of digital, which are mostly the ad networks, and even some direct buys, more and more of those are coming through platforms like ours so that we can make better decisions instead of just delegating decisioning to the supply side.

But also more and more budgets are moving into digital.

So I mean, one of the most beautiful parts of our story as we tell that story of an industry marching to $1 trillion is that we have tailwinds behind digital, tailwinds behind programmatic and then, of course, inside of different divisions of that, whether that's geographical or from a channel perspective, we have irons in all of those fires.

So we feel like we have the best portfolio that we possibly could in digital advertising or in advertising.

Our next question comes from Shyam Patil, SIG.

I had a couple of questions.

The first one on programmatic TV.

Jeff, can you talk about kind of how you see the ramp toward materiality for The Trade Desk?

Is it 2018, is it 2019, is it 2020?

And just how do you feel about where you are from an inventory partnership perspective?

And then second question is around walled gardens.

A couple of things that we hear in the marketplace is that -- from the walled gardens is that they only want to use programmatic when -- for quarters when sell-through is weak or they have to be careful to partition it correctly or it could lead to price deflation.

Kind of how do you respond to those comments and concerns?

And how do you envision the walled garden opportunity for The Trade Desk?

Awesome.

So as it relates to programmatic TV.

I mean, that -- when we talk about the exponential growth happening year after year, like, once you experience the numbers like we're putting up and we're talking about, we use numbers like 1,000% growth and we talked about how it looked like that last year, and we've been in TV for a couple of years now.

When you're putting up percentages like that for multiple years, it's impossible for us not to become material really fast.

So I really expect those green shoots that we're seeing now in early 2018 to be much taller by the end of 2018.

So I think 2018 is the year that it becomes material.

But we're growing the rest of our business, which is already scaled so much that it is going to take years for it to be the kingpin that it eventually will, before it becomes the largest piece of the pie, I know we just talked about mobile being 40% of our business.

Before it surpasses mobile as the largest chunk of the business, like, there's a lot of growing up it needs to do.

And it is, in large part, because of what you asked in sort of part B of question 1, which is about inventory.

So definitely more inventory needs to come online.

The great news is, this is not being driven by us.

We don't have to go knock on doors and say, "You should really put more inventory in programmatic." What is happening is the media companies who control this, they all want to monetize it themselves.

It's really hard to do with the sales force by yourself, and it's really hard to create the ad variety and the CPM that you can get in programmatic without, like, the high cost of sales that has historically come compounding the statement.

When you couple that with consumers saying, "I want on-demand right now.

That's the way I want to consume content." It basically is consumers asking for programmatic advertising.

"I want fewer ads.

I want them more relevant.

I want the interruption to be less painful than what they currently experience in linear TV, even with the DVR." And so that function is forcing more and more inventory to come into programmatic, and that's the thing that we're just sitting and waiting for, if you will.

And we have demand, pent-up demand waiting for.

And so the fact that we've already created the demand and we're having so much success in selling it, it is sort of the first time ever where the demand has come ahead of the supply in programmatic.

Because that wasn't true in display.

That wasn't true in mobile.

Both of those had surpluses of supply before the demand.

So it is one of the most bullish things that I can share, is that macroeconomic environment that is surrounding Connected TV.

As it relates to the second question around walled gardens.

So I do think the bigger you are, the -- and by bigger, I mean, Google and Facebook had a luxury to do exactly what you're describing, which is only use programmatic when sell-through is weak.

But eventually, it becomes really important that you get access to as much demand as possible.

And even in a business like YouTube, while you have lots of resources to go hire people and sell, eventually, your own marketplace gets so much inventory and so much variety that you need the demand of an entire marketplace.

So I don't know that the size necessarily matters long term.

But in the short term, it gives them the luxury to do exactly what you're saying, which is only access programmatic when they want to or when they need to.

But what I would argue is that need in most every other walled garden beyond Google and Facebook is here now.

And it's economically irrational for them not to be leveraging the demand that comes through platforms like ours.

And so I think implicit in your question is, when does that open up?

When did that change?

Or what's the long haul in getting them to move in that direction?

Because I believe it's economically irrational.

Really, it's just getting strategic clarity in their own 4 walls.

And that strategic clarity usually comes as the results of them being honest about the channel conflicts that they have, which is sometimes they had salespeople that are not incentivized until that demand comes through programmatic.

In fact, they don't want that because traditional sales channels have not taken demand in that way.

And when organizations figure out how to create the right incentives so that they are optimizing for cost of sales -- or accounting for cost of sales so that their sort of bottom line yield gets compared in programmatic the same way that it does in sort of traditional sales, it always becomes advantageous for them to include programmatic demand.

And so I think, like I keep promising, I think you'll see more of that in 2018.

Our next question comes from Tim Nollen, Macquarie.

I have another question on Connected TV, if that's okay.

I read a piece of research of this week talking about a survey that concluded that TV advertising traded programmatically will grow from practically 0% in 2015 to more than 10% in 2020, which seems like a very big increase to me.

I'm guessing it may be kind of in line what you're thinking.

But I wonder if you have any sort of comment on if that is a reasonable assessment for all of -- amongst all of linear TV, that 20% -- sorry, 10% will be traded programmatically by 2020.

And if that's a reasonable figure, what does it take to get there?

And Jeff, you kind of answered this in your last response.

But if I'm thinking most of the initial demand comes from the operator side, the TV operator side, it sounds like you're saying the demand is growing now from the network side?

And I'm wondering if you could just comment a bit more in that because that's where all the inventory really lies.

Yes, so thank you.

I love the question.

I love the topic.

So the thing that is hard to predict inside of TV, and I kind of alluded to this in the last question or the last response, I just want to be a little bit more explicit in this response.

So the thing that's hard is if you're running a big TV company, still, 90-plus percent of your revenue comes through linear television.

And I think many of them are acknowledging that, that business model is going to change.

Like, linear television is not going to last for 20 more years.

But nobody knows how long they can ride the wave that they've been on for a while.

And they make a bunch of money from it and they like the way that it works, and they are afraid of all the change that comes that they may not make as much money in the programmatic world and the digital world as they did in linear television.

But what that does is it creates a ticking time bomb in linear television, which is fewer people are watching, so they add more commercials to make up for the fact that fewer people are watching and they create a worse experience.

I think all of us as consumers can acknowledge that the experience in terms of just the ad-to-content ratio had become worse over the last few years.

Even though the content has gotten big -- gotten better and incidentally, the cost of the content has gotten much more expensive, which is why I call it a ticking time bomb.

So the thing that's hard for an analyst to do is figure out when that inflection point starts.

When does the bomb go off?

When do consumers really say that they've had enough?

And when did it stop looking like this early adopters have cord cut instead of everybody cord cutting?

And that's the hardest part to predict.

So I don't know -- 10% is really aggressive.

Whether 10% will happen by 2020 is an open question.

I do believe that's aggressive.

But it's also not -- it's not impossible.

And it largely depends on how well 3 or 4 or 5 companies make their content available and make the transition.

And when they see this as a land grab opportunity, it changes everything.

And so it will be really interesting to watch companies like AT&T and Comcast and NBC more specifically, ESPN, Disney, like, these companies, the way that they make their content available will determine whether or not that 10% is possible while at the same time, consumers are changing.

The one thing we can be sure of is the move will not be linear, meaning the shape of the adoption curve will not be linear.

And that's why it's super hard to model.

Our next question comes from Aaron Kessler, Raymond James.

I'll try not to ask an open-ended question for those who may be here for a while.

So on the international revenues, can you give us maybe what those were for the year?

And what -- how we should think about international revenues growth for 2018?

And then second, for the active client growth that we've -- you added about 90-or-so for the year.

How important is that metric, given that you probably already have most of the key kind of agencies at this point?

And from the advertising numbers, I think it was about 36,000, if you can maybe update us how that number looked last year as well?

Aaron, yes, thanks for the call.

I think we talked about in our prepared remarks that international revenue reached 13% of our total revenues for the -- in the fourth quarter and on a full year basis, just under 13%.

So on a full year basis, it went up by just about 50% in terms of share.

We ended last year about 8.5% and then ended at 12.5%.

So they both grew 2x of North American business for the full year and nearly 3x in the fourth quarter.

So international is growing across-the-board faster than the U.S. consistently in Asia and in Europe.

Then I forgot the second part.

And second part is how we should think about international in terms of 2018 growth?

Yes, I think our plan, our belief is it will still be -- continue to grow more than 2x the rate of our U.S. business.

And so that's what our plan is, that's implicit in the model that we built and we would expect to continue trending in that way.

So I don't know if we put a percentage on it in the public domain, but it definitely will take share.

Yes, yes.

We have not put a percentage on it publicly, but it should tick up another couple of points this year.

Got it.

And the second question is how should we think about kind of active client growth?

It looks like it maybe slowed a bit, but you probably have most of the key agencies today.

So how important of a metric is that going forward for you guys?

Yes.

No, that's -- you nailed it.

Like, I think we talked about, even when we were coming through the IPO, that we've signed nearly all of the large global agencies in 2014, 2015 and early '16.

So those will be some of the largest cohorts we ever signed.

And so for us, it's really about getting more of the brands inside of those agencies to spend in programmatic.

And then those brands that do spend in programmatic making a larger share of their overall advertising spend be spent in programmatic.

So we'll continue to add customers.

We'll continue to add clients, particularly as we go into new geographies.

But for us, client count is not a key metric or something that we think drives the business.

It's more about the cohort growth from the existing cohorts that we've signed.

Our next question comes from Peter Stabler, Wells Fargo.

This is Rob on the call for Peter.

Two, if we could.

First on CPG and retail.

You had noted some caution coming into the quarter, just wondering how that ultimately played out in the quarter and into -- I mean, early so far this year, how are you looking at those verticals for the year?

And then second on China, I think at the Analyst Day, QPS was about 100,000 a day.

Wondering if you might be able to give us an update there in terms of how supply is building?

And whether we can see a pattern similar to CTV where maybe grow supply for a bit and then as we saw in Q4, demand really starts to catalyze?

You bet.

So we weren't very specific about the caution that we gave on CPG and retail.

I know we gave a couple examples.

But in general, what I would say is that, especially as it relates to CPG where we over-index, people spend less or CPG companies tend to spend less in Q4 just because there's a fair amount of competition for advertising dollars and that's where a lot of retail comes in.

And retail -- as things become a little bit more retail -- I'm sorry, real time, retail has the luxury of spending more in the second half of Q4 than they used to, and CPG has the luxury of spending more in Q1 and Q2 when the purchasing decisions are -- tend to be made more.

So they tend to heavy up in Q1 and Q2.

So we expect that trend to continue and that you'll see a little bit more even spend across the year because of the move towards a real time nature across all sectors of the economy, not just CPG and retail.

If you're looking at us, and maybe the reason you asked the question is that you look at a business like ours as a little bit of a bellwether for the economy just because we represent spend across all sectors of the economy.

I would just say that the spend that we're seeing across all parts of the economy in all sectors, we mentioned that over 100 of the top 200 advertiser spent over $1 million with us last year, everything on a macro level looks very strong for us even in those sectors of the economy.

As it relates to China and QPS, I had mentioned before that QPS was around 100k.

I actually haven't looked recently to see what is that.

And maybe that, in and of itself, is an indication of the way that I think about growing the inventory in China, which is because Connected TV inventory is -- there's so much available in digital advertising in China, we want to work with the biggest names there and carefully bring that on board.

So it's not the same way that we grew in the United States, which is we wanted to get as many ads, as much QPS as fast as we possibly could, so we went to the biggest inventory sources to do that.

In China, we've been more focused on quality first.

And so we're much more interested in developing close relationships with companies like Baidu, Alibaba, Tencent, even smaller companies like Miaozhen, which we talked about.

Those companies, we think, are really important to our future.

And inside of those companies, if you look at companies like Youku, like, there's just so much opportunity there.

And honestly, I think their monetization strategies are better than their counterparts in the United States.

Their ad experience is better.

You're not hovering over the skip button.

So when you look at the way -- the opportunity in China, we're much more focused on quality.

And so I don't care as much about the QPS, especially given how many dollars can go in the video.

And I'll just underline, we also had a slightly different strategy because when we built our business in the United States, we went to small advertisers first because we didn't want to screw up on the big guys.

But now we have most of all of the big multinational brands advertising at least some amount through us.

So of course, the biggest opportunity for us is to take the big multinational companies and advertise in China because that also makes it easy for us to partner with all those companies because all we end up doing is essentially writing checks to them to buy their inventory.

We become a favorite partner because we're bringing them dollars that they didn't already have or are incremental.

So with a strategy like that, it's not uncommon for big multinationals to be largely focused on brand.

And that means that they want a highly effective video content, which is just another reason to focus on quality.

Ladies and gentlemen, we have reached the end of the question-and-answer session.

And this concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.