Trade Desk Inc (TTD) 2018 Q1 法說會逐字稿

Greetings, and welcome to The Trade Desk First Quarter 2018 Earnings Conference Call.

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

It is now my pleasure to introduce your host, Chris Toth, Head of Investor Relations.

Please go ahead, sir.

Thank you, operator.

Hello, and good afternoon.

Welcome to The Trade Desk First Quarter 2018 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 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 thank you all for joining us today.

I'm pleased to report that The Trade Desk had another outstanding quarter in Q1 of 2018.

Because advertising budgets are often being reset in Q1, numbers for the quarter have historically been the most challenging to predict.

This year, we surpassed even our own expectations.

A steady stream of new brands and agencies joined our platform.

We won additional spend from existing customers.

We developed closer relationships with the biggest brands in the world.

This quarter was a quarter where nearly everything went right.

As a result, revenue was $85.7 million, an increase of 61% compared with a year ago.

Adjusted EBITDA increased 202% to a Q1 record of $18.9 million and GAAP net income increased to $9.1 million.

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 of 2017.

In 2018, the overall global digital advertising market according to eMarketer is estimated to grow by 18%.

The Trade Desk's revenue growth through Q1 was over 3x that.

We saw much of that growth in channels we have identified as key to our customers.

42% of Q1 spend in our platform was in mobile, the highest percentage it's ever been.

Our Q1 year-over-year mobile video growth was over 100%.

Mobile in-app growth was over 100% as well.

Data spend was up 70% and cross-device spend was up 65%.

Connected TV grew over 21x from a year ago.

Our expansion in international markets continues at a strong pace.

Overall, international spend grew over 100% year-over-year.

International is growing at double the pace of the United States.

This is what we expect for the foreseeable future, as most economic growth and the rise of the largest middle class in history, will come out of Asia in the next decade.

Before we discuss some of the major growth initiatives, I'd like to give some qualitative commentary on the macro state of advertising.

In the last 12 months, there has been a mind shift inside agencies and the marketing teams of big brands.

Digital has become the leader, instead of the necessary but not sufficient sidekick that it has been for nearly the last decade.

Digital spend has become large enough that every major brand is getting smarter about the way that they spend.

In recent months, there is strong momentum to diversify the way people spend on digital.

Whether driven by strategic thinking or by practical thinking, it seems all marketers are realizing that they cannot simply spend on a few sites or a few companies.

The fragmentation of media, especially in television, is increasing the need for objective, data-driven media buying.

There is strong momentum to spend more in digital, and beyond the few companies in search and social, who have historically gotten most of the budget.

Our strategy of being the best platform for media buying and avoiding owning or arbitraging media is even more valuable today than it was yesterday.

Now I'd like to highlight some key points from the major growth initiatives that we laid out at our last Investor Day and which will drive our momentum and growth over the next 5 years.

First, we'll look at growing spend across our customers and channels.

Since Q1 of last year, we have added nearly $200 million of spend in our platform from major brands that weren't spending with us previously.

We'll continue to see the strong movement of advertising dollars from the top brands in the world to The Trade Desk.

For example, several long-term agency partners, representing 3 of Ad Age's top 200 advertisers in the world, all began small pilot campaigns for these 3 brands toward the end of last year.

These include a worldwide beverage company, a top retail pharmacy in North America and a multinational food company.

We also saw similar test starts from new media companies, including some of the largest music and video streaming services in the world today.

Sometimes companies like this, that offer inventory through our platform, also need to run ad campaigns of their own.

They are familiar with our objective approach.

So when it comes time for them to run their own ad campaigns, they turn to The Trade Desk.

All these brands saw measurable results and increased their spending in our platform by millions of dollars.

We see this repeated again and again.

We are also seeing increased spend in emerging channels.

There is nothing more exciting in media than what is happening in Connected TV.

We started planting seeds in Connected TV years ago.

In 2018, we are seeing the green shoots.

CTV is small, but with the 21x increase I mentioned earlier, it won't stay small for long.

The growth time line will be dictated by consumers and content creators' ability to adapt, but The Trade Desk is ready.

The objectivity that comes from us not owning media makes us one of the most important partners to TV companies.

I'm very bullish on our ability to source advertising demand for the next frontier of television.

One of the more recent and innovative customers on the platform is global automaker, Mazda Motor Corporation and their WPP agency, Garage Team Mazda.

Mazda saw that a lot of their target customers were consuming video across multiple devices and expanded their strategy to include cross-device video and Connected TV.

Mazda uses The Trade Desk technology to reach a specific proprietary audience profile built using their first-party data and data from Oracle at scale.

They identified key markets in the U.S. where they wanted to build awareness for the brand.

Mazda then used their core consumer audience for targeting on The Trade Desk platform.

In traditional linear television, targeting granularly is almost impossible to do because most linear TV is bought and sold nationally.

The team and the technology hit it out of the park.

The Trade Desk platform enabled CTV advertisers to reach the unreachable.

This quarter also uncovered an amazing insight.

For the first time, we were able to quantify from an outside party the increased reach of Connected TV.

Of course, as consumers spend more time in CTV, they are spending less time with traditional television.

Across 9 recent Nielsen studies recently commissioned by The Trade Desk, an average of 41% of The Trade Desk audience was unique to CTV and beyond the reach of ads on broadcast and cable television.

Our team continues to add more Connected TV inventory.

And year-to-date through the first week in April, we added 78% more inventory than in all of 2017 combined.

And as we add more inventory, spend will inevitably follow.

In Q1, CTV spend was nearly equivalent to the entire spend in CTV for all of 2017.

But it does not stop with Connected TV.

This year, an estimated 1.5 billion smartphones will ship.

This is more than 4x the number of PCs that ever shipped in a single year at the peak of the personal computer boom.

Mobile is now the medium to achieve unprecedented reach and scale.

As a result, almost all of our customers have moved to some amount of mobile advertising.

I'm incredibly optimistic about in-app and mobile video, 2 of our fastest-growing channels within mobile.

We also see more advertisers turning to other fast-growing channels, such as audio, which is up over 650% from a year ago.

We expect these trends to continue around the world.

Another strategic initiative is to grow internationally.

30% of our headcount is now in Asia and Europe.

Last year, about 12.5% of our spend came from Asia and Europe.

As of Q1 this year, it's over 14%.

This year, the growth rate internationally is twice that of North America.

The first quarter had record spend coming through our offices in Sydney and Madrid.

Both Madrid and Jakarta, which are 2 of our newer offices, grew spend 300% and nearly 200%, respectively, from a year ago.

Considering that the first quarter historically isn't even the biggest quarter of the year, this is remarkable.

Our growth and momentum in these and other international media centers are more evidence that the world, not just the U.S., is moving toward programmatic.

And while Connected TV is a big growth driver here in the U.S., it is also key to our ongoing expansion in China.

For years, we have been building relationships with some of the biggest companies in China.

In 2017, we announced expanded relationships with significant players such as Baidu, Alibaba's Youku and Miaozhen.

We have also earned some other big wins in the near term.

One of the most interesting is our preferred partnership with TVB, which is Hong Kong's leading television company.

To get a sense of TVB's importance in the Hong Kong market, they are like ABC, NBC, CBS and Roku all rolled into one network and delivered digitally.

Since launching its on-demand product, TVB has reached 5.8 million registered subscribers, with 1 million over-the-top boxes in Hong Kong households.

That's out of a population of about 7.5 million people.

The Trade Desk is currently the only demand side platform for targeting and purchasing advertising on TVB's Connected TV product.

On a personal note, I was honored to be present at the 2-year anniversary of TVB's Connected TV product and consider them to be an ideal example of forward thinking.

TVB isn't waiting for consumers to push them into the digital era.

They are racing to make their content available on-demand, and TVB is a leader in proving the potential of CTV.

Our team is firing on all cylinders, achieving new wins, taking market share from competing platforms, expanding existing customers and integrating with new partners.

We batted 1,000 in Q1, and that's something that doesn't usually happen.

In Q1, even issues that raised questions for other major players in digital advertising have created opportunities for us.

For example, there has been a lot of discussion recently about data and privacy.

Increasing our data offering is another of our growth initiatives, because we believe that data, more than ever, represents a large untapped opportunity.

But you can't pursue this opportunity without taking user privacy very seriously.

Almost 9 years ago, when I created the first pitch deck for The Trade Desk, nearly all of the slides were about data.

We talked a lot about data rights management and data privacy.

Our goal from the beginning was to have the tough conversations about data and not operate in the gray areas.

We wanted to make very explicit how we use data.

In general, our philosophy was this: We can make buying advertising data-driven while respecting consumers' privacy.

We think we can make the Internet more relevant and create a win for advertisers, a win for publishers and a win especially for consumers.

The quid pro quo of the Internet is that publishers provide interesting content and consumers provide data and look at targeted advertising that funds that content.

Consumers are concerned about their personal privacy and are asking for clarity about how the data they provide is used, but the fundamental quid pro quo of the Internet is not going to change.

Unlike social media or most consumer-facing platforms, The Trade Desk doesn't need directly identifiable information to create relevant advertising.

We don't need names or emails or phone numbers or Social Security numbers on our platform to target advertising effectively.

It's not part of our business model and never has been.

So in the current environment, The Trade Desk is well-positioned as a compelling alternative to the duopoly of Facebook and Google for advertisers who value data transparency and privacy.

Let me take a minute and demystify some of what we've been hearing about Facebook recently.

The problems they are encountering are not due to third-party data being brought into their platform.

Facebook's problems came about because an outside company found a way to take directly identifiable data out of their platform and use it in a way Facebook never intended.

The problems were not caused by data companies bringing data in.

It was other companies taking data out of Facebook.

In contrast, The Trade Desk does not allow directly personally identifiable information in our platform.

So of course, this makes it impossible for a company to take directly personally identifiable information out of our platform.

We have never been better positioned as an alternative to Facebook and Google for advertisers who believe, like us, you can create an incredibly effective advertising experience without compromising personal privacy.

In fact, data spend in the month of March spiked to an all-time record, which is amazing, because if you read the news headlines, you would have thought all data usage came to an immediate halt.

When the public discussion about data privacy was at its highest, the data spend on our platform was also at its highest.

I believe The Trade Desk represented a safe harbor from concerns about data privacy.

Because The Trade Desk has thought about privacy from the very beginning, we've been able to prepare for GDPR without significantly disrupting our technology or business practices.

We're excited about GDPR, because it's creating a better Internet.

It pushes companies to be more clear about the quid pro quo of the Internet and how it works.

We care about getting it right, not just now, but beyond the May 25 implementation date, as the practical impact of the legislation becomes clear.

The sustained growth of our business in the European Union indicates that major brands and agencies believe we are ready, too.

And finally, we are continuing to make large investments in areas critical to our future.

The Trade Desk has always been about innovation.

We are continuing to push the pedal to the metal to innovate more quickly and more effectively than others in our industry.

Our development teams are a competitive advantage.

We get to market faster, with better features.

In the next quarter, we will launch an enhanced UI in our platform.

This new user experience is built around better data visualization and better media planning tools.

Both are in private beta today and are progressing nicely.

We are investing in areas such as mobile, Connected TV, global expansion and creating a safer programmatic environment.

We also continue to invest in our infrastructure to support business and data processing growth worldwide.

These areas are critical to grabbing additional share over the long term.

We expect the investments we are making now to yield significant results in 2019 and beyond.

The secular tailwind is strong.

And like what occurred in Q1 of last year, when we have revenue surprises, they tend to be to the upside.

The opportunities in programmatic are enormous, and we believe that our focused mission positions us better than anyone else.

Long-term drivers such as Connected TV and programmatic adoption in China will accelerate programmatic growth for the industry, and we are ready to capture more than our share.

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

Thanks, Jeff, and good afternoon, everyone.

2018 kicked off with one of the best quarters we have ever had in terms of revenue and overall momentum in our business.

We exceeded our targets and delivered strong operating results, highlighted by our 61% year-over-year revenue growth for the first quarter of 2018.

Our growth was driven primarily by our mobile channel, which soared almost 100% on a year-over-year basis and comprised 42% of our total spend.

We also saw substantial incremental growth in our video segment, which grew by over 100%.

The first quarter is the time for us to reset and reinvest in both our employees and our customers.

A large part of our focus in Q1 is hiring new employees and onboarding and training them to contribute as we head into our seasonally stronger quarters of the rest of the year.

Now in Q1, we also invest our time to educate our customers on the benefits of programmatic advertising, highlight new product features we released and provide more training on our platform.

We then focus on winning incremental spend, as both brands and agencies look for options to diversify their digital ad spend away from large search and social media platforms.

An example of this in Q1 was a global specialty beverage retailer that, through their global agency, began to think differently about how to allocate their digital ad spend.

In this case, they had a major new product launch, so their goals were, first, to increase brand awareness and then ultimately, to drive sales for this new product.

To achieve their goals, they believe that advertising programmatically was a more measurable and targetable way to spend digital ad budgets, and so they chose The Trade Desk to help them do just that.

To increase brand awareness, their first goal, we guided them on how to extend the reach and frequency of their ads using data and accessing better measurement tools, all in a more brand-safe environment.

After some small test budgets in late 2017, they began moving multimillions of dollars of spend per month from non-programmatic digital and onto our platform to spend programmatically in Q1.

They exceeded their campaign goals and, as a result, they spent more in Q1 than they did in all of 2017 combined.

And now even into Q2, we continue to see them spend more on our platform as this quarter progresses as well.

Now as I usually do from an operational perspective, I want to update you on the progress we have made in our 3 core priorities: one, remain an objective and independent trusted partner for our customers; two, to continue to grow our omnichannel presence; and three, to continue to grow our international footprint.

One of the largest differentiators between The Trade Desk and other large advertising platforms is our objectivity and the independence that comes with not owning media.

Those qualities serve as the basis of trust that we build with agencies and their brands.

The proof is not just in our top line revenue results or the performance on our platform, but by a 95%-plus customer retention rate, which we've now achieved for the 17th quarter in a row.

We are very proud of that statistic.

In a time when there's a ton of focus on privacy and brand safety concerns, advertisers are seeing that The Trade Desk provides the control they need to buy only the premium inventory they require and reach only the audiences they want to.

And we are winning spend from traditional digital channels as a result.

A great example of this shift in spend is from a large global consumer technology company in Q1.

For several years, The Trade Desk had been a part of their programmatic business, but a smaller piece relative to a large competitor.

Over time, we built trust with that advertiser with a full buy-in from their agency.

The client brought us the opportunity to capture a much larger share of their digital spend in Q1.

We demonstrated the effectiveness of full omnichannel campaigns, and we had key integrations with the advertiser's preferred data partners to better incorporate cross-device data.

Our platform delivered exceptional KPI performance and service for those campaigns around the world.

This resulted in the advertiser starting to consolidate their programmatic ad spend, specifically on The Trade Desk, and calling us their primary or power platform for the future.

Next, I want to focus on growing our omnichannel presence.

The ability to target marketing messages throughout a complete customer journey is a key function for an omnichannel buying platform.

And in Q1, we have seen more and more advertisers use multiple channels in their advertising mix.

This includes channels like mobile, video, Connected TV, audio, native and even more display.

Customers using at least 6 of these advertising channels increased by 148% from a year ago Q1.

And advertisers using 4, 5 or 6 of those channels now far outnumber those using 1, 2 or 3 channels on our platform.

The omnichannel approach is enhanced by using data, both first-party and third-party data, and it is making a real impact on advertisers' marketing performance.

All of this stuff is combined to help us accelerate consolidation from brands and their agencies onto fewer DSPs and therefore, moving more spend onto The Trade Desk.

This could not be more evident than with many consumer product companies.

When evaluating DSP options for their programmatic ad spend, they know how important it is having fully integrated newer channels like audio, Connected TV and native is for their category.

But they also still advertise on traditional programmatic channels like display and mobile, and then they can tie their programmatic ad spend to our offline sales results suite on our platform.

This allows the advertiser to optimize media spend based on actual sales in real time when a large majority of their sales are all offline.

As an example in Q1, a large beverage company managed this strategy all the way down to the product SKU level to increase sales on specific products.

This is why they have consolidated their programmatic spend on our platform and their ad spend significantly increased in Q1.

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.

International spend growth continues to significantly outpace that of the U.S. And in the first quarter, that trend continued.

Our international business amounted to over 14% of our total spend in Q1.

Our teams in Sydney and Madrid each set their all-time spend record in Q1.

And our teams at Hamburg and Jakarta continue to grow well over 100% on a year-over-year basis.

The adoption of programmatic and the market growth we see across Asia is accelerating.

Overall, we feel really good about our first quarter success and our prospects for the remainder of the year.

We have made tremendous strides in increasing our customer engagement, hiring and training the next generation of our team and continuing to advance our international strategy.

The advertising industry is still in the early stages of its programmatic transformation, and we see a huge multiyear opportunity in front of us.

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

Thanks, Rob, and good afternoon, everyone.

As you've seen in the numbers, 2018 is off to a great start, and we are really pleased with our Q1 financial performance against our key metrics.

Revenue increased 61% year-over-year, adjusted EBITDA increased 202% year-over-year, and GAAP net income was $9.1 million, all while investing aggressively in areas critical to our future growth.

Revenue for the first quarter was $85.7 million, which was above our prior expectations and reflects increased spend by our existing customers plus the addition of new customers and advertisers.

We continue to see customers move more dollars onto our platform, helping to drive the revenue upside.

For the quarter, approximately 88% of our first quarter gross spend came from existing customers, whom we define as those that have been with us over 1 year.

Our operating expenses increased with the growth of our business to $75.7 million in Q1 of 2018 from $51.4 million during the same period in 2017.

The increase in operating expenses was primarily due to our increased investments in our platform operations and increased personnel, primarily in technology and development, as we invest for future growth.

Total other expense net was $700,000, and income tax expense was $160,000 in the quarter.

Income tax expense benefited from the new U.S. government tax legislation, which reduced the statutory rate, plus the treatment of incentive stock options that is variable but deductible under current tax legislation.

GAAP net income was $9.1 million for Q1 or $0.20 per fully diluted share.

Our adjusted net income was $15.3 million or $0.34 per fully diluted share compared with adjusted net income of $7.8 million or $0.18 per share in the comparable period.

Adjusted EBITDA was $18.9 million, with a corresponding margin of 22% of revenue during Q1 2018, as compared to adjusted EBITDA of $6.3 million or 12% of revenue during the same quarter last year.

The increase in adjusted EBITDA dollars reflects growth of our top line, partially offset by our increasing investments in products, people, global expansion and corporate expenses.

Of the $12.5 million revenue increase above our prior expectations, approximately 90% of that revenue fell through to adjusted EBITDA.

Net cash provided by operating activities was $11.8 million for Q1.

Our trailing 12 months of operating cash flow and free cash flow were $65.8 million and $54.3 million, respectively.

During the quarter, we paid off the remaining $27 million in debt on our balance sheet, so we are now debt free.

Our cash position exiting the quarter was $139 million.

Our DSOs at the end of Q1 were 96 days, an increase of 14 days from the same period a year ago.

While our DPOs for Q1 were 78 days, an increase of 18 days from the same period a year ago.

We continually strive to close the gap between DSOs and DPOs, which benefits our cash flow from operations.

Moving on to guidance.

For Q2 of 2018, we are expecting revenue of $103 million and adjusted EBITDA of $30 million.

For 2018, we are off to a great start, and it appears we are starting to see a little flattening of the revenue seasonality curve.

As a result, we now expect revenue to be at least $433 million, which approximates to just over 40% growth year-over-year and the corresponding full year adjusted EBITDA to be $133 million or 30.5% of revenue.

With that, I will now hand the call back over to Jeff for any 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're typically to the upside.

There is a generational shift happening in the convergence of the Internet and TV globally.

Massive markets like China are just starting to adopt programmatic, and I believe it's highly probable that the programmatic industry in the years ahead will see accelerating growth.

We see the opportunity and now is the time to invest to land grab, gain market share and revenue, and we believe The Trade Desk will do so in 2018 and beyond.

That concludes our prepared remarks for this afternoon.

And now the operator will open it up for questions.

(Operator Instructions) Our first question today is coming from Shyam Patil from Susquehanna.

Congrats on the impressive results and outlook.

Jeff, I wanted to ask about Connected TV.

Can you talk about the strength you're seeing there in more detail, including kind of how you would characterize the spend at this point?

Is it testing?

Or is it always on and committed?

And then in terms of the supply availability of Connected TV, kind of how would you characterize kind of where we are, what inning we're in, to use the baseball analogy, for supply availability?

You bet.

So first, thanks, Shyam.

It's great to hear from you.

I definitely think the most exciting thing that we announced today is that 21x growth Q1 2018 over Q1 2017.

That is, honestly for us, even the most surprising thing that we've seen.

We expected Connected TV to be really strong this year, but 21x is even in excess of what we expected.

In order to get that big, to have a number so large, it is one of those things where you have to be firing on all cylinders.

And we think the thesis that we put out before is exactly what's happening, which is consumers are looking for ad alternatives.

So the number of subscriptions that they can afford, especially because most of them have cable as well as a subscription to Netflix and often others, they want things like Hulu, where it's an ad-funded experience.

And the number of ad-funded opportunities just continue to go up, and that inventory is getting bigger and bigger, faster and faster and it's happening across the board.

It's not just one company like Hulu.

It's 100 of them, and it's super exciting to see them all contributing.

That's why I pointed out TVB internationally.

There are so many other companies even internationally that we could talk about.

I do believe that Connected TV is not only the most exciting thing happening in the U.S., but the most exciting thing happening in Asia as well.

And so there -- it's not just one thing.

To answer your question about where we are in terms of what inning we're in, we're definitely still in the first inning, but there are points on the board already.

It's definitely clear to see some companies winning and some companies behind.

And so it's a super competitive first inning, even though there is still so much game ahead of us.

So it's hard to say like what the pace will be going forward, but you asked the question, do we think they're sustained or are they just tests?

I think a lot of these are tests, especially asking the question, can Connected TV provide me the reach that traditional television has historically been?

And part of the way that we've been explaining this is a way that I'd like to explain it today, which is, if you were buying television in the early '80s in the U.S., in order to reach as much as the population as possible, you needed to buy ABC, CBS and NBC.

And if you didn't buy one of those, you were missing out on a significant -- a double-digit percentage of the audience.

We actually asked Nielsen to -- we commissioned them to do a study, which we referenced in the earnings report, where we found that Connected TV is just like one of those networks back then.

So instead of thinking of it like traditional TV versus Connected TV, think of it like Connected TV is a way to get incremental reach.

And we found in that report, with Nielsen's help, Nielsen found it, that you're missing out on 41% of the audience or there's incremental reach to 41% more people, if you advertise on Connected TV.

So for Mazda or any other company, it's the equivalent of missing out on one of those big networks if you don't have Connected TV on your plan.

So can it provide incremental reach?

I think what every case study we've seen so far has proven, is it undoubtedly can and it's growing faster than anybody expected, and that's creating a scramble to actually accelerate it.

So I don't know that there's ever been a more exciting time in television than the last quarter.

Our next question is coming from Brian Schwartz from Oppenheimer.

Jeff, I wanted to dig deeper into your commentary about the discussions you're having with -- in the market with the customers, with the agencies that you won in the quarter, also with the installed base, if they're changing over time in terms of being viewed as this primary expensable omnichannel ad-buying platform.

So specifically, I wanted to ask you from a granular perspective, if you're starting to move upstream in your conversations with people at agency and brand, and if that is having an impact on these outsized Connected TV results?

And then more in general, what kind of impact can those upstream discussions have on the scope and future size of those agency relationships?

You bet.

Thanks, Brian.

I think this is actually a really important concept to talk about.

So the way historically that we've won business is we've partnered very closely with the agencies who've understood programmatic really well, and most brands have not understood it well, and been super proactive in managing their programmatic budget.

And we deliberately use the agencies, because they represent scale, and we believe that the agencies will be around for the long term and that they represent a great way for brands to scale and that brands will continue to need agencies' help for as far as anyone can see into the future.

We maintain that position.

However, as digital becomes a more critical part of the plan, your average CMO or your average VP of Marketing and certainly, your average Head of Digital in any big brand, wants to know a lot more about programmatic and wants to know a lot more about digital, than they did 2 or 3 or 5 years ago.

And so a lot of them are saying, "Hey, I need to get smarter about what DSP we're using and why and what the capabilities are."

So the amount of relationships that we forged with brands themselves, often due to an introduction from the agency, where we're going arm in arm with the agency into the brand to increase the level of expertise and understanding so that the 3 companies are working closely together.

And typically, the brand is weighing in more and more on their digital strategy, especially as it relates to programmatic.

They're asking for more and more of their data to be deployed, and they want assurance that it's safe and used deliberately on our platform and that they understand the way that it's being used.

And then they also want the agencies to provide scale for them, because very often, especially for the big multinational brands, they have no idea how to buy media in 150 countries, for often the many brands that they operate themselves.

So with that, we think we have the sort of model of the future and some amazing case studies with some of the biggest brands in the world of how that's working.

But what the byproduct of us having deeper relationships with the brand has been -- or the byproduct of having those deeper relationships, is that the dollars are even stickier than they've ever been.

It means that they're widening and they're getting more comfortable with both the efficacy and complexity of programmatic.

So a brand getting engaged is not a bad thing for us.

It is a very, very good thing for us, and we see it as one of the things that is a catalyst for all the growth in Q1, and most notably, in Connected TV, because they recognize that the problem with traditional television has been the inability to measure.

And as they're finally seeing available the ability for TV or Connected TV to not only give them target-ability, but reach, there's a level of excitement among brands themselves that I've not seen before.

Our next question is coming from Sam Kemp from Piper Jaffray.

So I appreciated all the conversation about data.

Can you give us an idea today when we look at what your clients are paying for, how much of it is kind of core media execution versus data versus other components of value-added services?

And then can you just kind of broaden a little bit on the media planning tool?

Is that specific to digital or is that going for digital and traditional media formats?

And is that an opportunity for you to, I guess, capture more TV share as it migrates from TV over to Connected TV?

Yes, so let me start with the last question.

So planner is definitely focusing on digital first.

So we're not trying to plan their print buys or anything like that, in part, because we don't think we can do a very good job.

It's just it's hard to figure out, given the sparse amount of data available, to figure out what print buy to make.

And we've never played in that space, so us weighing in on the entire plan is not necessarily what we do well.

What we are trying to convince agencies -- the planners at agencies, as well as strategists and planners at brands, is that they should do media planning starting with digital.

And what many don't know is that often when you start with those media mix models, you're sort of taking a big picture guess about the way you should divide up your budget and the way things work, sort of assuming that there's no data available to be more informed.

And because all of the data lives inside of digital, we believe that you should start with a digital-first plan, what can I spend in a data-driven way, and after I carve out that budget, I'll go plan the rest.

So we're trying to get them to flip it around so that they're doing digital first, and we think that makes for better planning, but it also makes for more incremental dollars to digital and especially the parts of the Internet that are on sale, which are mostly outside of walled gardens, just because there's some amount of friction to get to those.

As it relates to the breakout on data between first-party data, third-party data, other value-added services and media, we don't break all of those out today, but I will say that media and our platform piece that relates to media represents the majority of the dollars that get spent over our platform.

Data as a percentage has gone up.

It's still low single digits in terms of percentage, but it's going up, just because the amount of data available and the efficacy of third-party data is being proven again and again.

So if I had to predict, the upside in data is way higher than the upside in media itself in terms of opportunity for it to grow as a percentage of the spend coming over our platform, but we don't necessarily break those out.

The last thing I will say on the value-added services is I just want to remind everybody that it's our goal to always add more value than we extract.

And something that we talk about internally is increasing the consumer surplus.

So if I give -- if we produce or release a feature that we think produces 10 more units of efficacy, we want to make sure that we charge meaningfully less than those 10 units.

We want it to be a no-brainer that they use that going forward.

So I believe that because our consumer surplus is higher than it has ever been -- and by consumer surplus, I'm not talking about direct consumers in terms of Internet users, I'm talking about our direct clients.

We are creating surplus for our clients and the brands on our platform.

By creating more surplus in terms of the efficacy of the media that they're buying from us, we think we make it more and more sticky, and we make it mathematically obvious that they should be spending more money through our platform.

Our next question is coming from Brian Fitzgerald from Jefferies.

Jeff, I wanted to ask maybe a follow-on question to the last one, just around the data spending and the spike you're seeing.

I imagine we still continue to see elevated levels of data spending.

Have you seen similar spikes historically?

And then, is there any dynamic to call out between when you see the data spend spikes and then it translates into more campaigns, the efficacy starts to ring true, and so budgets start to cut lose?

I'm trying to get a sense for is momentum inflecting and it's indicated by this data spend.

I know that's kind of maybe a more esoteric question.

And then, Rob, around the brands consolidating their programmatic spend to platforms like The Trade Desk, are you seeing that trend accelerating also?

I'll take the first one and then I'll have -- Rob, you take the second one.

So I think I would summarize the data question, and it's given that we, in March, as we talked about in the prepared remarks, given that we had our highest month ever in data spend, does that tell us anything in terms of the trend and are those dollars easier to retain than other wins?

And I would say it absolutely is easier to retain those dollars than others.

So if somebody comes to us and says, "Hey, I just want reach." That's sort of the same thing they say when they go to traditional TV or radio: "I just want reach." And on a level, like we're a little disappointed when that's the goal, because there's so much more we could do, like why don't we be a little more deliberate?

There's data that we could deploy.

We could do better than that.

So when we have the data products where we basically say we're only going to spend money on data when it makes economic sense and when we know that the probability of increased results outweighs the cost of the data, meaning that the efficacy of those ads, based on the goals they've chosen, we are strongly confident will be worth it to them, because we know that as we're spending.

But we also know that we're performing better than if they didn't use data.

And because we think we're the best company in the world at deploying their first-party data or third-party data, we think that defending that against the other places where they're just looking for reach or somebody else is grading their own homework, where we'll just give them the visibility, that it actually worked.

Those are the most defensible campaigns we could possibly run.

So when somebody gives us a data-rich campaign, those are the ones that we're most excited about retaining.

So I do -- and I guess to connect the dots to I think more specifically your question, I do believe that the dollars spent in March are a little bit easier to retain than the dollars spent in February, just because of the fact that there was more data attached to them in March.

Rob, to the other part?

Yes, for sure.

So just talking about more brands consolidating with us, for sure, we do see that.

We talked about digital has become more of the leader than the sort of necessary sidekick.

And so as digital spend gets bigger and bigger, brands are leaning in.

As Jeff mentioned, they're educating themselves more on how programmatic can help them both target and measure and do cross-channel advertising in a more serious way than they ever have.

And that is causing more consolidation onto our platform first.

So first there's just consolidation of more digital spend, broadly speaking.

But then secondly, and we've had this conversation with you guys for a few years now, we're seeing more and more brands, traditional brands even, that were later adopters of programmatic, arguably, or just in testing phase, sort of move more into crossing the chasm and it's just becoming part of what they do.

So I definitely sense and feel a shift in momentum from the major brands consolidating both to platform -- or spend onto our platform in a consolidated way, but then more of their digital spend just with us, as more brands become more comfortable with programmatic, for sure.

And the one thing I'd call out is, I think we talked last time, nearly half of the top 100 brands in America spent over $1 million with us in 2017, and I expect that to double this year, if not more.

Our next question is coming from Rocco Strauss from Arete Research.

On GDPR in Europe, even though you're not using any PPI data, in our view, it will be much harder for third-party data providers to collect and use any data without clear consent from consumers.

Could you share your views on what impact that may have on cross-device or omnichannel tracking and measuring, if you can't layer on any third-party data or if there simply isn't any available anymore?

And if that could limit European growth for you and also for other market participants to more or less only purely contextual-based advertising?

And then secondly on mobile, with mobile accounting for 42% of gross spend now and mobile exchanges like MoPub, Smart, et cetera, all running at roughly 30% take rates, do you see that the mobile equivalent of header bidding is becoming more significant to how inventory is sold already today?

And can this be beneficial over time on your take rates in the short or medium term?

Awesome.

I was waiting for somebody to ask about GDPR, so I appreciate you asking, Rocco, in part, because I think the state of things is really great.

And that may come as a little bit of surprise for some of you that cover media or spend more time in media, just because a lot of media companies are sort of a little frantic to get things implemented.

But big picture, what legislators have asked for in Europe is for publishers in Europe to be more explicit about the quid pro quo of the Internet, which is that you share data and see relevant ads in exchange for free services.

In order to believe that there's going to be some massive dry-up of third-party data, you have to believe that that quid pro quo is under threat and/or that there's going to be a massive purge of publishers in Europe.

And I don't believe any of those are happening, and I don't think the quid pro quo of the Internet is changing.

Something we've been hoping for for a long time is happening, which is the Internet community is getting more explicit in that quid pro quo, in explaining that quid pro quo.

So we're delighted at what's happening.

We've been ready for a long time, because we only operate with reputable companies in the third-party data space and because we don't play in directly identifiable personal information, like names or Social Security numbers or those sorts of things.

We feel like we're in a phenomenal position.

So I don't think it's going to be isolated just to contextual data.

I think there's a way to do the best thing for advertisers and for publishers and consumers at the same time that doesn't require taking ridiculous risk for any one of those players.

So I do think 2018 will be an evolutionary year, and people have worked really hard to figure out the best way to implement things.

But I'm super positive and bullish about the effect that this will have and don't see any long-term -- medium-term disruption at all to our business.

And if there's any disruption in the short term, I expect it to be very minimal and have, obviously, no impact on the forecast that we put out as we, of course, just raised our guidance.

I think I missed the second part of your question, which I'll just touch on briefly.

I do believe something like mobile header bidding would be very helpful for the monetization of mobile.

So I think you're right in sort of the implication of your question, which is that the amount being taken out of the middle in mobile advertising is slightly higher than in other forms of advertising, and yet it still performs at such an amazing level.

And so while I do think that there will be some compression and that compression will be good for us, as networks and those representing the inventory make slightly less and more goes to media and the efficacy of that media is translated to advertisers and publishers make more of that, that's all a good thing.

But the status quo is great as well.

The more that that accelerates, the faster dollars move into this, because it becomes more mathematically and economically obvious to spend in that channel.

But honestly, I believe it's already mathematically and economically obvious.

I think the friction of implementation is more the gating issue than the performance.

So it's going to keep growing.

Our next question is coming from Tim Nollen from Macquarie.

Jeff, last call, you were talking about some -- working on some of the relationships with TV networks, also some of the CTV businesses like Hulu.

You also mentioned that one of the positive signs you're seeing with Connected TV is demand seems to be coming before supply, meaning the consumers are driving CTV usage.

So my question is about the TV upfront markets that are going on -- well, starting after next week.

We had the digital new fronts the last couple of weeks; cable and broadcast, we had cable last week and broadcast starts next week.

So are you working with TV networks and with agencies in the upfront process, is my question.

Is there anything different maybe in the upfronts this year, if so?

And basically what are you doing to help close the supply gap, i.e., getting TV networks involved with making inventory available for Connected TV?

You bet.

So the part of the thing that makes the 21x so bullish is that there's a bunch of additional inventory that even they didn't predict.

So as they're going into upfronts, they have to guess how much inventory is going to be available, because that's the stuff that they can sell in advance.

And so a huge number of our relationships that have grown over the last 6 months, they went from conceptual to implementation really fast, in part because they got more inventory than they thought they would and they had to find some way to sell it.

And programmatic is the way that that's being sold.

And because there is a shortage of supply, the best way to monetize that is an auction.

And that's where programmatic is really, really great.

So what has been happening during that time is we've proven our ability to monetize at a competitive level to all other sources of demand, especially when the TV networks account for the cost of sales when they're doing martini lunches or huge parties at the upfronts.

So we are involved in sort of discussions at the upfronts and sort of making the case for data-driven digital marketing, but there is so much more that we could be doing.

And I would just say that I think we've yet to scratch the surface on how things can change at upfronts, and mostly what programmatic is being used for today is monetizing that surplus, but it's creating a hell of a case study to say, "Oh my God, we should earmark more inventory."

And some of them are actually doing that, which is they're earmarking inventory saying, "This isn't available in the upfronts because we're super confident that we can sell it this way." And so that trend, coupled with the 21x, is one of the most bullish things I could probably say today.

Our next question is coming from Alvin Concepcion from Citi.

It's [Nick] on for Alvin.

I guess switching past GDPR to e-privacy, some rumblings kind of make it sound like that regulation has the potential to disrupt the quid pro quo, as you say, of the Internet, maybe limiting or preventing publishers from restricting content if they don't get consents.

Do you have any kind of commentary around that or what you guys are expecting?

Yes, so I think it's really hard to implement a law that says you have to provide something for free.

You have to.

It's fine to say you have to provide something, but provide it at market rate and with some sort of quid pro quo.

And I don't believe that, that quid pro quo of the Internet can be legislated against.

I do believe that you can legislate and say you have to be more explicit in that, and I do believe that is the heart of GDPR and e-privacy laws.

I believe that's what they're after, which is a very good thing, which is to get publishers to be more explicit in that.

And I don't believe that, that can be disrupted.

So I think that what everybody can expect is that publishers are going to be more explicit and they're going to do a better job of getting opt-ins.

They're going to be more protective of who they share data with, and that will be isolated to companies that have a track record of providing demand for them.

And we think in all of those scenarios, we're in a better position than we were before all of these things got implemented, because we've been trying to do the right thing from the beginning.

So I don't see e-privacy being any different than GDPR in terms of its impact to our business in the long term.

Our next question is coming from Dylan Haber from RBC Capital Markets.

First for Jeff, have you seen the user privacy issues at your competitors cause advertisers to shift their digital ad budgets around at all?

And could this potentially benefit you guys?

And then next for Paul, just can you provide a little bit more color on the flattening seasonality?

Is that primarily due to your international diversification?

So we've seen some modest reshuffling of budgets where, because of concerns where people were spending in digital before privacy concerns came up, they were looking for a way to use data in a safe way and now they can't on some of the big walled gardens.

And so we have definitely seen a number of inquiries that I think are the result of some of the challenges of other companies in the digital space.

So I do think that, that represents some redistribution.

I think actually even bigger than the problems, for instance, that Facebook faced in Q1, I think is the changes to policy that Google has made where it's restricting the use of SIDs, because I think that, that has a more positive impact on our business because of the fact that we can provide more detailed numbers as well as attribution that can be validated by outside parties, where Google's competitive product will no longer make that available.

Paul, your portion of the question?

Yes, sure.

So we have seen a shift in the seasonality.

Really, I think what we're seeing is with programmatic, advertisers don't need to advertise so far in advance anymore.

They can do more real-time advertising.

And so advertisers are shifting the timing closer toward the actual event, and that's resulting in a situation where Q1 is looking stronger than it has historically.

And the curve at the end of the year is flattening out just a little bit, but it really has to do with timing because of the technology.

And it's Rob.

Just to add on, programmatic is more mature now, it's just always on.

It's targetable.

It's measurable.

It's just what you do.

So when you look at the IAB measuring digital advertising overall, you sort of have a 45-55 split, first half, second half, for a long time in non-programmatic digital.

We're just heading closer to that direction, is really what's happening.

Our next question is coming from Peter Stabler from Wells Fargo.

This is Rob on the call for Peter.

I wanted to ask a follow-up on the data utilization purchase rates in March.

I wanted to ask if that was fairly broad-based or more focused on specific verticals like CPG.

I also wanted to drill into something, Jeff, you just mentioned.

I think you could make the argument that the walled gardens or platform companies are becoming more closed when you look at the changes that FB has announced around third-party data or the changes announced by Google with respect to DoubleClick ID, which I think you just referenced.

Wondering if you could talk about advertiser sentiment that you're seeing in response to some of those announcements.

Do some advertisers think they need to become more engaged with those platforms versus others looking for greater independence?

Anything you might be able to add on that topic.

You bet.

So first on -- was the increased data usage isolated to any one sector or category of advertiser?

In general, as I look at it from a macro perspective, it's not.

I mean, there were specific advertisers who probably had a little surge, but there weren't -- that didn't come from just one, and it certainly didn't come from just one category.

So overall, it was far-reaching and across the entire platform.

And honestly, I think we're doing a better job of making it available.

We've done a better job of performing triage on the data.

And I honestly, I think that there's still so much more that we can do, and I expect to see that continue to increase throughout the year, at a rate that's faster than our company's growth rate.

So I expect data for the rest of the year, to grow at a faster growth rate than our company's revenue.

You could say -- in fact, I'll say, I think the question you're asking about the walled gardens is maybe the most important question that we can be talking about today.

Because I don't think there's any way that you can look at the value prop at the walled gardens, and especially based on Google's decisions to limit the use of their ID, and say that their value prop got stronger as a result of the choices that they made.

I just don't think there's a way to do that.

And because I think media will continue to fragment.

I think media is at the top of its game and content is continuing to get better and better, especially in television, and that means that there will be more stations and more ways to make that available, and more and more, especially in TV, the content creators are trying to own their own distribution.

And that means that there will be lots of companies that any brand needs to buy from.

And so when a couple of them say, "We're going to grade our own homework and that's the only way that you can understand how your dollars are being spent on ads in our universe," I think that makes the open Internet so much more appealing.

And I think in the long term, it's really hard to come up with a thesis that doesn't include that doing better and those companies that have historically been really great at creating content getting better at monetizing that and benefiting from the open Internet.

So I think they weakened their value prop, and I do think that that's good for us.

Our final question today is coming from Youssef Squali from SunTrust Robinson Humphrey.

This is Nate Mitchell on for Youssef.

Most of my questions have been answered, but on the back of this walled garden discussion, I wanted to talk about your Twitter partnership and if you can speak to how that's progressing and if you're having any conversations with some of the smaller social names?

Yes, so as many know, we've been partnered with MoPub before they were even a part of Twitter and then of course, since they've been a part of Twitter, they've been a partner of ours.

I'm a believer in Twitter as a company.

And any partnership beyond that and MoPub, I'm just not at liberty to talk about today.

But I'm super excited about the way that Twitter is thinking about the future of their business.

And I hope at some point to be doing more with them than we're doing today.

But it's hard for me to comment beyond that at all.

Thank you.

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

That also does conclude today's teleconference.

You may disconnect your lines at this time, and have a wonderful evening.

We thank you for your participation today.