Trade Desk, Inc. Q4 FY2024 Earnings Call

Greetings. Welcome to The Trade Desk Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. 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 fourth quarter 2024 earnings conference call. On the call today are Co-Founder and CEO, Jeff Green and Chief Financial Officer, Laura Schenkein. A copy of our earnings press release is available on our website in the Investor Relations section at thetradedesk.com. Please note that, aside from historical information, today’s discussion and our responses during the Q&A may include forward-looking statements. These statements are subject to risks and uncertainties and reflect our views and assumptions as of the date such statements are made. Actual results may vary significantly, and we expressly disclaim any obligations to update the forward-looking statements made today. If any of our beliefs or assumptions prove incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. For a detailed discussion of risks, please refer to the risk factors mentioned in our press release and our most recent SEC filings. In addition to our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures is available in our earnings press release. We believe that presenting these non-GAAP measures alongside our GAAP results offers a more comprehensive view of the company's operational performance. With that, I'll now turn the call over to Co-Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and good afternoon, everyone. Thank you for joining us today. 2024 was a record-breaking year for The Trade Desk. Total spending on our platform exceeded $12 billion, the highest in our history. Revenue for the year surpassed $2.4 billion, growing nearly 26% year-over-year, as we significantly outpaced the broader digital advertising market. We generated over $1 billion in adjusted EBITDA and delivered more than $600 million in free cash flow. These achievements underscore the strength of our platform and our ability to drive value for our clients in the fast-evolving digital advertising landscape. While we’re proud of these milestones, I want to acknowledge upfront that for the first time in 33 quarters as a public company we fell short of our expectations. During COVID, we revised our expectations once like many in the market, but for the first time in 8 years, we missed the expectations we set, and it was our fault. When we contemplated going public about 10 years ago, many advised against it, often due to concerns over low valuations because no ad tech company had earned Wall Street’s trust for an extended period. I saw that as a challenge and still do. I knew we had the business model, the total addressable market, the vision, the determination, and the team to break that mold and achieve what had never been done before. The only way to do that was to make commitments and follow through. Many said it couldn’t be achieved. Our success has been partially driven by our ability to earn the trust of investors, partners, our industry, and our clients. Few things are as important to us. I want to emphasize that we take this moment seriously. We assure our investors, partners, and clients that their trust is well-placed and deserved. Our best days lie ahead, but before discussing that, I want to share what went wrong and the changes we are implementing to make the most of our unique and growing opportunity. To begin, let me clarify what falling short of our expectations does not signify. This wasn't due to a smaller opportunity than anticipated, nor did competition play a role. In Q4, we faced challenges due to a series of small execution missteps while also preparing for the future. If this were a sporting event, we would still have a championship caliber team, but in this particular instance, we made too many turnovers. That said, we observe a larger and faster-growing market than we initially thought, which is why we’re making changes and will continue to do so. As companies grow and get more complex, they often need recalibration to unlock new opportunities. We are recalibrating for an even stronger future. I want to highlight four significant changes we've made at The Trade Desk in recent months, alongside some related initiatives. First, we implemented the largest reorganization in company history in December. While we usually make structural changes at year-end to enhance our business, this one was larger than usual. We clarified roles and responsibilities for most employees, resulting in a change in reporting structures. Additionally, we streamlined client-facing teams, minimizing complexity and clarifying duties. Some teams now focus on brands, while others concentrate on agencies. Our commitment to agencies remains strong, while we expand direct relationships with brands, particularly through Joint Business Plans, which grow 50% faster than the rest of our business. Second, we’ve focused on boosting internal effectiveness and scalability. Over the past couple of months, leadership has concentrated more on operational improvements than ever before. Historically, we emphasized external opportunities, but we realize this moment requires scaling our internal operations and continuing to recruit senior talent to ensure long-term growth. These changes will allow us to operate at a higher level and take advantage of expanding market opportunities. Third, we are allocating more resources toward brands. A significant shift is occurring in the industry: advertisers are becoming more strategic and data-driven in their media buying, which benefits us. While this shift has caused short-term fluctuations, it aligns with our long-term strengths. We recognize that advertising will fluctuate. As advertisers prioritize precision and efficacy, our programmatic, data-driven platform is more essential than ever for brands and agencies. This is clear in the growing number of joint business plans we have secured with over 100 leading brands, many established in the second half of last year. These plans create a structured framework that benefits brands, their agencies, and The Trade Desk, and they historically grow faster than the rest of our business. Fourth, we revamped our product development process, returning to smaller, agile teams that provide weekly updates instead of relying on waterfall methods, which are less suitable for our fast-changing industry. Our engineering team is divided into nearly 100 scrum teams, enhancing collaboration with the business team on what has been accomplished and what’s upcoming. I anticipate this will continue to boost Kokai enhancements and complete the transition of all clients from Solimar to Kokai this year. In Q4, we made several decisions that could have enhanced our short-term performance but neglected the long-term. We consistently choose to focus on maximizing our market share for the long run, as that benefits all our stakeholders. We remain dedicated to the substantial total addressable market and long-term opportunity. This is a good juncture to mention two other significant initiatives. First, we continue to improve and protect the supply chain. We announced the Ventura Operating System for Connected Television, aimed at creating a better supply chain for all stakeholders. Secondly, we announced the acquisition of Sincera in January, a metadata company dedicated to enhancing the open internet supply chain. Combining Sincera’s work with ours will accelerate the creation of a cleaner supply chain for the Open Internet and support our OpenPath initiative, vital for efficiency both internally and externally. A better supply chain will optimize our internal resources and benefit the overall ecosystem. The second major initiative I want to discuss is our investments in AI. AI is delivering enhanced performance in targeting and optimization and is crucial for forecasting, identity, and measurement. We are continuously examining our technology stack to identify areas for AI integration to enhance our product and client outcomes. We repeatedly discover new opportunities for AI investment. These changes position us well for 2025. Our platform stands as the most advanced data-driven decision-making tool in our industry, and Kokai is advancing advertisers' abilities to find value and precision as they expand their audiences and grow their businesses. In last quarter's earnings report, we outlined 10 macro conditions benefiting us. Today, I want to briefly highlight 15 key actions we are taking to capitalize on those trends. First, we are obsessively focused on scale. We control $12 billion of ad spending in an approximately $1 trillion advertising industry. With every success we achieve and every technological efficiency we identify, we ask how we can quickly scale these successes. While our market share is growing rapidly, our opportunities are also expanding, allowing us to accelerate growth by prioritizing scale. Second, we are preparing for a world where Google distances itself from the open internet. I believe Google will eventually withdraw from the open internet, which would address many of its antitrust issues. Additionally, in April 2024, Facebook distanced itself from significant open internet pillars. There are indications that a significant amount of spending through DV360 is directed to Google’s owned platforms. Regardless of the outcome of the pending trial, Google is likely to move away from the open internet. Their exit would create a substantial opportunity for others. Third, we will prioritize and safeguard our objectivity more than ever. Increasingly, the few competitors we face exhibit significant objectivity issues. Amazon, for instance, is soliciting ad budgets while competing against numerous Fortune 500 companies across various sectors. Fifteen years ago, we argued that the objective, independent DSP should capture the majority of the market because it can be trusted. Our mantra has always been that objectivity becomes more critical every day. Fourth, we aim to leverage the supply and demand imbalance to enhance the ecosystem. There is consistently more supply than demand in advertising, making it a buyer’s market. By emphasizing the buy-side, we are well-positioned. Unlike many tech players, we aim to utilize our strengths to improve the industry and supply chain. We anticipate that 2025 will see OpenPath enter a steep growth phase, as major CTV players begin implementing it, understanding that an efficient supply chain translates to greater profits. Disney was one of the first major CTV players to adopt OpenPath, aiming for 75% of its ad sales to be automated by 2027, focusing on biddable impressions. Media leaders recognize that the best way to fund their quality content lies in programmatic advertising, which is favorable for our partnership. An open market, supported by a transparent supply chain, is essential for valuing impressions and ensuring advertisers are aware of what publishers will pay. This strategy extends to OEMs as well. VIZIO, another CTV leader embracing OpenPath, has seen remarkable outcomes, including a 39% revenue increase and an 8-fold improvement in fill rates. Additionally, Goodway Group, a significant independent agency client, is utilizing Kokai to create a BlueList, which optimizes opportunities for their customers. Their insights revealed that 94% of impressions purchased had only one supply chain hop, exceeding industry benchmarks. This efficiency will maximize campaign effectiveness. These examples provide context for our recent acquisition of Sincera, which passionately addresses the digital advertising supply chain, much like us. Sincera has established itself as an objective data company, shedding light on where value is created and obscured. Integrating these data signals into our platform will enhance client outcomes. For instance, we aim to showcase which signals advertisers need from publishers to accurately value ad impressions. Improving the digital advertising supply chain with these signals is crucial as we approach 2025, especially with Google likely decreasing its involvement in the open internet. The fifth action we will take is to enhance CTV as the most effective programmatic advertising channel by incorporating more data and better auction mechanics, leveraging the fact that CTV traffic is largely logged in. CTV should be the primary focus for all brand advertisers. If we enhance Sincera’s reach and functionalities in CTV and audio, these mediums can capture half the advertising market pie. Major companies like Disney and Netflix are keen to optimize their programmatic advertising opportunities, and many of them are adopting UID2 for precision and addressability. This foundation allows us to expand CTV advertising globally. CTV remains our fastest-growing and largest channel, but there's a shared belief among us and content owners that we’re far from the optimal state. The sixth initiative is to make 2025 the best year for audio advertising. Audio remains an underexploited segment of the open internet. Companies like Spotify are evolving to harness programmatic advertising potential, and we are leveraging AI partnerships to bridge gaps in creative production. This represents a significant growth opportunity for both Spotify and programmatic advertising. The seventh initiative is to transition all clients to Kokai by the end of this year. While many have already made the switch, we are still operating two systems, which causes delays. Kokai outperforms in every way, and clients are continually demonstrating its advantages through case studies. Kokai represents our largest platform overhaul, and we expect all clients to exclusively use it by year’s end. The case studies consistently show that clients benefit from better data and signal access. In CTV, advertisers utilize logged-in user data based on UID2. This shift is also occurring in digital audio with partners like Spotify and SiriusXM, enabling precision marketing to logged-in audiences. Retail data helps advertisers understand conversion rates more clearly. Eighth, we will revolutionize deal management in the industry, helping advertisers avoid poor deals that often lead to unwanted impressions. We plan to use AI for better forecasting, enhanced by improving Kokai with transformative features like a deal manager that lays the groundwork for future market changes. Ninth, we will sustain our investment in AI, yielding verifiable upgrades and results. Beginning with our ML and AI efforts in 2017 through Koa, we now see broader possibilities. Every scrum team will explore AI integration in our platform; numerous recent enhancements and those planned for 2025 would be impossible without AI. We will persist in our efforts, not merely for show, but to deliver results and capture market share. Tenth, we will simplify our retail offerings in 2025. Although it has driven significant growth, it has often been complex. We have analyzed the successful elements and understand that fostering collaboration with retail partners is essential for sustained growth. With Kokai, we boast the richest retail data environment in the industry, enabling advertisers to see the link between campaign expenditure and consumer actions. We aim to simplify this for clients, both endemic and non-endemic. Our objectivity remains a critical asset, especially as retailers are hesitant to partner with walled gardens competing with them. Our clarity in purpose fosters effective collaboration, creating the best retail data environment for advertisers on the open internet. We recorded compelling case studies in Q4 worldwide. For example, Boiron, a leader in homeopathic products, measured a 267% return on ad spend on Kokai using Kroger retail data, far exceeding benchmarks. Additionally, their campaign reached nearly 2 million households, with 94% being new customers. In Hong Kong, high-end skincare brand Sulwhasoo leveraged UID2 through Kokai to target lookalike audiences based on their loyal customers, resulting in a 6x increase in store visits, a 380% boost in conversion rates, and an 80% reduction in cost per acquisition. Eleventh, we will continue to simplify our platform. As platforms mature, additional features can complicate usability. While we will maintain powerful controls for sophisticated buyers, we seek to enhance the user experience and streamline decision-making. Twelfth, we will emphasize data utilization. Our guiding principle is that data-driven decision-making outperforms guesswork. Across our platform, we leverage AI to assist clients in making informed decisions, whether it’s simplifying complex data analysis or enhancing bid requests with retail conversion data. Thirteenth, as I mentioned earlier, we will prioritize Joint Business Plans, which foster innovation partnerships with agencies and brands to strengthen our relationship and inspire programmatic advancements. These plans grow 50% faster than our other business segments. Brands will continue collaborating with agencies but recognize the increasing significance of programmatic in their campaign strategy, providing an excellent opportunity for The Trade Desk to grow our brand relationships and market share. Fourteenth, we will refine our product development process. As we expand, maintaining agility is essential, even while accommodating input from various stakeholders. We will do this by maintaining a clearer weekly focus on our deliverables, continuing to lead ad-tech innovation. Lastly, we will expand our senior leadership team to facilitate our growth. I anticipate we will nearly double our senior leadership personnel, especially at the VP level and above, with key appointments within my organization. This is a natural progression for a high-growth company. Our goal is to significantly scale The Trade Desk in the coming years, ensuring we have robust leadership while retaining the best aspects of our previous success. To conclude, the opportunity before us is greater than ever. We must continuously evolve our organizational structure to seize this opportunity and realize our potential and that of the open internet. We are determined to drive differentiation and growth. We consistently innovate our platform, particularly with ongoing enhancements to Kokai. Our profits enable these investments. This dedication to innovation ensures we deliver value to our clients and never remain stagnant. We maintain a long-term perspective on where value is moving in our industry and how we can innovate to deliver that value swiftly. I believe 2024 will mark a significant turning point for our industry, as the premium open internet continues to emerge as the preferred choice for advertisers seeking data-driven precision and performance. However, we have merely begun this transformation, which is why we are adjusting our company to grow and positively influence the market. I am disappointed with our fourth-quarter results, but I see immense opportunities in 2025 and beyond to support our clients in leveraging data-driven advertising on the premium internet to foster growth and brand loyalty. Therefore, I am confident that The Trade Desk will ultimately regain momentum and continue its trajectory as a publicly traded company. We also remain the clear leader in the demand-side platform arena and possibly the leader of the open internet. Thank you, and with that, I’ll pass it over to Laura to discuss our financials.

Thank you, Jeff. Before discussing our results, I want to expand on Jeff’s sentiments about some of the significant strides we made over the past year, positioning us well for the future. 2024 was a year of landmark partnerships, particularly in CTV, where we saw outsized growth. Retail media continued its rapid expansion, establishing a material foundation for the years ahead. International growth accelerated, showing promising momentum beyond the U.S. Additionally, 2024 marked our largest and most successful year ever for political ad spend, the biggest year for UID2 since its launch four years ago, and a leap forward for digital audio in programmatic. When I look across our list of growth drivers, most of them are still in their early stages compared to where we expect them to be in the next 5 years to 10 years. CTV advertising remains a small fraction of total TV ad spend relative to linear. Retail media is scaling rapidly, evolving from an emerging trend into a core digital advertising channel as brands are recognizing its ability to drive both performance and measurement. And in most global markets, decisioned programmatic is still in early stages of adoption, with tremendous long-term growth potential. Turning to our results, Q4 revenue was $741 million, a 22% year-over-year increase. We generated $350 million of adjusted EBITDA during the quarter, representing a 47% margin. However, for the first time, in our 8.5 years as a public company, excluding the first quarter of 2020, our results came in below our expectations. As a company, we take great pride in our ability to forecast accurately, and we take full ownership of this shortfall. Importantly, this miss was not due to lack of opportunity or increased competition, it was on us. We are implementing the strategic changes Jeff outlined in our business and I believe that will give us an opportunity to continue delivering strong revenue growth throughout this year and beyond. For 2024, we ended the year with $12 billion in spend on our platform and $2.4 billion in revenue, representing a 26% increase in revenue year over year. Full year adjusted EBITDA margin was above 41% and full year free cash flow was over $630 million. As expected, our take rate in 2024 once again remained within a very consistent historical range. The shift of advertising dollars to CTV continues to be a core driver of our business. From a scaled channel perspective in Q4, video which includes CTV, represented a high-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 represented a low-double digit percent share of our business and Audio represented around 5%. Geographically, North America represented about 88% of spend and International represented about 12% of spend for the fourth quarter. International growth again outpaced North America for the eighth quarter in a row. CTV growth across international regions was particularly strong during the fourth quarter, and throughout 2024. In terms of verticals that represent at least 1% of our spend, growth was broad-based again this quarter. We saw strong performance in the majority of our verticals, particularly in Automotive, Shopping, and Technology & Computing. Political spending was also strong in Q4, as expected. Home & Garden and Pets were both below average. We continue to believe there is significant opportunity for us to gain share in all of the verticals we serve. Turning now to expenses. Q4 operating expenses, excluding stock-based compensation, were $416 million, up 23% from a year ago. During the quarter, we continued to make investments in our team and platform, particularly in areas like sales & marketing, and technology & development, as we position the organization for long-term growth. Income tax expense was $39 million in the fourth quarter driven primarily by our profitability and stock-based awards. Adjusted net income for the quarter was $297 million or $0.59 per fully diluted share. Net cash provided by operating activities was $199 million and free cash flow was $177 million in Q4. DSOs exiting Q4 were 97 days, down 4 days from a year ago. DPOs were 80 days, down 3 days from a year ago. We ended the year with a strong cash and liquidity position. Our balance sheet had about $1.9 billion in cash, cash equivalents and short-term investments at the end of the quarter. We have no debt on the balance sheet. In Q4, we repurchased $57 million of our Class A common stock via our share repurchase program. As you saw in our press release, we announced an additional authorization under our share repurchase program bringing the total to $1 billion, inclusive of the amount remaining from the existing authorization. Given our strong balance sheet and consistent cash flow generation, we plan to continue opportunistic share repurchases, while also offsetting dilution from employee stock issuances. Now turning to our outlook for the first quarter. We expect revenue to be at least $575 million reflecting 17% year-over-year growth. Our Q1 growth estimates also reflect the impact of lapping the extra day from the 2024 leap year, as well as political ad spend, which contributed approximately 1% of our Q1 2024 revenue. We estimate adjusted EBITDA to be approximately $145 million in Q1. Turning to our expense outlook for the year. While we are not providing a full year expense guidance, we anticipate a modest increase in the growth rate of our operating expenses in 2025 compared to previous years. As a result, we would expect modest deleverage for the year. Our investments are focused on key areas such as infrastructure and talent. Our incremental investments align with the recalibration efforts Jeff outlined in his remarks. Our capital intensity remains low, and we expect CapEx to be approximately 5% of our total revenue. We expect another strong year of cash flow generation. We continue to manage the business with a balanced perspective that allows us to weigh investment opportunities while retaining flexibility for margin improvement. In closing, while the back half of 2024 did not end exactly as we had hoped, our long-term trajectory remains strong. I’m optimistic about 2025. We continue to lead in a rapidly growing industry, delivering profitable growth and gaining significant market share. Our momentum is fueled by a strong set of growth drivers, including the ongoing secular shift to CTV, enhanced measurement through retail data, international expansion, a robust identity framework, supply chain improvements, and the ability to drive long-term leverage in our model. As we look ahead, we remain confident in our ability to sustain this growth and capitalize on the opportunities before us. While we are not providing a full-year 2025 revenue outlook, we expect that our recalibration efforts and strategic investments will position us for continued strong growth throughout 2025 and beyond. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Shyam Patil with SIG. Please proceed.

Hi, Jeff, as you know, I've been covering you guys since you've been public and following the company long before that. And until now, for over eight years, you guys have had an amazing run where you've hit your guidance every single time. Just wondering, can you just talk about what went wrong in the fourth quarter where you guys came in below your expectations. Thank you.

Thank you, Shyam, for your question. I acknowledge that we fell short of our expectations, which is different from missing Wall Street's projections. When we outline our guidance, it feels like a commitment to us. It's understandable for shareholders to question what this means for our potential. I want to clarify that our shortfall was due to a series of minor execution errors. We were trying to execute while preparing for the future, leading to several small mistakes that compounded. To draw a comparison, we have a championship-caliber team, as proven over the past eight years, but we turned over the ball too many times this time, resulting in our loss. The opportunity remains even larger than we initially thought, and my focus now is recalibrating the company to seize this bigger opportunity. We've made several changes to ensure such shortcomings don't recur. Firstly, we clarified roles and responsibilities across the company, which involved the largest reorganization in our history. Secondly, we revamped our engineering process to adopt smaller, agile teams that can deliver products weekly. While we've historically had one of the most productive engineering teams in ad tech, we see room for improvement in efficiency. Third, we simplified our client-facing teams to reduce overlap between agency and brand functions, fostering clearer engagement. We remain committed to our partnerships with agencies while also enhancing our direct conversations with brands, as joint business plans grow significantly faster than other business avenues. Fourth, we have dedicated more time to discussions about internal improvements than at any time previously, which will benefit us in the long run. This focus has reinforced our need to hire senior talent to facilitate our scaling efforts. Regarding 2024, we have faced several significant strategic decisions, balancing short-term revenue with long-term growth. My preference is to pursue long-term opportunities even if it means missing a quarter. Enhancements to our Kokai platform will incorporate more AI and advanced buying techniques, which aligns with our acquisition of Sincera—a metadata company we expect will positively impact Trade Desk shortly. This is only our third acquisition, and we're committed to integrating it meaningfully to enhance our long-term potential. Thank you again for your question, Shyam.

The next question comes from the Vasily Karasyov with Cannonball Research. Please proceed.

Thank you. I wanted to follow up on the first question. So going into your earnings report, there were a lot of concerns I heard about weaker brand spend post-election, no budget flush then issues with Kokai rollout pace. But then other ad-funded companies haven't reported anything results similar to yours. So can you probably share a little more detail about what you observed about the difference between you and the industry? And to what extent did factors like polarized political environment, for example, The New York Times called them out quite a lot, lower Q4 GDP print or any product rollout issues impacted the shortfall in Q4.

Thanks, Vasily, for the question. I want to highlight that in 2022, the macro environment was challenging as advertising experienced a significant slowdown. However, we adapted quickly and managed to outperform the market, exceeding our own expectations. This serves as a reminder that we have faced difficult situations before and have still come out on top. Factors like GDP fluctuations, political uncertainty, and ongoing pricing pressures on consumers and companies created a less-than-ideal environment. While we succeeded in similar circumstances previously, we did not achieve that this time around. It is true that political issues kept some advertisers sidelined, yet there were also opportunities for budget allocations, particularly for political spending. In my view, it is hard to determine whether the overall impact was positive or negative. Although the environment was not optimal, we anticipated challenges when we provided our guidance, and we have dealt with such situations previously. I recognize that there will be numerous questions, many of which we have begun addressing already. We have set expectations carefully over time, which leads to inquiries about any missteps. Many of these missteps involve internal matters that are not suitable for public discussion, especially as those involved are learning from them. One example is the Kokai rollout, which did proceed more slowly than we expected, but there were valid reasons for this. We have identified opportunities to integrate AI, such as enhancing our forecasting and performance models. While this reflects a short-term challenge, it is, in fact, a long-term opportunity. We are committed to making the right deals and establishing the foundation to transition upfront budgets to digital platforms. I genuinely believe this is highly beneficial for us in the long run, and I am confident we are on the right path. In some cases, the deliberate slower rollout of Kokai was intentional. A faster rollout could lead to increased short-term spending, and our aim is to provide what our customers actually need rather than simply taking orders. Elevating our offerings alongside client requirements is a more complex process. Regarding internal changes, I believe it is crucial to build our organization and team rapidly to capitalize on market opportunities and maximize our share. From the start, I have maintained that an independent, focused DSP should command the largest market share, rather than walled gardens that are full of conflicts of interest. We are determined to reach that goal first. Our focus, objectivity, and agility are vital for our success. I am eager to grow and maintain our momentum, but achieving this requires transformation. The silver lining is that we see this as something we can control. The changes we are implementing will ultimately make us a stronger company and will yield long-term benefits.

Thank you.

The next question comes from Justin Patterson with KeyBanc. Please proceed.

Great. Thank you very much. Jeff, really appreciate that degree of detail. I guess as you step back and move through this recalibration period, how do you view the company's potential to sustain a 20% plus compound growth rate over the next several years? I know you don't provide annual guidance or long-term targets. But I think that would be just helpful for us to kind of think through what the business looks like as you come out of this period. And then Laura separately, how should we think about the investments required to get us to that point? Thank you.

Justin, thanks for the question. I really appreciate actually all the questions. I feel like we're getting to the heart of the issues. So this is honestly giving me a platform to talk about the things that I think matter most. So on this one, I think it really comes down to how we approach our business. In my view, we have to obsess about making the open Internet better than walled gardens. Walled gardens have cheap inventory. And I think there is a lot of people that are chasing cheap even if it doesn't help them in the long-term. But we have the best of the entire open Internet on our side and via our platform. Our supply chains are very different from others, especially the walled gardens. They control their small ecosystems. But I think we have something way better going for us. If you just look at any trade media today, you'll see that brands are increasingly wary of the dangers of cheap reach. Meanwhile, we have access to all the media that people love most. CTV, movies, journalism, all of music that's all the premium Open Internet. And while we don't control the supply chain end-to-end the way walled gardens do by the nature of walled gardens, I think that's a way better long-term for us and for the market, because competitive markets become more efficient over time. The competition of our markets are working for us, and we are in a very strong position being on the buy side. But there is so much to do to make the supply chain more efficient and to make our company more efficient. I just want to remind everybody that last quarter, I outlined 10 macro factors or secular tailwinds that are driving our business. Those have not changed. We believe that while our share has been growing faster than any of our scaled competitors, I also believe the opportunity is growing, too, and that's why we are recalibrating now. I believe that we can reaccelerate our growth again. For us, we need to focus on what we're doing about it, and that's the 15 themes that we outlined. And just to summarize a couple of those. We need to focus on scale. We need to focus on the hole that Google and Facebook are leaving as they turn their attention away from the open Internet. We need to promote our objectivity against cheap reach. We need to improve the supply chain, in fact, we are obsessing about it. We need to grow CTV. And right behind that, we need to grow audio, while CTV may be the biggest opportunity. Audio might be one of the most untapped and I continue to argue it's the most on-sale corner of the Internet. We need to grow our JBPs or, in other words, get closer to brands and maintain our closeness with the agencies we have proven for years now that we can do both, and we need to ship product for the future, and that includes AI, that includes getting Kokai to 100% before the end of the year. So we have a lot of work to do, and we are incredibly focused on it. We are all in agreement on what needs to happen in order for us to take the company to the next level. But Laura, I know there is a lot that you can elaborate on Justin's second part of his question from the financial perspective. Laura?

Yes. Thanks, Justin. On the investments required for 2025, first just looking back at 2024, we delivered an incredibly strong year in terms of profitability and cash flow generation. And we exited the year with a strong balance sheet. So as I mentioned in the script, we anticipate a modest increase in the growth rate of our operating expenses in 2025 compared to previous years. And as a result of that, we would expect some deleverage for the year. Our investments are going to focus on key areas such as infrastructure and talent and those incremental investments align with the recalibration efforts Jeff outlined in his prepared remarks. So we continue, as we always have, to be very deliberate about our investments in our hiring. Our capital intensity also remains low. We expect CapEx to be approximately 5% of total revenue. And when I look across our growth drivers frankly, I believe nearly all of them are still in their early stages compared to where they will be in 5 to 10 years. So if we generate significant revenue gains, we'll continue investing. And if not or if the current environment significantly changes, we'll have the flexibility to adjust our investment pace accordingly. I also just want to point out that today, we announced an additional share repurchase authorization, bringing the total to $1 billion. As of the end of 2024, approximately $464 million remained on the authorization. So as I've always said, we take an opportunistic approach to our share repurchase program. We are guided by market conditions on our capital priorities. So that's how I would summarize our 2025 investments.

Thank you. The next question comes from Youssef Squali with Truist Securities. Please proceed.

Awesome. Thank you guys for taking the question. So Jeff, I'm very curious about your Google comments. So are you already observing a significant shift in advertiser sentiment? Or is the transition occurring at a much more gradual and measured manner? And if it is, how do you frame and size that lower term opportunity? And then Laura, just quickly, what was the political contribution in Q4, please? Thank you.

Thanks for the question. So I'll try to be a little more brief on this one. So Laura can answer, we can continue on. But let me just frame what I think is happening with Google and first start by just talking about what's happening right now and has for the last little while. The network business at Google has been shrinking on shrinking for years. And to me, this is evidence of the de-prioritization. Google continues to focus on Gemini and Cloud and AI and Search and YouTube, I think that makes sense for them to do if you look at where the money comes from. I think the network and open Internet business is way less important to them than it has ever been. So as a result, I'm confident that one way or another, Google is going to exit the open Internet. And I think that makes sense actually for them. If you think about it, most of their antitrust and regulatory problems come from the ways that they have managed the open Internet in the past, and that has created a lot of baggage for them today, especially as it relates to interactions with governments and markets around the world, as they look to really grow in places like Gemini and Cloud and AI and Search and YouTube. So if you then look more closely at where we compete specifically. And I've often said, we don't compete with big Google. We compete with the 27th highest priority at Google, which was once DV360. And now I believe that has been downgraded when you compete with something like the 47th highest priority at Google. But that is less and less becoming a competitor because the majority of spend that is going through DV360 seems to be routed to YouTube or at least that's what the evidence suggests. So I believe that regardless of what happens with the pending trial, Google will distance itself from the open Internet. The trial could make it so that they leave quickly and with some sort of announcement or they could keep backing away slowly. But either way, the trend suggests that there is a hole and it is getting bigger. I think Google will leave a very big hole eventually, and that is a big opportunity for the rest of us in the open Internet. I think it makes this possible to continue to service the open Internet and their de-prioritization creates more room for us. I think we can benefit from it more than any other company. But in my humble opinion, Google has been the biggest hindrance to the effective supply chain of the open Internet than any other company, and abrupt change could happen this year or next, and that would be good for us. But at the same time, we have to be positioned well to capture the opportunity. I do believe that opportunity is getting bigger. And if you ask me what I lose sleep over, I lose sleep over missing the opportunity of being ready for that opportunity. And it is part of the reason why I'm actually excited about all the changes that we're talking about today because I believe that the changes that we're making are helping to make this company more scaled, so that we can respond to the hole that's being left from these very big companies paying less and less attention to the open Internet. Laura, the second part of the question?

Yes. Thanks, Youssef. Just quickly on political. It was about 5% of the business in the fourth quarter, and that was a peak. So for the year, it was in the low single digits.

Okay. The next question comes from Jason Helfstein with Oppenheimer. Please proceed.

Thanks for taking my question. So Jeff, I just wanted to ask a bit about Amazon. It's gotten a lot of investor attention, a lot of trade press as far as the company making improvements to their DSP, getting aggressive with Prime Video ads. Just how do you view them in the competitive landscape? Did you see any kind of change in the fourth quarter? And just, I guess, how do you think about them as a competitor going forward? Thank you.

You bet. Thanks for the question. So of course, when you go through a recalibration and you're in a moment like this, I think it calls for a reflection of retrospection. And I've spent a lot of time thinking about sort of what are we sure of, what are the bets that we doubled down on. And as I wrote in the first business plan and I've been saying for 15 years, at end-state, there's only going to be a handful of DSPs, I think one of them, probably one, maybe two. But with today's visibility, I would say there's likely to be one is going to be an independent and objective DSP. And that should get the lion's share. As it relates to Amazon's DSP, objectivity matters more than it ever has. Every day that goes by, it matters more and more. And Amazon's objectivity problem is way worse than Google's because Amazon competes with nearly every company in the Fortune 500 or at least the majority of them. But I know there's a lot of focus that goes to Amazon as it relates to advertising. And I think it is really important that investors parse out the three roles that Amazon plays in advertising. The biggest one by far is that they are a search engine, competing with Google's core business if you will. And that is the biggest source of revenue for them in advertising. The second is probably Prime Video. And I think that one is very interesting because I think that the right way to look at them is somebody like Paramount or like Box. They are creating premium content, and they created a lot of ads as a result of that. But I see no reason why that shouldn't join the premium open Internet and that we shouldn't partner with them on that. And I do think long-term, that's in their best interest and ours as they think to monetize that. And as we've talked about before, I believe Amazon tends to look at things separately and try to get every department to be profitable on their own. And I do think that that creates a big opportunity for us. As it relates to the DSP itself again, they have an objectivity problem that's a much, much smaller business than the other two. And I think that particularly the second one represents an opportunity for partnership. The third is a competitor that I don't view nearly the competitor that most of the other players in the space are simply because of their objectivity problem that over time, I think gets worse for them. So I'm excited about what that means for us and for our future and our prospects to compete in what I think will be a more and more competitive market as the TAM gets bigger. Thanks Jason.

The next question comes from Jessica Reif Ehrlich with BA Securities. Please proceed.

Thank you. I have two questions, one for Jeff and one for Laura. Jeff, it appears that OpenPath is reaching a crucial point this year, and it's among your top five priorities. Could you share some details about your plans for the upcoming year and how the acquisition of Sincera might boost OpenPath adoption? And Laura, could you provide some insight into the expense ramp? Your guidance for Q1 suggests a notable compression in margins. Does this mean we should expect full-year margin pressure, or is Q1 likely to experience the most significant impact on operating expenses?

Thank you for the question. First, I want to remind everyone about OpenPath. We have enabled the largest content owners globally to connect with us directly. If they prefer to handle their own yield management, they can do so without using a supply-side platform (SSP). They have the option to act as their own SSP if they choose. We anticipate that many major content owners will pursue this, particularly in connected TV and audio, as it is financially beneficial and allows them to manage their yield optimization. Although it has taken some time for them to adopt this approach — primarily because they need to develop the necessary technology — we have made this option available for a couple of years. As competition in the streaming market intensifies, and given the increasing discrepancies between SSP business models and the needs of content owners and streamers, there is a growing interest in direct integration for yield management. Due to the recent deals we have signed, we are very confident that 2025 will be a pivotal year as we begin to see substantial growth after a long period of preparation. This growth will lead to a more efficient supply chain. To support this, we acquired Sincera, a metadata company that allows us to assess the entire supply chain effectively, giving us and others in the open Internet visibility to make necessary improvements for a more efficient supply chain. We are not keeping this information to ourselves but are dedicated to helping everyone in the ecosystem enhance their operations. I believe we have a greater responsibility than other players in this space because we are leading the open Internet and can significantly improve the supply chain if we fulfill our role correctly. The acquisition of Sincera will contribute to price discovery and set better standards, allowing us to purchase inventory solely from those who describe it accurately. If they fail to do so, we won’t buy from them. This flexibility is an advantage as the imbalance between supply and demand continues to grow. Laura, does that cover your part?

Yes. Jessica, with regard to your question about Q1 EBITDA, I did mention in the script that we do anticipate a modest increase in the growth rate of our operating expenses in 2025 and that we'd see some deleverage for the year. I wouldn't recommend thinking about it linearly. Typically, in our business, EBITDA improves as the year progresses, which is just driven by our investment choices and seasonality in business.

Thanks, Jessica. And John, we have time for one more question.

Our last question comes from Mark Mahaney with Evercore. Please proceed.

Okay. Thanks. I don't know of another company that's 32 for 33, so you've obviously been doing something right. Two questions I wanted to ask. Jeff, you mentioned senior leadership that you want to hire. So can you brief on that a little bit? Like in what areas? And then second, you mentioned resuming acceleration in revenue. So at a high level, forget about the numbers and the specific timing, what factors like could you triage, what factors would most contribute to a reacceleration in revenue at some point? Thanks a lot.

Thanks, Mark. I really appreciate it. I want to highlight one area where I believe we can enhance our team. I’m very proud that we have achieved this for 32 quarters in a row. While I’m disappointed we didn’t succeed this time, we anticipated that eventually we would miss. I’ve encouraged the team, and I’m eager to show everyone what comes next; we know people will be watching our response. I am genuinely thankful for this experience. I think we need to continue expanding our team and looking for ways to improve our go-to-market strategy. Unlike basketball, where you can only have five players on the court, in business, we have the opportunity to add more people to our team. I see potential for us to become more efficient. We have managed to operate without a COO for a while, and there is no reason we shouldn’t bring in a top-tier COO. As we aim for greater operational rigor, we will need someone to assist us in that effort. This is an obvious area for us to improve our operational efficiency. There are other areas as well, but I think this is a clear opportunity for us. What else would you like to know?

Factors that could cause reacceleration?

Yes, the factors that cause acceleration. There are so many, and it's really hard to sort of put coefficient on all of the 15 things that we set in this quarter and all of the 10 that we highlighted in terms of secular tailwinds from before. But big picture here. We have a $1 trillion TAM. We currently control a little over 1% of it. We think we have 98% of the TAM left, and the CTV should be fast-growing outside the United States should be growing faster than the United States for obvious reasons. Audio is untapped. I think Spotify highlighted this in their earnings. I think there's a tremendous opportunity for them and for us and for the open Internet. That can come from that. I think there's a lot of inefficiencies in the supply chain, but now we're just at the right size where we can change it, where we're big enough to create changes. And those are four of them, but honestly, I think I'm leaving out a whole bunch of them.

Okay, thank you.

Thank you. We have reached the end of the question-and-answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.