Greetings. Welcome to The Trade Desk Third Quarter 2023 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin.

Thank you, operator. Hello and good afternoon to everyone. Welcome to The Trade Desk third quarter 2023 earnings conference call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Laura Schenkein. 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, some of the discussion and our responses in Q&A may contain forward-looking statements which are dependent upon certain risks and uncertainties. These forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. Actual results may vary significantly and we expressly assume no obligations to update any of our forward-looking statements. Should any of our beliefs or assumptions prove to be incorrect, actual financial results could differ materially from our projections or 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. With that, I'll now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and thank you all for joining us today. As you've seen from our press release, we posted very strong growth in the third quarter. We reported revenue of $493 million, growing 25% compared with last year. Our third quarter again accelerated over the second quarter as we continued to significantly outperform the digital advertising industry. We're growing our revenues and maintaining profitability and a strong balance sheet and making large investments, and most importantly, we're gaining market share as we're outperforming our advertising peers, both big and small. From a global view, our industry is nearing the $1 trillion TAM we predicted when we launched as a public company 7 years ago. Inflation, a global pandemic, the streaming wars, and retail media have all accelerated the expansion of that global TAM but it's especially accelerated the speed of the pace setter, the U.S. market. Magna Global estimates that the overall U.S. advertising industry is growing at 5% this year and the digital spend or the digital ad market pie is expected to grow by 10%. Clearly, we are significantly outperforming the rest of the advertising market. This builds on our market share gains from last year when we grew over 20% each quarter and our competitors were posting negative to low single-digit growth. So even with a bit more uncertainty than a usual Q4, we continue to gain significant share and we are set up exceptionally well for times of relative stability. As I often share with the teams at TTD, we got here by aligning our interest with agencies and brands, the buy side. We align our interests with them and then we obsessively innovate for them. We create more value than we extract and we operate our business with a philosophy that is people-first. Our bias is to find win-win situations in all of our partnerships and our strong alignment with our customers is the foundation of our success and that foundation has created the opportunity for us to be a leader and innovator for the open Internet. 2023 has already been the biggest year of innovation in the history of The Trade Desk. And I'd like to share 6 or 7 major categories of innovation and investment. The first innovation I want to highlight today is a relatively new format for partnership. Our unmatched growth rate is fueled by signing joint business plans with major brands and agencies. JVPs represent joint innovation partnerships with our clients. Agencies and brands work closely with us to pioneer new ways of thinking about data-driven advertising, and they are locking in that commitment as part of these JVPs. Our largest JVP signed this year represents future annual spend of over $1 billion per partnership. Yes, multiple partnerships have multi-year partnership agreements with omnichannel plans to spend over $1 billion-plus in each of them. Our strong relationships and share gains, coupled with durable EBITDA and cash generation mean we can invest in innovation in service of our clients while also maintaining strong profitability. Our innovations in 2018, 2019, and 2020 helped us gain share during 2020 and 2021. And that's why I expect we will continue to gain share in Q4 of this year and 2024 and beyond. As a global company, in tough economic environments, we grab market share and in vibrant economic environments, we aim to lead in absolute growth. The second area of innovation I want to highlight is in AI. We've approached AI the same way we approached building the initial buying platform 14 years ago. While everyone else was on stage talking about building, we were back at the office actually building. AI has immense promise. It will change the world again. But not everyone talking about AI is delivering something real or impactful. We have been going through every part of our platform and making investments and/or plans to inject AI in the places where data sets are rich, big, and high quality. Large language models, the basis of ChatGPT, aren't the highest priority places for us to make investments in AI right now. Deep learning models pointed at bidding, pricing, value, and ad relevance are perfect places for us to concentrate our investment in AI. All four categories have private betas and some of the best engineers in the world pointed at these opportunities. We've expanded Koa, our brand for AI products that we launched in 2018, and I believe this will unlock performance budgets on our platform in the years to come. We will begin to see the impact of these 2023 AI investments in 2024. When I first mentioned the massive wave of opportunity in 2019 and 2020, one of the major factors in the size of that wave was the rapidly emerging world of CTV. As we all know, the pandemic accelerated the shift to CTV from a viewer perspective. And now we're at a point where more viewers are watching streaming services than traditional linear television. The global changes of 2020 and 2021 ushered in a period of innovation in CTV. As an industry and as a company, we crammed more advances into 2 years than might otherwise have been played out over a much longer period of time. Where once the industry was taking a wait-and-see approach to the emergence of streaming, suddenly everyone was innovating fast. Fortunately, we had a history of innovating ahead. With that same foresight, I believe the Walled Garden strategy will not work for most companies, if any, at end state. Competition, innovation, and the benefits of globally integrated markets outweigh the benefits of draconian Walled Gardens. The surest way to prove the value of the open Internet is to continue to innovate in the third, fourth, and fifth innovations that I want to talk about today: CTV, identity, and retail media. Our innovations in CTV have fueled our outsized growth and made us a better partner for all of the content companies. The last few years, consumers and media companies have been in the new golden age of TV. Content companies have been competing for streaming subscriber growth, which seemingly has provided the scoreboard determining winners and losers in the new digital era. That competition to win subscribers has ratcheted up content costs. Higher content costs mean raising prices or finding some way to raise revenue per user if media companies were going to continue to feed their content engines with a similar rate as before. Every premium video content company from Disney to Paramount to NBCU and Sky to Netflix has changed pricing and embraced advertising. Not all of them have yet embraced or centered around programmatic advertising, but we predict they will. In order to get incremental subscribers, they can't simply keep raising prices. Some consumers would rather spend a few extra minutes considering ads they watch than pay more for subscriptions. High-priced subscriptions alone will not provide the incremental subscribers media companies need to continue growing. As recently reported by Hollywood Reporter, executives at every major streaming giant with both an ad-supported and an ad-free tier, including Disney, Netflix, Paramount, Warner Bros. Discovery, and NBCU say that the total revenue per user is higher on the ad-supported plan than it is on the ad-free plan. Not only do media companies generate more revenue per user within an ad-supported option, but the potential for growth is much greater. Ultimately, there's a limit to how much viewers will spend on subscriptions. Economic pressures on the consumer right now are increasing the appeal of a free or low-cost option that is supported by ads. However, this model is only sustainable if the ad load is significantly lower than traditional linear television. And the only way we get there is if the ads are relevant to the viewer so that the advertisers are willing to pay more for each of them. It's why we work closely with the world's largest streaming services to fully realize the value of that exchange. This includes freeing up competitive biddable inventory, advancing new approaches to identity, unleashing the power of first- and third-party data, and, of course, the technology infrastructure to transact and measure. In CTV, we have innovated by constructing a more efficient supply chain by creating a new product, OpenPath. It celebrated its first birthday this year and has already become a gold standard of transparency and auction integrity. We've also advanced TV measurement with the launch of TV QI, the TV Quality Index, to showcase the value of premium TV content over UGC platforms like YouTube that advertise on more questionable content for brands. We believe the ads we show in CTV in 2023 are more relevant in CTV than they've ever been before in TV or premium video. As the value of these innovations has proven out in the CTV advertising market day after day, we continue to see more premium inventory flow into our platform. Disney, for example, just opened Disney+ inventory for us across Europe. More and more live sports inventory, perhaps the crown jewel for most streaming providers, is opening up for programmatic buying on our platform, with billions of avails every single week. For the first few weeks of the football season, for example, we were averaging more than 300 advertisers activating on the NBC Sunday Night Football live stream. A great example of an advertiser pioneering new approaches to TV advertising with a focus on live sports is Old Navy. They have been a long-time participant in the upfront process. With their agency, PhD, Old Navy wanted to embrace CTV as more of their target audience has shifted to streaming. At first, they moved part of their spend from insertion order to programmatic guaranteed and consolidated spend on our platform. In doing so, they were able to mitigate audience overlap across TV providers and hold each provider more accountable for performance. But as Old Navy quickly found out, programmatic guaranteed has limitations. Programmatic guaranteed, or PG, does not allow Old Navy to get the full value of programmatic such as frequency management, audience targeting, and the ability to layer on their first-party data. So they took the next step in the form of decision biddable buying within the private marketplace and focused on live sports inventory. CTV live sports advertising was appealing because it offered an opportunity to expose their brand against very high premium content that might be more restrictive and expensive in a traditional linear environment. They were able to use Koa, The Trade Desk's AI, to optimize pacing and frequency management across the highest-performing inventory. As a result, they saw a 70% reduction in the cost to reach each unique household versus their programmatic guaranteed performance. And we're just scratching the surface. As recently reported, NBCUniversal has teamed up with the Walmart DSP which partners with The Trade Desk so brands can now deliver targeted ads on Peacock live sports inventory using Walmart shopper data. Brands can then measure and provide attribution on the results of those ads in terms of impact and in-store and online sales. So now, North America which includes brands such as Danone, Silk, and Activia, reported a 30%-plus increase in new-to-brand buyers from their CTV campaign earlier this year. The next phase of innovation in CTV is the development of a forward market product on our platform. We are investing significant resources to build this product which is akin to a futures market but for premium CTV inventory. Here, we bring the best of the traditional upfront guarantee and combine it with the power of data-driven decisioning or programmatic advertising. Advertisers commit to certain levels of spend on specific audiences in a decision programmatic forward market. We are already active in live beta with a number of CTV providers and advertisers and expect the testing to steadily increase throughout 2024. We're excited to provide more details on our forward market innovations at our Forward '24 event in the first half of next year. The advances in CTV in 2023 for The Trade Desk have been accelerated by the fourth category of innovation I want to discuss today, identity. With Google's latest disclosure that they plan to deprecate cookies in 2024, the industry has been more focused than ever on coalescing around a better alternative. Nearly all of the major streaming companies in the U.S. have embraced UID2. They understand that if advertisers only advertise on users likely to be interested in their products, then advertisers will pay meaningfully more for those impressions. With UID2, content owners don't have to share data. Instead, advertisers can use their own data, and to do so, they're willing to pay more. One leading streaming platform recently implemented UID2 and the results have been remarkable. Their average daily revenue from The Trade Desk has increased 150%. Their average daily revenue when those impressions are open and biddable has increased 222% and all because they are able to offer advertisers a much clearer sense of relevance and addressability. Again, because of rising costs of content and less appetite from consumers to pay for more subscriptions, every global content company in the world is now rolling out a programmatic advertising strategy and plan. As a result, more and more publishers and advertisers are now deploying UID2. Over the last couple of years, a who's who of major publishers, advertisers, and data partners have announced their commitment to UID2 and now we're seeing the positive impact of adoption on our platform. Luxury Escapes is a high-end travel agency with more than 7 million customers worldwide. They activated their first-party data on our platform and then used UID2 to help find potential new customers who shared characteristics with the most loyal customers they already had. In this way, their first-party data acted as a seed to grow their potential customer base. And the results were very impressive. In the U.S. alone, their conversion rate with UID2 was more than 400% higher than with cookies. Their return on asset was 900% higher, and their cost per acquisition was 83% lower. For the first time ever, in 2024, we expect the majority of CTV and premium video impressions to be bought on our platform using either EUID or UID2. The fifth innovation I wanted to highlight today is the rapid innovation we're doing in retail media and retail data partnerships. The fusion of retail and programmatic advertising has accelerated in the wake of the pandemic. Our partnerships with Walmart, Target, Albertsons, Instacart, and many more have fueled the expansions of our TAM in the United States. Schwartz and Ocado have been notable catalysts in the EU. Incidentally, the EU programmatic advertising ecosystem is showing signs of improvement, in part brought on by the appeal of retail partnership. And lastly, BigBasket and Tokopedia are examples of growing synergies between programmatic advertising and retail media in some of the largest APAC markets. Just as stay-at-home directives encouraged many of us to shift our viewing habits to binge streaming, they also forced many of us to shift our shopping habits to e-commerce. According to the U.S. Census Bureau, e-commerce sales boomed 43% in 2020 alone and it has continued to grow every year since. As a result, advertising on e-commerce destinations has become more attractive and the value of data collected about purchase behaviors has become much more valuable. All major retailers are working on activating that data for advertisers, so brands can understand how their advertising dollars impact actual sales, whether online or in-store and most of them are partnering with us. The significance of this shift should not go unstated. All advertisers are focused at their core on driving sales growth. But until very recently, especially in the consumer space, advertisers have been missing the link between their advertising dollars and the real-world sales growth. Instead, they have had to use proxy metrics to showcase the ROI of their campaigns. How many click-throughs did their ads drive, for example. But now we can measure with much more precision whether the ad dollars actually led to a consumer purchase. We can attribute value to all parts of the funnel, not just the last touch. We can understand the relevance of every ad impression more clearly and we can better prioritize the right channel at the right time for the right audience. The open Internet is proving to be increasingly preferred by big brands as retail media makes the efficacy of the open Internet continue to improve and scale. Rossman, a major European drugstore chain, came to us when they wanted to drive first sales for their organic food brand. They knew that if consumers tried their product, there’s a 95% chance of them becoming repeat customers. The challenge was getting them to make that first purchase. Working with us, they were able to deploy their first-party data and then find where their target audience groups might be across the open Internet. With data-driven precision, they were able to determine that 99% of their ad spend was hitting their specific target audience. And more major retail organizations continue to partner with us as the most effective way to enable advertisers to benefit from their data. Just last month, Instacart, one of the world's largest retail technology companies representing more than 1,400 retail labels, announced that it will make its retail media data available to advertisers on The Trade Desk. At the same time, we continue to innovate in the retail space. As a part of Kokai, we have launched the Retail Sales Index which allows advertisers to understand the performance of the retail campaigns across the open Internet. It radically simplifies the measurement and attribution process in a rapidly evolving market and we are just scratching the surface. As one of the few independent players at scale in our industry, we are in the pole position to continue partnering with leading retailers, standardize their data on our platform, and drive value for our clients. Let me conclude by making a few comments about the current environment and then connect the dots of innovation and our optimism for the future. We represent the vast majority of the Ad Age top 200 advertisers, the largest advertisers in the world. Starting in the second week of October, we have seen some transitory cautiousness across some of those advertisers. These include, for example, industries that have been impacted by recent strikes such as the U.S. auto industry. Through the first week of November, we have seen spend stabilize and we are optimistic for the remainder of the year and for 2024. Both CTV and retail media continue to drive our business and we continue to win share. In terms of innovation, I am so excited to showcase the strength of this company over the next few years as we've innovated and built more this year than in any year in our history, while at the same time, preserving and leaving room to expand our operating leverage. The many innovations I've discussed today are embedded in our newest version of the platform, Kokai. We've been launching Kokai innovations throughout the year but many of the biggest innovations, including our new UX, are in alphas or private betas today and will roll out to all of our customers in the first half of next year. As we exit 2023 and look forward to 2024, I want to highlight several specific areas that make me extremely positive about our future prospects. So let me sum up. First, agencies and brands are more deliberate with advertising budgets. They are shifting ad budgets to where they can be more flexible, agile, and data-driven in everything they do, especially in times of uncertainty, and this is driving them to sign JVPs with us at a record pace. Second is the innovation coming from AI and the many opportunities we have ahead of us to find places to inject AI into what may be the most rich and underappreciated data asset on the Internet which we have here at The Trade Desk. Third, Connected TV continues to be the fastest-growing channel of our business and a key driver of overall omnichannel growth, and it’s not just here in the U.S. CTV continues to grow rapidly, both in EMEA and across Asia. The industry is evolving fast as providers shift inventory into biddable marketplaces to maximize ad revenue and as advertisers look to bring more precision and addressability to their TV campaigns. Fourth, retail media has become one of the fastest-growing areas of our business, and we expect this to continue in 2024. Retail media is revolutionizing the way many advertisers in the CPG space think about measurement and attribution and our innovation is at the center of this. Fifth, global expansion. We have made significant investments outside the U.S. over the last several years in our go-to-market strategy in CTV and in retail media. We believe we are in a position to continue to accelerate our international growth in many of the markets we serve. Sixth is the rapid adoption of UID2 and EUID as the currency for relevant ads and personalized content that has been adopted by the infrastructure of the Internet and nearly all of the biggest content companies in the world. Seventh is the upcoming U.S. political election. Since 2016, The Trade Desk has been a vital platform for leading political advertisers. In 2024, we expect to gain more share in this segment and we believe that spend will increase as the year progresses. And finally, we continue to be one of the few high-growth technology companies that consistently generate strong adjusted EBITDA and free cash flow that has steadily increased over the years. As a result, we have been able to invest in innovation and generate strong profitability. I believe The Trade Desk has been successful because we have always focused on delivering premium value to advertisers and agencies. Everything we do, including our latest Kokai innovations, are pointed at helping brands and advertisers get the maximum value for every advertising dollar. I could not be more confident or excited about how we are positioned for 2024 and beyond because of the many growth drivers that we've discussed today. We will continue to innovate to lead the market and I'm confident that the world's leading advertisers will continue to default to our platform as they seek to drive their own business growth via advertising.

Thank you, Jeff, and good afternoon. As you have seen in our Q3 results, we have continued to execute extremely well. During the quarter, we continued to grab share and outpace our peers. We delivered accelerating year-over-year revenue growth, managed our expenses efficiently, and delivered strong adjusted EBITDA and cash flow. Our results are a reflection of the premium advertisers are placing on precision, agility, and transparency as they continue to shift away from linear media and walled gardens. Revenue in Q3 was $493 million, representing growth of 25% year-over-year, an acceleration from the prior quarter. Excluding U.S. political election spend which represented a low single-digit percent of spend in Q3 2022, our revenue growth rate in Q3 of this year was about 27% on a year-over-year basis. We continue to win spend as marketers increasingly focus their investment on platforms that deliver value, particularly in premium video like CTV. This is a dynamic we've seen many times over the years. When the macro environment presents challenges, brands shift to platforms and channels that offer flexibility and measurable results. During the third quarter, CTV led our growth from a scaled channel perspective once again. We saw strong momentum in retail media as we won incremental shopper marketing budgets and brought the Retail Sales Index to market. International spend growth accelerated off a strong Q2 with notably strong performance in CTV. With the strong top-line performance in Q3, we generated approximately $200 million in adjusted EBITDA or about 40% of revenue. This led to free cash flow of $184 million in Q3, marking over $600 million of free cash flow on a trailing 12-month basis. I'm proud of our ability to generate strong profitability while continuing to invest in our business as that will help fund our future growth. Because of our fortunate position within an incredibly large addressable market, one of our greatest responsibilities is ensuring that we are growing sustainably while also generating sufficient profitability and cash flow. Our team has done a remarkable job achieving this as we balance short-term opportunities with our long-term financial vision. From a scale channel perspective, CTV, by a wide margin, led our growth again during the quarter. In Q3, video which includes CTV, represented a mid-40s percentage share of our business and continues to grow as a percentage of our mix. Mobile represented a mid-30s percentage share of spend during the quarter. Display continued to represent a low double-digit percent share of our business and audio represented around 5%. Geographically, North America represents about 87% of our business in Q3 and international represented about 13%. We are very pleased that international growth slightly outpaced North America for the third quarter in a row. CTV across EMEA and North Asia was very strong during the quarter, growing over 100% year-over-year in each region. In terms of the verticals that represent at least 1% of our spend, we continued to see strong performance in food and drink, travel, and automotive. Health and fitness and business were below the average. Turning now to expenses. Excluding stock-based compensation, operating expenses in Q3 were $316 million, up 29% year-over-year. During the third quarter, we continued to invest in our team, our platform, and our infrastructure to support sustained growth. Income tax expense was $18 million for the third quarter, driven primarily by our pre-tax profitability and non-deductible stock-based compensation. Adjusted net income was $167 million or $0.33 per fully diluted share. Net cash provided by operating activities was $192 million for Q3 and free cash flow was $184 million. DSOs exiting the quarter were 91 days, down about 1 day from a year ago. DPOs were 75 days, up about 1 day from a year ago. In Q3, via our share repurchase program, we repurchased and retired 1.2 million shares for an aggregate repurchase amount of $90 million. We exited the third quarter with a strong cash and liquidity position. Cash, cash equivalents, and short-term investments ended the quarter at $1.5 billion. We have no debt on the balance sheet. Turning to our outlook for the fourth quarter. First, we continue to see strong spend in our key areas such as CTV and retail media. That said, we have seen more macroeconomic uncertainty at the start of Q4. We estimate Q4 revenue to be at least $580 million, which would represent growth of 18% on a year-over-year basis. Excluding U.S. political election spend which represented a mid-single-digit percent of spend in Q4 2022, our estimated revenue growth rate in Q4 of this year would be about 22% on a year-over-year basis. We estimate adjusted EBITDA to be approximately $270 million in Q4. In closing, we are extremely pleased with our strong performance in the third quarter, and we are cautiously optimistic for Q4. We continue to demonstrate our ability to drive momentum across our company priorities, achieve profitable growth and drive significant share gains. Regardless of what the macro brings, we believe we have never been in a better position than we are in today. With large growth drivers, including the ongoing secular shift to CTV, upgrading measurement with retail data, our biggest product release ever with Kokai, growth in international markets, an identity framework that has never been stronger, the U.S. presidential election cycle, amongst others, we remain optimistic for the remainder of Q4 and into 2024. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

The first question comes from Shyam Patil with Susquehanna.

Congrats on the strong Q3 across the board. I think the big thing on everyone's mind right now is the Q4 outlook which I think caught a lot of people by surprise. Maybe we can start there. Jeff, I know you talked a little bit about this in your prepared remarks, but can you talk a little bit more about what you're seeing in Q4? And just what gives you confidence that it is all macro and not competitive or anything else?

You bet. And I'm really glad you're asking this question, Shyam. So I have a lot to say on it, so I appreciate the kind words and the question. So first, just looking back, we had a very strong Q3, growing 25%, once again beating the market. And please don't forget, and this is really important, that we are coming off of a 30%-plus growth year from last year, where many of our competitors were shrinking or barely growing. This year and last year were years where we're gaining market share at a higher rate than we have previously. This year, I think we signed more long-term JVPs with major brand advertisers and agencies than ever before with bigger amounts and longer time horizons than we've ever had before, too. So once again, this year, CTV and retail media have been leading the way, and in general, we have amazing momentum going into Q4. Another reminder, we represent the Ad Age top 200 advertisers and of course, the majority of the S&P 500, something that I've pointed out many times before. These are, of course, the largest advertisers in the world. And of course, that means that we represent nearly every major sector of the economy as well. So that said, starting about the second week of October, we began to see some transitory cautiousness around certain advertisers. For example, we saw some reduction in brand spend in verticals such as automotive and consumer electronics, specifically around cell phones and media and entertainment. Some of these industries have been recently impacted by strikes such as the U.S. auto industry. So in the first week of November, we have seen spend stabilize and we're very confident that we will continue to outpace our industry and gain market share. Excluding election spend in Q4 of 2022, we're guiding to about 22% year-over-year growth, which is significantly faster than the industry and illustrates the long-term strength of our business model, especially when you consider those comps. I'm very proud of our team and what they’ve done in the first 3 quarters and the market wins that they’re putting on the board right now. The team really is firing on all cylinders. Our company is extremely healthy with great operating leverage and a strong balance sheet. All of those things are the strongest they've ever been. Given our strength in the fastest-growing channels of digital advertising, growing long-term relationships with the world's largest brands and agencies, the technology innovations that we outlined in our prepared remarks, including Kokai and the AI investments that we're making, we are very confident that we will continue to outpace the industry and gain share, and I'm very optimistic heading into 2024. Thanks, Shyam, for the question.

The next question comes from Vasily Karasyov with Cannon Globe Research.

Obviously following up on the point of interest here, Jeff, wanted to ask you to talk in a little more detail about what you saw this quarter, specifically the linearity that we've seen in the first 5 weeks so far. And probably wanted to ask about if you could provide more color on where you have seen cautiousness on the part of advertisers. So any additional color you can give us on what's going on this quarter would be appreciated.

Okay. Laura, I know you have some comments on this. Why don't you go first, then I'll go second? I'll add to it.

Absolutely. Thanks, Vasily, for the question. So the way I view this is that coming off of a strong Q3, we continued to see that strength going into the first week of Q4. Starting in the second week is when we saw some advertisers become more cautious in their spend. And we saw this cautiousness across a few verticals that Jeff mentioned, such as automotive, consumer electronics, and handsets, and media and entertainment. And of course, some of the caution is transitory due to what we mentioned, the strikes in auto and in media and in entertainment. We continue, at the same time, to see strong spend in our largest drivers such as CTV and retail media. And through today, which is a weekend change into November, we’ve seen spend stabilize, so we’re cautiously optimistic for the remainder of Q4. Jeff, is there anything you'd add to that?

Yes. So first, a couple of things to just keep in mind. We had very strong and healthy growth every quarter for the last couple of years. We have significantly outpaced the industry and gained share. During that same time, some of our largest competitors are coming off low or negative growth from a year ago, where we're coming off of over 20% growth, then an over 20% growth again. Our unparalleled growth is because we've never been closer to many of the largest brands and agencies in the world that all use our platform. We're striking more and more long-term commitments in JVPs and we're innovating to bring new value across all their omnichannel advertising campaigns. That includes in the biggest release that we've ever made in Kokai which of course includes AI and performance enhancements that we've never seen before. Our business is largely based on the world's largest brands. So if there is a little caution due to macro uncertainty facing everyone, we, of course, won't be immune from that in the short term. But we're convinced that the macro pressures today represent land grab opportunities now that will show fruit or pay off over and over again in the years to come. The fundamentals of our long-term business are as solid as they've ever been and we are poised to continue to outpace the industry and gain share in Q4, and we're really positioned well to go into 2024. Thanks for the question, Vasily.

The next question comes from Justin Patterson with KeyBanc.

Jeff, I just wanted to build off of your last statement there. Given the caution that you’re seeing from advertisers right now, what gives you that confidence heading into next year around growth and market share gains in the year ahead? And just a quick follow-up to that point. Last year at the Analyst Day, you were talking about just investing to make sure you're not missing this CTV and retail media wave. So I know you don’t guide to expenses or EBITDA for the year ahead, but could you give some commentary on just how you’re thinking about the right level of investments in an environment like this one?

You bet. I’ll take the first part of the question and Laura, if you’ll just speak to the investment side of that question. So let me just say a few words on 2024. First, obviously, the macro environment plays a role in our business and things like higher capital costs and increased money supply have downstream effects on most businesses. Some of those effects are opportunities which we’re seeing mostly across our client base but we’re seeing some of those effects as pressures on their businesses. But regardless of the macro environment's effects on individual companies, we continue to see the tidal wave of opportunity over the next 2 years. And I’ve never been more bullish, and that is because of just the slew of things in front of us that are what we see as some of the biggest opportunities we’ve ever seen and probably ever will. CTV is moving to streaming more and more and they’re also moving to biddable both as a total and as a percentage at a faster rate than it ever has before. Content has more competition than ever and it needs ads as a part of their strategies more than it ever has as we mentioned in the prepared remarks. We’re convinced that there are incremental subscribers, and the incremental revenue are largely going to come from ads. Retail media is something we didn't spend as much time as I would have liked in the prepared remarks, is one of the fastest-growing areas of our business and it’s providing advertisers with completely new ways of thinking about measurement and attribution. It closes the loop and helps them see the impact of their advertising in a way that has never been possible before. But in addition, they’re also finding customers that benefit both advertisers and retailers because they’re selling more of their products in the retailers that they’re partnering with to get the data. In 2024, I also believe audio will follow suit. They’re going to take out the CTV playbook and they're going to see some of the benefits that I think are really important for that category to grow. So I think there’s another secular tailwind available in 2024. Decision programmatic is poised to have its best year ever in 2024. And I believe this is partly due to the macro pressures. We’re investing heavily in our platform so that we make the value as obvious and as powerful as possible. I think the open Internet will start to get the first dollar even more in 2024 than it has in the past and the places where we’re injecting AI into the platform have seen amazing results so far. So of course, I’m optimistic about what that will relate to in 2024, especially because everything that we’ve done so far in AI has been small and yet also really impactful. So if we just continue down that track, I think we’re going to see some amazing fruit come from that. Incidentally, I’m here in Chicago today. Yesterday, I met with hundreds of our clients, hundreds of traders, hands-on keyboard people. The day before that, I met with a group about the same size in New York. We have never been more aligned with traders than we are today. I think they’re excited about the control and upgrades that Kokai represent for them which I believe they’ll all hit the ground running in Q1 with those enhancements. We’ve put better decisioning right next to data. We put those two right next to each other in a much better and usable way than we ever have before. We’ve made first-party data activation better than it’s ever been before. And that’s strategically more important at this moment than it’s ever been. The obvious benefits of UID2 and EUID are becoming more and more apparent to everybody in the advertising community. Traders know that their jobs are not going to be taken away by AI. But instead, they have to compete with each other. So their job could be taken away from a trader who knows how to use AI really well until all of them are looking at ways to use the tools that are fueled by AI that were provided, where AI is essentially doing one or two things. It’s either doing the math for them, if you will, of course, with very advanced learning models or in other cases, it’s actually their co-pilot. So we could not be more excited. I’m more bullish on even things like EUID and Europe. I think many markets outside the U.S. recovered more slowly post-pandemic, but we’re seeing advertisers now in the EU start to really lean into the innovations that we’re bringing to the market in all dimensions such as EUID. In times of macro uncertainty or for verticals that are dealing with uncertainty, we will gain share aggressively and we’re seeing exactly that. In times of more stability, we accelerate our spend. But I couldn’t be more confident in that model and the growth potential that that means for both the near term and the long term. Laura, for the part on expenses?

Yes. So I'm going to repeat something I've said before which is that we have a great luxury. We're high growth, we're profitable. We've got cash flow. And in 2023, we're growing well into the double digits above 20%. So all of that allows us to stay the course to continue investing in areas such as CTV, AI or platform measurement and to still deliver that strong profitability and cash flow. So as we and you start to think about 2024 for The Trade Desk, there are a few things I keep in mind. First, we've been deliberate in our investments in hiring. So we're going to grow headcount this year but only at about 15% to 17%. And importantly, we expect a similar trajectory next year which should allow us to grow headcount slower than revenue growth. That leads to a very nice setup for 2024. I'd also add that our investments include Kokai, AI, and the forward market and we don't see any material increases as others have with investments in areas like that. We’re also focusing heavily on productivity with our engineering teams, our go-to-market teams, everyone at sales, account management, and trading. And I'd close with, I've been here about 10 years now and I couldn't be more confident in our model, our growth, our ability to drive profitability and cash flow in both the near and the long term. Thank you for the questions.

The next question comes from Shweta Khajuria with Evercore ISI.

I have two, please. So first is on retail media. Jeff, when we think about the opportunity that Trade Desk has in retail media, if we think about, call it, 2 to 3 years from today, what would you be satisfied with in terms of how big retail media revenue is as a percentage of overall business, call it, 10%, 20%-plus? How should we think about that? And then second is on connected TV, clearly a growth driver as well. Where do you think industry growth is expected for next year and more specifically for Trade Desk to grow faster than overall industry? How should we think about what is really driving that inflection of shifting inventory to biddable marketplaces? Do we expect that next year and is that the key driver that will allow you to gain share?

You bet. Instead of providing specific growth rates for the next 2 to 3 years, I will discuss the broader trends that are impacting those expectations. Over the next few years, I hope to see continued growth with partners like Walmart, Albertsons, Walgreens, and Dollar General. This past year has been fantastic with all of these collaborations and many others that have been excellent partners for us. Economic pressures have encouraged these companies to take bold actions that have benefited everyone involved, including the retailer, the advertiser, and our platform. I'm looking forward to seeing this trend continue, as retailers increasingly express their desire to use their data to help major brands sell products in their stores and to accelerate their operations. We want to see more retailers adopt a business mindset similar to Amazon's, focusing on data utilization to enhance decision-making. If they make their data available for measurement and attribution, it will benefit all stakeholders, especially the retailers themselves. Regarding CTV growth, a key macro trend to note is the immense choice available to consumers, particularly in the streaming space compared to five years ago. While there has been a slight slowdown in content production due to strikes, the demand for engagement and subscriber growth among platforms remains strong. All companies, from small players like Paramount to larger ones like Disney, need programmatic advertising to fuel their next stage of growth since they can't simply keep increasing prices without consumers questioning the value. This situation has led many companies to explore ad-funded options. Companies like Disney and Netflix have demonstrated that ad-supported subscribers often yield significantly higher revenue than non-ad-supported ones. For these companies to sustain revenue growth per user, they must ensure their ads are more effective and relevant. This involves embracing UID2, which they have publicly supported and are now implementing. As consumers choose between viewing ads or paying more, we anticipate an increase in selections for ad-supported options, which has historically been the trend. This creates opportunities for stronger partnerships for us. We need to continue being a valuable partner to content owners and maintain our current engagement. Overall, these macro trends will drive our progress. Thank you for the question.

The next question comes from Jason Helfstein from Oppenheimer.

I have two questions. First, Jeff, regarding what you mentioned about the shift to CTV and the transition to programmatic solutions, which results in less waste. However, some of that may lead to higher CPMs, correct? Additionally, some of that spending could shift away from video to other areas that you are involved in. This quarter, it seems your display accelerated significantly compared to others who do not like search and social. Could you elaborate on how you are assisting advertisers in reallocating their budgets to different areas where you participate? Laura, could you explain the factors that influence your guidance? Are you assuming that the trends observed in November will persist, or does your guidance reflect more of an average based on what you've seen so far this quarter?

Thank you for the question, Jason. I'll address the first part, and then Laura will handle the second part. You’re correct that as funds transition from traditional television to connected TV (CTV), there is an opportunity for realignment. When a Chief Marketing Officer or media buyer reassesses their options, they often look to replicate previous strategies. It's important to recognize that television has traditionally aimed at the top of the marketing funnel to generate awareness. I believe this is where the core impact of advertising occurs, as it involves winning over audiences emotionally. Emotional connections are not typically made through short text but through dynamic visual and audio storytelling. This kind of impactful work remains a priority at the top of the funnel in CTV. Therefore, I contend that CTV currently represents the most powerful form of television advertising we've ever seen and arguably the most effective advertising at scale in history. I don’t expect that a significant portion of these funds will redirect to entirely different formats or stages in the funnel, such as search or social media. Those budgets likely won't shift there. While, as you noted, there's a chance some funds might leave video, it seems unlikely since CTV is considerably more effective. I would argue that the effectiveness of CTV has increased more than its costs. As supply and demand evolve, we may discover more opportunities to provide value and target effectively. Furthermore, as the adoption of unique identifiers (UID) rises, so too will effectiveness. Even though I believe we are currently executing the most effective advertising in television history, I see plenty of potential for significant growth in effectiveness. Considering these broader trends and the data at hand, it seems inevitable that CTV will capture the majority of the budget transitioning from linear and traditional channels, as well as potentially additional spending. Now, Laura, please address your part of the question.

Yes, fantastic. So in talking about the guide, what I would say is that we guide to what we see. We always have since I've been here. That includes what's been observed quarter-to-date through the 9th of November. It also includes what our team and what our clients are indicating for the rest of the year. And though I recognize that there's cautiousness in the environment, so all of that is taken into consideration. So I'm optimistic for the remainder of Q4. And we believe in this environment, it’s good to listen to our customers, listen to our team, and it’s better to be cautious.

The next question comes from Youssef Squali with Truist.

Just one question on CTV. Jeff, could you elaborate on your comments regarding the various methods of purchasing CTV, such as programmatic compared to insertion orders and programmatic guaranteed? Where do we currently stand in terms of the percentage of CTV being purchased programmatically? What do you see as the primary challenge to making this approach the standard or the predominant method for buyers?

You bet. So I would say today, and these are very broad buckets, this isn't a reflection of our spend. This is me giving commentary on the macro space. As the dollar moves over from traditional television into CTV, it's mostly gone into three different buckets relatively evenly. The first is to work directly with the content owner and create essentially an insertion order again. The second is to work with us through a programmatic guaranteed, and then the third is to work through biddable fully-decisioned programmatic. Those have roughly been equal. You're seeing the first and second converge, and then the third category is, of course, the fastest growing. So when I talk about the need for television to embrace programmatic, I’m really talking about the need for it to embrace fully-decisioned programmatic because that's where content owners get higher CPMs. That's also where advertisers get the highest effectiveness and that's the only place where they’re willing to pay a premium. The first and second have been increasingly converging over the last couple of years, while those were even a few years ago. More and more, they’re moving towards the second and third categories with the final destination really being that third category. That’s how we see all of CTV moving because that's where efficacy and price and the healthiness of the ecosystem stabilizing.

The next question comes from Tim Nollen with Macquarie.

Jeff, I've got a CTV question as well, please. If I heard you right, in your prepared remarks, you spoke about some OpenPath efforts already taking shape in CTV. OpenPath, you started what, 1.5 years ago, if I remember right, focused on journalistic publishers. Could you just elaborate on what you were doing with OpenPath with direct relationships into CTV, please?

You bet. I appreciate the question. So let me just remind everybody what OpenPath is. And Tim, again, really appreciate the question because I think this is something we haven't talked enough about. And you are right. OpenPath celebrated its first birthday at the beginning of this year. And it's been the fastest-growing path, if you will, or route supply chain to inventory on our platform. And what it is, is the ability for publishers who want to do their own yield management to plug into us directly. Where historically, they would use an SSP. This time, they can plug into us directly. Part of the reason for that is because more and more companies are wanting to do their own yield management. We initially really highlighted the need for journalistic outlets to embrace this because their need for authentication as well as CPMs to go up was greater than any other part of the ecosystem. So it was really launched with journalism because that's where they needed the help the most. Where it moves the needle perhaps the most is in connected television. And the reason why it moves the needle so much in connected television is because the content ownership, unlike on the browsing web, where you have millions of websites, you only have dozens of companies in the U.S. And as I've said before, I believe television is perfectly fragmented for a business like ours. But that makes it so that they're all big enough for them to have their own yield management functions. It makes it so that we can plug in directly with them and then make certain that the option has a higher degree of integrity than if it were routed through Google or somewhere else for that matter. So we've launched OpenPath as a means of making certain that the pipes are clean and that has made certain that connected television has an ecosystem or a supply chain that is cleaner than others, which is really great for CTV and its future. Thanks for the question.

The next question comes from Matt Swanson with RBC Capital Markets.

Jeff, you've talked a few times on this call about taking market share about macros and then being able to invest more aggressively in a positive. We've obviously seen in the numbers that you've taken market share over the past couple of years. Can you just talk to us when that macro does flip hopefully sooner than later, one, how do you protect those market share gains? And two, like what are those first steps when you return to investment, whether it is to protect that market share or go after new markets as the macro improves?

You bet. Implicit in the question is when the macro landscape improves, where will we make additional investments? We’re currently investing as aggressively as we can. While we are demonstrating our operating leverage, it's not a result of a deliberate effort to showcase that leverage; instead, it's about our aggressive growth strategy. As Laura pointed out regarding headcount changes for this year and next year, this stems from our ramped-up hiring during the pandemic and recent years to seize opportunities like this, including our largest release in company history this year. We initiated that in June and have been rolling it out throughout the year. We will maintain our investment strategy in this manner, and I believe those investments solidify our position in the market. We focus on competing with the biggest tech companies globally, but we do it differently. Many of those companies have numerous conflicts of interest, making brands hesitant to share their data or future with them, relying on them for growth by simply allocating budgets and hoping for positive results. In contrast, we provide an objective perspective since we do not own any media. This allows us to help our clients make informed decisions about media buying without any conflicts of interest, particularly in the fragmented landscape of CTV. To stay ahead, as I remind our team, we need to stick to the principles that brought us success: aligning our interests with our clients, maintaining objectivity, and innovating vigorously. This focus has been our approach throughout the year and will continue as we move forward. As conditions improve, it will become even easier from an investor relations standpoint, but we have been executing this strategy and will maintain it in the future. This is how we achieved our current success, and it's the path towards the future we aim to secure through consistent execution.

The next question comes from Chris Kuntarich with UBS.

Maybe one here for Laura, just going back to the guide. Can you give us a sense for how fast or if we were growing in October? And just kind of how we should be thinking about kind of what's implied potentially if it were an exit rate in December in that 18% growth where was October potentially kind of if it was growing, say, 10% in October and we’re talking about a stabilization potentially around where the full year guide, could we be exiting in kind of that low 20s growth that you talked about where the guide implies where you would be for the full quarter ex-political?

Chris, I appreciate the question. We actually aren't going to provide further guidance on exact year-over-year growth figures, both with and without election spend in the base for October, the first week of November, or exiting the year. But you know correctly that we did see that drop-off in the second week of October and stabilization going into November. So all of that is factored into that guide.

Could you share if October experienced any growth?

Of course, it was growing. I'm smiling as I say that.

The next question comes from Laura Martin with Needham.

I'll ask about CTV. When I speak with Disney, Paramount, and Fox, they always mention their direct sales teams. They believe they can achieve higher prices for content that isn't interchangeable. They're also concerned about the third category you mentioned, which you think will be the final destination: biddable programmatic. They've witnessed the declines in mobile and desktop, where an endless supply has driven prices down. Can you explain why you believe the final destination will shift entirely to biddable, especially since that’s not the perspective I’m getting from my premium content providers?

Yes. So I suppose it depends on who you ask inside of those premium content owners. But to me, the math is fairly obvious and even conceptually, it’s fairly obvious. And I know that Michael Barrett's business can't really participate on the buy-side decisioning that is that third bucket. So it’s natural for him to focus on the first two and talk about the things that are great about those two buckets. But if you step back, the third bucket, which is fully-decisioned programmatic, is the one where the advertiser gets to bring their own data to the equation, is the one where they say, 'These are the users that I want.' It's the one where it realizes the potential of CTV advertising because the ads are relevant. Every single person here or hearing this has seen television ads that are not relevant to them. And that's driven by a system that has historically always been focused on content, where I want to match this advertiser with this content and just sort of spray and pray. That isn't what will happen in the future. That isn't what's happening in that third bucket today which is that you can bring your own data and show ads that are highly relevant so that you don’t just use the show as a proxy for audience. The show was always used as a proxy for audience. And sometimes, it lines up really nicely which is most people who watch football are more likely to drink beer. And so as a result, those two have been married really well. And that’s part of the reason why ESPN content is some of the most expensive. But if you can take an ID and make certain that the ad is relevant and customize that and make it so that you’re only showing ads to those that are relevant, only then can you make it so that these four minutes per 60 that are being used for ads, which is what 1/4 of what happens in traditional television, only then can you make the CPMs go up high enough to justify the additional cost. So long-term, we’re all heading to that last bucket. It’s the only place where the math makes sense. It’s the only place where you really get the benefits of digital. And inside of all of those big content companies, there are groups of people that understand that, that’s where we’re all heading, even though not necessarily everybody gets that the traditional models of selling are not the best ways to monetize television going forward.

Thanks, Laura. Operator, you can close out the call.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.