Q2 2022 Trade Desk Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the trade desk second quarter 2022 earnings Conference call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
Now my pleasure to turn the floor over to your host Chris Toth, Sir the floor is yours.
Thank you operator, Hello, and good afternoon to everyone and welcome to the trade desk second quarter 2022 earnings conference call on the call today are founder and CEO , Jeff Green and Chief Financial Officer Blake Grayson.
Copy of our earnings press release can be found on our website at the trade desk Dot com in the Investor Relations section.
Before we begin I would like to remind you that except for historical information some of the discussion and our responses in Q&A may contain forward looking statements, which are dependent upon certain risks and uncertainties in.
In particular, our expectations around any macro economic deceleration potential impact of the COVID-19 pandemic in various regions, where we operate in addition to potential supply chain disruptions that could disrupt advertising spend on our platform are all subject to change.
Any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections for those implied by these forward looking statements.
I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release, we believe that providing non-GAAP measures.
Combined with our GAAP results provides a more meaningful representation of the company's operational performance.
Lastly, I would like to highlight that we are planning to hold an analyst day on Tuesday October 4th 2022 in New York City.
That will be webcast and available on our Investor Relations website, I will now turn the call over to <unk> founder and CEO , Jeff Green Jeff.
Thanks, Chris and thank you all for joining us today as you've seen from the press release, we had a very strong performance in the second quarter. We grew revenue, 35% compared with last year, and we outpaced our competitors and continued to gain market share. Despite some macroeconomic uncertainty and the <unk>.
Half of the year marketer shifted decision data driven advertising on the open internet more rapidly than ever.
And as a result, the trade desk has become increasingly indispensable as the default DSP for the open internet and connected TV.
The most encouraging aspect of our business through the first half of this year has been the rate at which we signed new and expanded joint business plans or <unk> with our clients.
I Havent spent a lot of time on this dynamic in the past, but I'd like to today, because I think this trend says a lot about how we are winning in the market.
And why that gives us optimism for the future and confidence that we can execute in any market environment.
Joint business plans are <unk> are long term deals that we signed with leading brands, who aimed to increase spend on our platform often over a multiyear period.
In many cases these agreements are signed with the partnership and cooperation of the agencies that represent the brands. So as we continue to move upstream and get more direct commitments from CMO OS and brand marketers.
It is not at the expense of our valuable agency relationships in the second quarter, we signed new and expanded J b piece at a record rate covering many verticals. For example, there were new agreements with some of the world's largest automakers in technology companies, along with significantly expanded deals with large global CPG.
Many people looking at our results, including those in the advertising industry are asking how we are winning and growing at this pace in the current environment. There are a few vectors and macro factors that are trading in an amazing opportunity for us to grow into a much bigger company and win share regardless of the economic.
Environment.
I'd like to take a minute to identify those macro factors that are providing wind at our back first there is a secular tailwind that continues to propel us forward and thats the worldwide shift advertising fueled connected TV.
Don't know that we've ever experienced a secular tailwind like this before CTV is evolving faster than anyone predicted and if we continue to execute I believe we will benefit as much as any company in the world from this tailwind just like we did in Q2 and through most of the pandemic.
The second macro factor that is helping us grab share is that walled gardens like Google's AD network are being downgraded in priority.
For most of the last two decades when dollars move over from offline spending to online spending they have gone first to Google and other walled gardens.
One way to define a walled garden is to think about in the internet publisher or a content destination that is so large and dominant in their content segment.
They can be draconian to advertisers and still win business Google.
Google's advertising products are a textbook example, many have pointed out that Google does its own performance measurement. They have run marketplaces with questionable integrity in fairness, but they when advertising budgets because of their dominant position and their size and footprint around the world.
CTV has started to change this dynamic in our industry, though.
Because no one in CTV is big enough to be as dominant in TV as Google has been with search or with chrome.
Or double click there AD server that is almost irreversibly integrated into the Google AD network machine.
As a result, the marketplace for premium CTV is fair, especially in relative terms and extremely competitive.
Cause of the efficacy of moving picture and sound coupled with these competitive market dynamics for the first time ever some of the biggest brands in the world have a new place to spend their first dollar on the Internet, which is premium CTV.
CTV is fast, becoming a must buy and in some cases, the highest staffing part of the digital media plan for many brands. This trend is changing the makeup of the whole internet and it is likely to change the role of walled gardens in our industry, especially the smaller walled gardens.
So the bottom line on this second major macro trend.
Kony and tactics of walled gardens are now being challenged because of the competitive nature of CTV as advertisers increasingly prioritize premium CTV content.
And lastly, I'd like to talk briefly about the third macro forces that is changing the landscape before I come back to us to trade desk and what we're doing and how we're taking advantage of these trends.
The third macro trend that is creating market opportunity for us is the worldwide pressure on Google.
There has been a great deal of regulatory scrutiny of Google over the past couple of years, we've seen the reports of investigations and complaints from the department of Justice. The States attorneys general concerning various forms of alleged anti trust violations in Google's ads business, but it's not just here in the United States. It's also in various <unk>.
Other countries around the world recently, the UK competitive market authority or the CMA announced it is investigating whether Google has broken the law by restricting competition in digital advertising in the U K.
As the CMA Chief Executive Andrea Castelli said and I quote we're.
Worried that Google may be using its position in AD tech to favor its own services to the detriment of its rivals.
Of its customers and ultimately of consumers weakening competition in this area could reduce the AD revenues are publishers, who may be forced to compromise the quality of their content to cut costs.
It may also be raising cost per advertisers, which are passed on through higher prices for advertise goods and services. So.
So let me be very clear about this point the trade desk stands to gain share no matter. The outcome of these investigations or lawsuits I believe google's biggest obstacle to compete in programmatic and in CTV is their lack of objectivity.
By contrast, we don't own any inventory and we can partner with everyone. In CTV that gives us a level of objectivity that Google can't overcome as long as it owns Youtube and its search engine its core assets and continues to operate on both the buy side and the sell side.
Advertisers are increasingly aware of the very concerns that the CMA is raising.
Especially the large brand advertisers and their agencies that today constitute the majority of spend on our platform. As a result, I'm confident we will do well regardless of Google's moves in programmatic and with DB $3 60, their demand side platform or DSP.
In addition to thinking about the trade desk and how we gain share I'm often asked to speak about the open internet more broadly when I put that hat on and speak on behalf of the open Internet I do get concerned about what Google has done to make it much harder for companies smaller than the trade desk to compete in.
The open Internet.
I'm concerned that the press and regulators are to focus on what assets, Google owns or should own and instead should apply more scrutiny to google's behaviors their incentives their structure and their tactics, but that's for another day.
I believe so long as we execute the trade desk is going to do well, regardless of what tactics, Google deploys <unk>.
Even when Google play's unfairly as some regulators have alleged it tends to move advertisers and agencies to US. This is one of the reasons. We are reporting in such a good quarter today and why we're so optimistic about our future.
So with that let's shift gears to discuss our strategy or tactics and how were executing so let's discuss what's happening inside the trade desk.
Across the company, we're very clear on our mission and we're extremely focused on helping agencies and advertisers as we always have been we are focused on the buy side and our goals are clear to be the objective open internet alternative to walled gardens to pioneer a new approach to decision television AD buying to.
Help build the new identity fabric of the Internet and to create a better open internet for everyone, including us to enable brands to safely and easily deploy their first party data and to add more value by creating a more efficient supply chain.
It's because of these factors that more and more of the worlds leading advertisers are embracing our platform compared to our competitors. It's also why you saw a string of key partnership announcements forged in the second quarter, whether it's Disney partnering with us as they race to ensure that the majority of their AD impressions are automated.
Amazon's AWS, ensuring that the many brands who use their marketing data services.
Can now transact on <unk> to the.
The same with Experian, who is using <unk> as a common currency, where albertsons, becoming the latest retail media partner on our platform to improve measurement and insight for brand selling products at Albertsons and of course Albertsons has committed to using <unk> to do this.
I also wanted to talk about Netflix recent moves I believe they are in a very strong position to be a leader in Avon and hybrid pricing models similar to how they've led the way for more than a decade in asphalt.
We have a great relationship with Netflix we also have a great relationship with Microsoft We've had many constructive conversation with Netflix over the last few months.
I personally am very impressed with how quickly they are diving into advertising.
The Netflix partnership with Microsoft is very positive news for the open Internet.
Fact that Netflix didn't choose Google is very telling.
We believe it's another strong indication that more industry leaders recognize the opportunity of the open internet compared to the dangers and limitations of walled gardens.
Partnering with Microsoft on the supply side of the digital advertising equation Netflix controls its own destiny.
They chose a partner that can represent their interests not one with a conflict of interest Xander is a strong sell side partner and has been a great partner of ours for years in fact, almost 12 years ago I initiated the partnership between Microsoft and App Nexus the company. They now own that has been rename.
Zander.
Netflix and Xander have a lot of ground to cover once they've done the work on the supply side.
Driving as much demand as possible toward those AD impressions will come next overtime Netflix is very well positioned to open their AD inventory on the demand side to the open internet that would enabled demand side players to compete in an open objective and decision market driving high CPM and maximizing the value for both the Advair.
Tyler and the publisher in this case Netflix they will need to figure out how to do what Disney and their properties like Hulu are doing so well right now which is creating a personalized TV and AD experience that respects consumer privacy Disney is setting the pace on this today, which sets a model for what technologically savvy.
E media companies like Netflix and NBC, you in Paramount and so many others are likely to pursue very quickly as well.
As you know I predicted publicly and repeatedly many years ago that Netflix and other subscription CTV leaders would eventually offer some kind of AD supported option.
The economics of the market demanded.
And so many streaming providers have proved how attractive CTV is to advertisers.
We work with almost all of them.
For example, one of our early CTV partners N. B C continues to go from strength to strength on our platform with fully biddable inventory now available across its entire portfolio, including Peacock, which is driving significant interest and growth from our advertisers the.
The same is true of other premium CTV pioneers, including discovery, plus an HBO, Max which went live recently as well as a result of our work with the world's leading CTV pioneers. The trade desk is now the largest demand source for decision premium CTV advertising.
And CTV is now reaching the kind of scale, where it is forcing change across the advertising ecosystem.
CTV leaders will help towards the future of identity is.
It's where we will dislodge the bricks of the walled gardens most rapidly.
It's where advertisers now have globally scaled premium content alternatives to user generated content.
And because CTV has a massive authenticated logged in user base is where advertisers and publishers will innovate new ways to create personalized experiences, while also improving consumer privacy and better explaining the quid pro quo of the Internet.
There is arguably no company on the planet that cares more about consumer privacy than Disney they've spent decades building a brand based on intentional personalized experience across all of their channels, but as they do that they also want to ensure that their consumers privacy is highly protected as you've seen Disney.
We recently announced an expanded global partnership with the trade desk and is a key part of that partnership Disney will become interoperable with <unk> across all channels as you know Disney engages consumers in many different ways all of which are incorporated into their audience graph, which is now interoperable with you I D too.
Erin La burst, the president and CTO of Disney Media and entertainment distribution, perhaps set at best and I quote the growth of our relationship with the trade desk is a milestone in addressable <unk>, an automated buying at scale and the latest step as we use technology to enable advertisers to buy wants to deliver everywhere across Disney.
I want to spend a moment on why <unk> is so important a couple of weeks ago, Google announced that they are delaying the demise of third party cookies in chrome until at least the second half of 2024 have.
Have you been paying attention to anything we've said over the last couple of years at the trade desk, you'll understand how completely predictable. This announcement was.
I've said I'm not sure it is ever in Google's best interest to get rid of third party cookies.
But it ultimately doesn't really matter that much.
The uncertainty around Google's decision, making is only hardening the resolve of the rest of the industry to develop new approaches to identity.
It is shortsighted to think about this work as simply a replacement for cookies.
That doesn't really capture the scope of what's going on and Disney is a great example of this.
Disney wants to pioneer new ways to create highly personal experiences that protect consumer privacy across all channels.
And most of those channels cookies are not even present, it's much bigger than cookie CTV does not rely on cookies successful consumer oriented companies are taking a holistic approach to the consumer across all experiences and designing something nu.
Marketers understand that key marketing objectives, such as reach frequency and data usage and privacy can be managed in a much more deliberate and decisions and holistic manner.
Part of the reason that Disney can act with confidence here is because we've already done the hard work of activating UIT too across the data infrastructure, that's something of the central nervous system of digital advertising.
The double U S is a great illustration of this AWS recently announced that they will enable their customers to deploy <unk> to help liberate the customer data stored on their platform and AWS is one of the largest aggregators of marketing data in the world.
If an advertiser uses AWS already they can use <unk> to create an identifier that helps put that data to work without any of the data ever leaving AWS.
AWS is just the latest infrastructure leader to deploy <unk>. They are joining other leaders that include Oracle Adobe Salesforce and snowflake to help build the new identity fabric of the Internet.
Latest major data player to join this movement is experience Experian marketing services is one of the leading suppliers of marketing data and insights to advertisers and they are now using <unk> for their third party datasets as we've said all along the.
The success of <unk> will never hinged on ringing 10000 door bells first and foremost it's about gaining traction with the infrastructure of the AD tech industry and with that infrastructure in place. It is much easier for advertisers and publishers to activate because <unk> is already embedded in the tool.
They rely on.
In a world with better identity solutions like USD, two instead of cookies publishers will make more money per app advertisers will need fewer more relevant ads to make an impact and sell product consumers will have more privacy and more control over their privacy and that's why I'm confident that almost all of our customers will be <unk>.
<unk> two by the end of this year as I said at the beginning of my remarks, we are highly encouraged by our performance and optimistic about our ability to outpace the market moving forward.
The combination of macro trends and our own innovation enables us to deliver differentiated value to our clients.
Of course, we understand many of our customers are dealing with uncertainty.
But even with that uncertainty we remain focused and confident programmatic advertising first came of age during the global financial crisis between 2007 and early 2009, we launched the trade desk right in the heart of the uncertainty in 2009.
While we are not immune to macroeconomic weakness, we gained share coming out of the uncertainty during the early months of the Covid pandemic and its because in times of uncertainty and volatility when marketers have to make the most of every advertising dollar that we have an opportunity to demonstrate our value our customer.
Recognize that efficient and decision advertising can play a critical role in differentiating their brands to specific audiences and specific times and there's no better platform on which to do that than the trade desk.
Throughout the first half of 2022, and particularly in the second quarter.
I believe we have gained more market share or grab more land than any period in our history.
And in large part that's.
That's because as marketers become more deliberate with their budgets. They are prioritizing advertising that delivers the highest return.
And CTV has moved up the priority list, so while we can't control the macroeconomic environment.
The pace at which we are signing new and expanded customer agreements indicates that we are becoming an indispensable partner in their business growth and we anticipate grabbing land regardless of the macro economic environment.
We will never rest on our laurels as one of the few high growth Tech companies that consistently generate strong adjusted EBITDA and free cash flow, we have the financial flexibility to invest so that we can innovate for our customers.
Last year on 77, we launched our biggest platform upgrade in our company's history.
Year later, 100% of our customers are now using our sole Lamar platform with all the data the measurement and decisioning benefits that solo Maher brings them.
This is perhaps our greatest engineering achievement, yet within solve them our data marketplace continues to expand rapidly many leading retailers are now integrated with our platform, including Walgreens Albertsons and target and we continue to see utilization growth from both endemic and non endemic advertisers.
We continue to innovate to help build the new identity fabric of the internet, whether it's the data infrastructure work that's already proven so successful in North America.
The early work around EU idea in Europe , which is already gaining very encouraging traction.
We continue to see success from brands working with the Walmart DSP.
With significant quarter over quarter growth and the strongest quarter yet.
And in CTV, we are already beta testing, our forward market product, where working with select streaming platforms and advertisers to bring this new approach to CTV decisioning in advance of next year's Upfronts.
And early results are very positive our strong forward market should replace the upfront market and provide a better TV experience for the whole ecosystem. Our early adopter advertisers are seeing excellent win rates and they want to commit larger budgets to it.
And publishers are gaining confidence that this should become an essential component of monetizing their inventory.
As I said at the outset, the transformational impact of CTV, the revolutionary approaches to identity and growing instability in some of our walled garden competition will only accelerate our ability to deliver value and to continue to gain share I.
I could not be more excited about the work ahead of us in the second half of this year and in the years ahead.
And with that I'll pass the Baton to Blake, who will give you more color on the quarter.
Thank you, Jeff and good afternoon, everyone.
As you have seen in our results Q2 was a very strong quarter revenue was $377 million, representing an increase of 35% year over year.
Our top line growth of 35% is especially impressive given we are comparing against a prior year growth rate of over 100% and Q2 of 2021.
While the macro environment has created some uncertainty and we are not immune to it we continue to gain share as more and more advertisers seek efficiency and measurable results on their AD spend particularly in CTV.
We also benefit from the diversity of our business model, including not only the breadth of advertisers and verticals. We represent but also the range of inventory we have access to across the open Internet, which provides a long term durability. We are proud of.
During the quarter, we benefited from a digital advertising environment that is shifting increasingly towards data driven buying and measurable results.
Growth was broad based across channels and verticals this quarter we.
We saw continued strength from CTV, which again led our growth from a scaled channel perspective, we've.
We successfully completed a full transition of the Soma and our customers continue to see positive results as they utilize our platform to sharpen campaign goals activate our industry, leading AI and leverage more data elements per impression.
We're also seeing progress in our shopper marketing business, we have brought new partners into the platform over the past few months and we are pleased to see increasing interest and adoption from advertisers utilizing a shopper data in their campaigns.
Although it is still very early days for us spend that utilizes our expanding shopper data lineup continues to ramp very well.
With the continued strong topline performance in Q2, we generated $139 million and adjusted EBITDA or about 37% of revenue when.
When we outperform on the topline, we often see that outperformance drop down to EBITDA as it did again in Q2.
I'm proud of our sustained efforts to consistently generate meaningfully positive EBITDA, while continuing to invest in the critical areas of our business that can drive our future growth.
This was particularly true in Q2 as items such as our first live companywide event in over three years of resumed and travel also continued to ramp up.
From a channel perspective, CTV by a wide margin led our growth again during the quarter exiting Q2 video, which includes CTV, representing a low 40% of the share of our business and continues to grow rapidly as a percentage of our mix.
<unk> represented a high 30 percentage share of spend during the quarter and display audio continue to represent about 15% and 5% of our business respectively.
Graphically North America represented about 90% of spend and international represented about 10% of spend spend in North America and maintain this resiliency as we continue to win new business and gain share.
In particular, our Chicago office, which is our second largest office behind New York grew spend faster on a year over year basis than any other office in the world that represents at least 1% of our spend fantastic results by that team as we continue to expand our reach our.
Our international spend grew both sequentially and year over year, but dropped slightly as a percent of overall mix historically our growth has been driven by the strong position, we havent CTV, particularly in North America as was the case again in Q2, however, our CTV business internationally continues to grab share.
CTV spend in Europe , again more than doubled year over year.
Despite a challenging macro environment, particularly in Europe , we are focused on making the long term investments that will position us to be stronger when conditions improve.
We have proven in the past as our customers become more deliberate and data driven with their AD spend much like they did in late 2020. The trade desk is in a great position to help customers achieve better ROI and win more of their budget.
In terms of the verticals that represent at least 1% of our spend nearly all of them grew in the double digits during the quarter, both travel and passed more than doubled compared with a year ago.
Food and drink and technology were also very strong with food and drink accelerating on a year over year basis every month during the quarter.
Home and garden and automotive grew slower than the average however, both verticals grew faster than the average in July . Additionally.
Additionally, automotive still grew in the double digits in Q2 and accelerated in growth from Q1.
We continue to believe that there is the potential for share gains and improvement in most of our verticals.
Turning now to expenses.
Q2 operating expenses, excluding stock based compensation were $250 million up 45% year over year growth in operating expenses was influenced by investments in our team, particularly in areas like sales and marketing and technology and development as we continue to build the platform for long term growth as well as the return.
An in person events.
Income tax was $21 million for the second quarter.
Higher amount of tax relative to prior quarters was driven primarily by lower benefits from stock based awards, the timing of which are variable.
Adjusted net income was $99 million or <unk> 20 per fully diluted share.
Net cash provided by operating activities was 92 million for Q2 and free cash flow was $86 million.
DSO has exited in the quarter were 91 days up nine days from a year ago <unk> were 73 days up six days from a year ago.
We exited Q2 with a strong cash and liquidity position cash cash equivalents and short term investments ended the quarter at $1 2 billion, we have no debt on the balance sheet.
Turning to our outlook for the second quarter, we estimate Q3 revenue to be at least $385 million, which would represent growth of 28% on a year over year basis.
In Q3, we anticipate U S political midterm election spend to represent a low single digit share as a percent of our business we.
We estimate adjusted EBITDA to be approximately $140 million in Q3.
While there is continued uncertainty about the macroeconomic environment, we continue to feel confident in our ability to execute and take share given the large available market in front of us we see significant opportunities to invest in our business in more uncertain times. This enabled us to widen the distance between ourselves and our competition.
In areas, such as technology identity supply chain optimization and customer service.
Closing, we are extremely pleased with our strong performance in the quarter.
With significant growth drivers, including CTV retail media, our international business solar as well as the U S. Midterm election cycle, we remain highly optimistic about our future prospects. We continue to generate strong annual free cash flow and the strength of our business model and balance sheet have positioned us.
Well as we enter the second half of the year.
That concludes our prepared remarks, and with that operator, let's open up the call for questions. Thank you, ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your Touchtone phone pressing star two will removing from the Q should your question to be answered.
Lastly, we're posing your question. Please pickup your handset listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions. Once again Thats star one if you have a question or comment.
Okay. The first question is coming from Shyam Patil from.
<unk> from Sig Your line is live.
Hey, guys congrats on the results and the outlook.
Yes.
I wanted to ask.
This is now the second quarter in a row, where your results and outlook.
Significantly better than what we're seeing from other AD supported companies, especially in the face of a slowing macro.
Just wondering if you could just maybe talk a little bit about you know.
What do you think is driving that outperformance. Thank you.
Thanks, Sean.
Well so first let me just say I am.
We're incredibly proud of our Q3.
Turning to our Q3 and especially our performance in Q2.
But.
Let me just highlight just a couple of other things that have really gone our way in Q2, and given us so much momentum going into Q4 or it goes into Q3 and Q4 first we have.
And amazing secular tailwind of CTV.
Arguably the best secular tailwind we've ever had.
Second.
We are of course seeing the benefits of solar.
We've gone to a 100% and it just hasn't all of these benefits to our clients.
Third we've got this momentum around the joint business plans, while we're just getting closer to brands and we're creating better partnerships with each of them and.
And one of the things that they're excited about is just our relationships in shopper marketing.
Recall, we started with the very biggest retailer in the world in Walmart and we just continue to expand on that we highlighted some of those include the albertsons during the prepared remarks.
But I do want to emphasize that we have never claim to be a bellwether of the economy or of advertising.
Yet.
What I mean by that is I think a lot of times people look at our performance and say how is this so different than everybody else's.
What is often happening.
We're winning because of those secular tailwind because programmatic is growing share and because digital is growing share.
Meanwhile, it is possible to have some macroeconomic headwinds in our face and have a secular tailwind.
CTV and all the things I just talked about that.
That overshadowed that but I think.
What we're seeing right now is just that.
At amazing trend.
Which it.
CTV in particular is extremely competitive it's also extremely attractive.
And so as people are looking for alternatives to walled gardens.
They are are looking to companies like us who can give them objectivity to buy across all of these pregnant in places.
Many of the.
The smaller walled garden, I think are especially under pressure.
As I've said I think CTV can be the thing that brings down the walled gardens.
But that will start with those that are smaller so I.
Thank you.
And we're being compared to walled gardens of various sizes.
I don't necessarily think that's a fair comparison and of course I think we're also an anomaly from the macro so hopefully that parses out all of those things.
Im really proud of what we did in Q2 and really optimistic about our Q3.
Thanks, Tom.
Okay. The next question is coming from the Sealy.
Your line is live.
Thank you just a follow up maybe on this.
The first question can you Jeff Please talk about what's going on in connected TV I'm sure you know that.
Connected TV players reported fairly slow growth in Q2 and guided to continued slow growth in the remainder of the year. So.
If I listen to your remarks.
And assuming that they are connected TV spend is growing at least double your overall spend that would imply at least 50% growth.
So can you explain to us how to understand that what the best location is about and as a quick follow up there maybe you can tell us about how you use the palms scatter market in the spot market and connected TV, but sort of became I frame this earning season.
Yes, no problem of first thanks for a part of the question.
So.
As I mentioned CTV as a secular tailwind that that continues to help drive our business I would even say it continues to lead our business in <unk>.
Our growth the scale that we're seeing is is amazing.
The changes in the world and putting the pandemic, which made everybody stay home and stream a lot more have created changes to the ecosystem that I don't think anybody predicted.
If you just take a step back I mean think about it.
Five years ago, you would have thought that HBO.
Netflix would be showing that.
I think a lot of people.
We're public about saying that isn't going to happen.
And it's happening.
Now.
So there are these a tailwind that I just can't overstate.
As a result, CTV is often becoming the place where the very first dollar.
Spent.
But.
One of the things I really liked about your question.
It gives me a platform to talk about is okay. Well, then why isn't everyone in CTV.
<unk>.
Same sort of growth that you're seeing.
There are a couple of reasons for that one there are some companies that are deploying the walled garden strategy, which is that.
I have something special either on my operating system or on my channel and you should buy that exclusively through me and as I mentioned in the prepared remarks, no one in CTV.
Our position that is strong enough to be draconian. The same way that you can in other parts of digital like search or social or some of those others.
Yes.
As a result, those topics I think are proving more difficult.
As more and more choices are coming online.
So our platform that sets objectively and helps people choose across the 2030 40 places where you can buy I mean think of your own habits of the consumer you're probably watching CTV up two or three apps five years ago. Now you are probably watching them on 789 10 plus.
That fragmentation creates a greater need for somebody to essentially partner with all of them measure reach and frequency and performance across all of them.
Has to have a business model that is <unk>.
Eligible to partner with everybody.
That's why I would argue that we have outperformed everybody else is that unique position and that unique strategy that we've deployed as.
As it relates to scatter versus spot.
In this earnings season, there has been some discussion about scatter.
Let me, let me just break it down really simply.
Scatter is up.
Reference linear our traditional television.
Where you buy things in upfront.
Things that either don't work out.
As planned or need to be adjusted to you create this middle market, where you are buying traditional TV with traditional budgets.
And not very sophisticated.
Quickly adapt market.
Separately from that is the spot market and what I would call. The spot market is the programmatic market that we operate in.
So when people talk about scatter and spot, especially because when they are talking to people in the financial industry that can draw an analogy to equities, but don't seem that different.
Really what we're talking about in TV, one is very closely associated with the upfront market, which was invented in the sixties.
The other one we're talking about digital that brings all of the data and Decisioning to bear that the internet can really offer but it is what makes it. So TV is going to get better and better which is there are going to be fewer ads. They are going to be more relevant they are going to be highly effective and that funds content at a rate that is.
Never been seen before that can only be done by a spot market and the forward market not a legacy upfront market and scatter market. So those are the reasons why that's why there's a big difference and rhetoric around scatter versus spot the spot market is amazingly strong the strongest it has ever been and thats because of them.
Variety of apps that are coming into the ecosystem and the need for AD funded.
Content, because all of them need AD dollars in order to continue to fund their content, making machines.
Thank you Zoe.
Thank you.
Okay. The next question is coming from Brent Thill with Jefferies. Brent Your line is live.
Great. This is James on for Brian . Thanks for taking my questions. Jeff could you just spend a little more talking about a little more time talking about what the Disney partnership means for your business how much access to this deal, giving you to Disney's premium DTD and inventory and to what magnitude does it grow your footprint for you I'd. That's my first question.
And my second is for Blake just around hiring plans, we've definitely heard a lot of companies in the AD industry pulling back on hiring so just love to hear where you guys sit on on hiring plans for 2002. Thanks.
Awesome. Thanks.
The first one.
And just the order you asked the question.
Let me first just reiterate our strategy and <unk> two so first.
We created <unk>, we open source that we gave it to the ecosystem.
This is not ours.
It is something that we really want to see successful because we think there needs to be a privacy safe currency that makes it possible for personalization to take place at large scale.
That needs to replace cookies, but it also needs to do way more than that and when people reduce it down to a discussion about replacing cookies. It doesn't really capture what it's about and it is a currency of the internet makes personalization and privacy control way better than it exists today.
Did you win that way the way you fix the infrastructure of the Internet.
Which can be massively upgraded, especially so that consumers have more control over privacy.
Is that you partner with the infrastructure.
Many might mistakenly think the way to change the infrastructure of the Internet is you partner with millions of publishers are millions of apps.
Or hundreds of content creators and TV.
Instead, it is to start with the infrastructure. So the deal with Disney wouldn't have easily been done if we hadn't already partnered with Salesforce, where snowflake or adobe or AWS some of those infrastructure in place that make it possible.
But because we had and made it easy for US to then have great conversations with Disney. Additionally, Disney has done an amazing job of assembling all of its different assets, including Hulu, which was one of the first connected TV plays to really understand the benefit of highly relevant.
And hi, Tpm's that come from relevant.
And then you of course have to have a strategy around identity and personalization in order to get those high CPM and in order to get that benefit.
So.
One of the things that Disney has really led the way on is making certain that all the way at the top of their technical organization. They have a clear understanding of what it takes to provide personalization and consumer privacy protection and control at the same time.
And while doing that I think that they have made it possible to better monetize Hulu ESPN ABC Disney plus.
And so many other things that they are because they own so many of those and because I think they understand that relationship.
Higher levels of the organization.
I think that this partnership is really significant because number one I think Disney has a clear strategy going forward that some others don't and too.
We've established ourselves as a great partner of theirs, and we continue to provide them with an amazing amount of demand at high CPM that is going to fuel their business.
At our content.
Because they represent such a significant amount.
The inventory, especially because almost everything in CTV is logged in this represents a massive step forward for USD four on authenticated internet for a better Internet and when you look at an extended runway for cookies going away as well as just a need for CTV to get.
Better at monetizing.
This represents a move forward for everyone. So I do think.
Any is proving itself to be a leader once again, so it's hard to overstate the significance of the partnership.
Yes sure James regarding your question on the hiring I just would take just a real quick moment to step back a little bit.
We think about where we are in our business.
We're in one of the greatest situations I think the company could ask for rate. We've got high top line growth high EBIT growth with strong margins and we also generate solid consistent annual free cash flow and so having those three things operating together for me. It's it's got Super Special meeting as you can imagine.
What it does is it gives us the opportunity and the ability to be deliberate with our choices and in doing so I'm also proud of our ability to stay disciplined with those investments regardless of the operating environment that we're in you know you mentioned wet.
Other companies are doing and you know based on what we're hearing well there are many of our peers that might have more resources.
We're pausing hiring or cutting investments because they invested too aggressively we didn't get ahead of ourselves for the last couple of years like it sounded like many companies did and I think that's really paid off for us. It's it's given us the ability to stay the course and be deliver deliberate about our investments.
And including hiring which is one of the largest ones that we will.
Entertain and so like we mentioned earlier this year, we expect to increase the pace of our investments as we focus on the long term growth of the business, but we're always going to stay mindful of long term productivity supported by our business model, So with regards to hiring and how it affects expenses and such.
Our Q2 EBITDA was super strong and that included our first full company in person event that we had in over three years. Our Q3 forecast reflects that investment thesis that we can continue to generate strong EBITDA and invest for the long term and we're focused in hiring in the areas that fuel our growth, whether that's engineering or business.
Development or account manager roles and so.
I'm comfortable with the trajectory that we're on and where things stand in and I really think that we can pursue those investments and in operating expense structure that we believe is actually better than pre pandemic. So I really like the position we're in to drive more efficiency and more EBITDA and free cash flow, but also as we scale and so I'm really excited about our situation there.
Thanks James.
Okay. The next question is coming from Youssef Squali with true Securities. Your line is live.
Great. Thank you for taking the questions.
Obviously, congrats on a really strong performance all things considered Jeff with with Netflix go in with Microsoft and Xander being an SSP, but also DSP itself.
Is that mean for the trade desk opportunity with Netflix over time and.
As there is going to be a great deal of inventory coming into the CTV market from Netflix and I guess, others just could that be.
Depressing factor for pricing for connected TV and in the short and medium term.
Blake, maybe just a quick one with solid <unk> adoption at now 100% I think that's what you said in the prepared remarks any way to help quantify the contribution of that software upgrade to two to the outperformance. This quarter. Thank you. Thank you so much.
You bet.
So for the for the question.
Actually I was hoping somebody would ask about.
Netflix and Microsoft because I think it's one of the most exciting things.
That's happened in our space and in the quarter.
So let me first just restate something that.
Netflix stated on their earnings call.
Which I think is a direct quote quote it's still early days.
Netflix is.
Ben.
Learning about the advertising business or in the advertising business for only a few months.
Sure.
Have established a very.
Important, but but early partnership.
But I for one was very excited when I when I learned that they had selected Microsoft.
For a number of reasons as many of you know.
I worked at Microsoft before I felt the first AD exchange to Microsoft.
In fact.
Introduced.
The president of the ads Division.
At the time of CEO of Amex's, which later became zander.
So it's been a part of.
My my personal journey as well as the fact that I've just been very close to.
To Avonex SM Zander of course and are now being owned.
By Microsoft.
Uh huh.
Xander as you pointed out yourself.
As a small DSP, but it is primarily <unk>.
SP, they primarily focus on the sell side.
If you look at the if you were to stack rank the major players of demand for CTV.
I think you'd find that we are the largest and somewhere around number 10 near the bottom of the top 10 list.
Xander in terms of size.
<unk> estimates that they provide less than 10% of the demand.
Two other independent.
Inventory our content companies.
So.
As a result, what I think that means for us and for the open Internet.
Is that the role that Microsoft is going to play for Netflix is one where there are helping them get started they're helping them create.
Clear identity strategy.
I think very clearly are going to have to have a strategy for identity as well as for monetization that involves the open internet.
Because this is early days, it's less important to me about the role of the trade desk plays with with Netflix and the crawl phase than it does in the walk in the run phase and to me selecting Microsoft makes it so it's nearly inevitable.
Yes.
Flex will be a part of the open internet.
NFL.
Welcome to demand from lots of different places.
That will be the only way that they can maximize their inventory and get the highest CPM as possible.
Somebody who wants to see Netflix do well and has a strong relationship with Netflix leadership I think this is a solid plan. It's a great start there is a lot of work ahead of them but.
I think that.
We're extremely likely.
Have a great partnership with them over the long term, but there's.
There's a lot of stuff that has to be done.
In order for Netflix to be the.
Leader and a board that they've been in asphalt.
But I'm looking forward to it.
And then with regards to your question on Solaris.
You know I'm really excited about the traction that we've seen that I think the product really separates us from the competition and we did reach a 100% usage I think that it took us about a year to get there I think the last may.
A major product update took like 50% longer in the amount of time it took so.
It's a real testament to the team the value that we're providing the customers a bit.
Our agenda upgrade and so on a usage basis the trends look like.
Average data elements used per impression.
More than doubled for the same customers on our previous platform.
Average channel usage has increased over 50% and then the AI machine learning element that we have the adoption on that unsold Mara I think it increased around 50% versus the prior platform and this is this is all about getting customers a better ROI. If we can do that they're going to return again for <unk>.
<unk> campaigns, and we think it would that what that does is it spins a flywheel for everybody.
For US included and so we're just really excited about the momentum here and really proud actually of what the team was able to deliver.
Thank you Bob.
Thank you Jeff.
Okay.
Next we have Tim Nolan with Macquarie.
Your line is live.
Have piqued my interest, especially about the spot market response, a few questions ago being a forward market and how it's different from scatter you also mentioned in your prepared remarks about a forward market product.
Wonder if you could help maybe explain a bit more what that is is this something that sets you up for more of the upfront participation for CTV guaranteed deals next year, maybe just a bit more color on on what that is and then I'm assuming unified I'd two will factor in to all of this and you said youre optimistic about to see come in kind of a transaction standard for this year.
Would you like to be playing a more prominent role in measurement or attribution of CTV ads going forward.
Thanks for the questions Tim So.
Maybe aside from CTV My my favorite topic to talk about is actually powered market.
And.
I, especially love to talk about it.
The context.
Investors just because you live.
The concept of every single day, even though it's somewhat poor into advertising.
So first of all.
The Upfronts. This process why are you commit to buy ads.
On TV with a process that was created in the early sixties in fact, we have sort of.
Jokingly made comparison.
Maybe half jokingly made comparisons to the fact that the audio cassette was invented the same year the TV Upfronts work.
Audio cassettes, obviously have evolved we don't use them anymore in our daily lives, but the upfront hasnt changed much in the process is exactly the same.
You have.
Our party or.
And event.
Would you commit dollars to advertising for the better part of the year.
With the absence of data and transactions.
It's in a way, it's even strange that as an industry. It so happens that way I mean, if we had a forward market for tulips that was exactly the same as it was 400 years ago.
We would we would look for ways to evolve we would do something different.
So the forward market.
<unk>.
We're developing with our partners.
Much more like the commodities market.
<unk> contracts, you use data and forecasting to get the benefits of commitment.
And the thing that is really amazing about TV ads in particular.
Is that publishers are willing to take less money. If you will commit to buy it in advance and advertisers are willing to pay more money. If they can have the assurance that they're going to get.
Imagine that you wouldnt spend $345 million to make a Super Bowl AD. If you didn't know it was going to run during the Super Bowl.
Commitments can be a really important part.
Television.
And so as we move to CTV, there's no reason to create a rudimentary 19 sixties version of a forward market. We should create one that leverages all the very best parts of programmatic. It takes all of the learnings of commodities markets.
And utilizes that Barry.
The very best things about programmatic.
So we've developed that it's early days, but we have.
Good commitments from both buyers and sellers to make it possible to create a much better and stronger market.
The only way that that works is if you have good forecasting.
And the only way that that works is if you have a common currency like <unk>.
So to the second part of your question does <unk> play a significant role in that absolutely because in order for us to.
You have a common understanding the buyers or sellers, it's one thing to buy in the spot market, where you are buying an AD for less than a penny in almost every case.
It's another thing to commit hundreds of millions of dollars in advance to buying ads you need a greater degree of assurance.
Need greater transparency, you need visibility that can only come from forecast, where you have a common understanding common currency has become very important in order to have any market other than a spot market unless you're operating in discounts and constantly working on make goods, which is exactly what the upfront and scatter market is doing.
Traditional TV.
Thanks, Tim.
Okay next we have schweitzer could urea with Evercore ISI Your line is live.
Okay. Thank you very much let me try two please so Jeff.
It's where the business there has always been several growth factors are growth vectors from international to shopper marketing to CTV to sell and market to now it's all them are fully integrated and.
And CTV clearly driving growth how about the other three that you already to international and shopper marketing does the extension of cookies Cookie deprecation change your focus of investment two words, you already too and then how are you thinking about international and shopper marketing in general over the next six to call. It 18 months and then a question for Blake.
It is possible to get the magnitude of contribution from retail or Walmart and other partnerships as well as political spend for the third quarter. That's baked in your guidance. Thank you very much.
Yeah. So so.
I'm glad you've asked about.
These other growth drivers and of course, how does you Ivy affected and especially just how does the deprecation of cookies effect.
In international expansion.
And shopper marketing.
So.
I'm not certain that we make this as clear as we could in the prepared remarks.
Cookies.
And adds that are bought in hydro browser cookies are only relevant inside of a browser or at least directly relevant inside of a browser.
Ah.
Represents a small percentage of our business display is a small percentage of our businesses.
As a percentage is shrinking even though.
We are seeing.
Growth.
Because growth in other areas are growing faster.
It still continues to shrink.
It's a small slice of the pie.
What are much bigger or things like mobile, which don't rely on cookies.
Or CTV, which don't rely on cookies and other ways of creating an identity.
Of course in CTV nearly everything you do because on the other side of the log and meaning you log into that flex, where you log into Amazon or any logging into pizza shop for Paramount.
Or Hulu before you view content.
And that makes it very prone to be interoperable with something like <unk>.
So.
There's no there's no cookie problem to solve and TV.
But everybody in TV needs more subscribers.
I believe everybody in TV needs to offer an <unk> solution for those subscribers that would rather pay with their time.
Months.
And especially when you have to keep providing or making.
Rate hikes in order to pay for incremental content.
So the cookie changes don't slow down new idea at all and in fact, Ive always said that the biggest threat to the walled gardens as the competitive nature.
Connected TV.
Actually true and identity and the competitive nature of television is really what I think will fuel <unk>.
Forward faster than anything that happens with cookies delay or not.
But the same thing Thats true.
Internationally I mean.
Especially if you look at the places where GDP growth is predicted to be the highest in the world.
These are places that are often mobile first so there are less reliant on cookies as well.
So.
Especially in Asia.
No.
Our business models.
Have a holistic approach.
To identity and can customize ads to think Holistically are the ones that are going to do the best especially for the biggest companies in the world, which is why I think we're really in a strong position for international growth.
And importantly, as it relates to international I think it's fair to say there is more likely to be economic headwinds outside of the United States than inside the United States.
Given that we.
We look at this is land grab time.
There is a big opportunity for us to expand.
Our market share.
Even if there are economic headwinds internationally that we just want to continue to invest in especially because outside of.
Big competitors.
Like the googles of the world, where they are there.
<unk> DSP is not their primary focus.
For those smaller competitors were being a DSP is their primary focus.
We're off to a much smaller and can't afford to make those investments. So there's a big opportunity for us to expand around the world.
And then in shopper marketing.
There is this incredible desire, especially inside of Cpg's.
Cpg's for a whole bunch of reasons, including inflation.
Or are under pressure to do more with less.
And what can really help them is to see end to end if I've shown add to this person how does it affect whether they buy it.
Out of store.
To see end to end.
The impact of their spend.
Is extremely valuable to them.
And retailers know that that is a way for them to spend their flywheels faster initially they looked at it as a way to make more money.
On selling data, but now they look at it as a way to spin their flywheels faster and so I think it's one of the surest ways that we will spend our own flywheel.
To continue to enable an open internet, where theres lots of competition, and where where marketers that sell goods inside of storms.
Brick and mortar stores.
Continue to get the data driven benefits.
Historically have been reserved for online.
Retailers like Amazon.
So everybody is looking at competing with Amazon. They know they have to be focused on becoming a data driven or more than they are and we're just seeing amazing strides in retail.
That contributes to our shopper marketing.
Strategy. So we've just seen our Tam expand in the short and the short term just because of this focus of moving into fixing this sort of end to end challenge and I do think it is true that the.
The discussion about the demise of cookies has made that faster, even though it's a totally different ASP.
Aspect of measurement, but it has improved and accelerated the move to better measurement, which I don't know if theres any place thats better off in those places, where we're doing end to end measurement and shopper marketing.
And then to follow up on your other questions I think on the shopper marketing component, we don't break out that level of detail in our shopper marketing business. The one thing I would just say is that we are seeing the spend ramp it ramped into Q2 as more large brands.
Tests or testing and adopting it and we expect that to continue I think just the selection opportunity that our customers are now having is going to be a flywheel spin for them that I.
Debate in my head, whether theyre going to be able to get it very many other places if any and so I think that's just such a long term opportunity for us like Jeff said I'm just I'm Super excited about it and then with regards to your question on political.
In the midterms.
Spend will occur much closer to election day than then we might find in a presidential year like we expect to see that start ramping here over the late summer I would say through November . There's so many races out there that are going to be competitive and we'll just have to see how competitive whether its the house Senate governor campaigns or whatnot.
I think that.
Our overall expectation and is that in Q3, we expect it to be a low single digit percent of spend in Q3 and that was in our prepared remarks as well, but overall, we're just with regards to political what I would say is our goal is to it's to run a better process, it's to earn trust with.
With our customers we have been building this business over over quite a few years, we've got really high retention rates with our customers. We do believe we are the go to platform for digital advertising now versus maybe other social media platforms and so we do expect some tailwind. So that's why we called it out in the in the guidance, but we will have to see how this all unfolds.
Into the back half of the year.
Thanks, Okay.
And then John back we can squeak in one more.
Yes.
Okay. The next question is coming from Brian Fitzgerald with Wells Fargo, Brian Your line is live.
Thanks, guys for squeezing us and just as a quick follow up to the board market concept.
We wanted to ask about rebound ability or resale ability of inventory. If you will if an advertiser takes delivery for example finds out that an impression or consumers already a customer Jeff are you envisioning that advertisers would have the ability to resell inventory and any thoughts on the dynamics there in terms of market liquidity.
<unk> participation in really potential.
Financial position of the market.
Yeah.
You bet.
<unk>.
Uh huh.
I think initially.
Initially.
Youre going to want to see is control for both publishers or content owners and advertisers in terms of who shows up who has access to it but.
But I do think that in the long term and we're talking years from now.
One way that you can get buyers to find out if they buy too much.
They can sell it to somebody else.
So I do think it's possible.
The derivatives market.
Exists sort of on top of that horrid market. So that you can essentially transact and the rights to buy those.
So that you can secure inventory, but making them fungible maybe.
Makes it or or resell.
Both rather.
As I think a really important part of the market and the long term.
I do think that that component will exist in the long term, but the most important thing in the short term.
Take advantage of the fact that you can bring data to bear.
Publishers want guarantees and all the benefits of programmatic.
Advertisers would like to reserve inventory and have all of the benefits of programmatic, which includes the ability for them to bring their data into the equation and traditional TV as well as in the scatter market.
Sometimes you can't really bring their own data to the table.
So the forward market would enable them to do that which would help prices go up and it's really going to benefit both the buyer and the seller I think theres going to be a lot of rules that exist for years to prevent the resale of that but I do think long term the economic incentives are there for that to exist.
Right.
An amazing market.
And I don't think that there is any company that is better positioned to benefit from this market.
Then the trade desk because of the role that we play by looking at everything.
By looking at nearly all inventory because we don't own it we make it possible to partner with all of it and I think we can easily become.
Once again, the world leader in providing demand not just in the spot market, which we already are today, but also in the forward market.
Which is why we're working so hard to create it.
Leverage the relationships that we have been.
Tending to.
For more than a decade now.
Thanks, Brian .
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.