Earnings Call Transcript - TTD Q4 2021

Operator, Operator

Good morning, ladies and gentlemen, and welcome to The Trade Desk Fourth Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to your host, Chris Toth. Sir, the floor is yours.

Chris Toth, Head of Investor Relations

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk fourth quarter 2021 earnings conference call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. 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. In particular, our expectations around the impact of the COVID-19 pandemic on our business and results of our operations in addition to potential supply chain disruptions that could disrupt advertising spend are all subject to change. Should any of these risks materialize or should our 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 also 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. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Jeff Green, Founder & CEO

Thanks, Chris. Good morning and thanks to everyone for joining us today. Q4 2021 was another outstanding quarter for The Trade Desk and an exclamation point on a terrific year. Across the board, we exceeded all our goals for 2021 which culminated in crossing the billion dollar revenue mark, ending the year with $1.2 billion in annual revenue, an increase of 43% year-over-year. Total platform spend was almost $6.2 billion. It's only 10 years ago, May of 2011, when we received our first penny of spend, to think last year we passed $6 billion in spend. It is both astonishing and inspiring. I say that because I truly believe that we are just getting started with our innovation, our amazing team, our unrivaled customer service, and a growing roster of global partnerships. I am convinced that we will continue to outperform in an addressable advertising market that is racing toward a $1 trillion TAM. One aspect of our business in 2021 that was particularly encouraging was the pace at which we signed major customer agreements. As the year progressed, we signed an increasing number of long-term commitments with some of the largest brand advertisers in the world. Last year, the Top 25 advertisers on our platform increased their spend on the platform more than 50% compared to the prior year. And that's before some of these long-term agreements have fully activated. Momentum is also growing due to increased awareness and understanding of our value among brand marketers and their agencies. I will spend my time today looking back on the highlights of 2021, but also discuss the factors that are shaping 2022 into what I expect will be the most impactful year The Trade Desk has ever had. I believe this will provide color on why brand marketers are increasingly gravitating to our platform. Looking back on 2021, one of the highlights was the launch of our biggest product ever, Solimar. As you know, we launched Solimar on 7/7, after years of investment. But as with any major platform overhaul, there's always the question of exactly what the impact will be. The answer is that Solimar has been an upgrade to our business in every way. It helps advertisers and agencies embrace completely new ways of thinking about data, measurement, goal setting and campaign optimization. I'm pleased to report that as of today, the majority of ad impressions on our platform are now bought via Solimar. At the current pace, we expect to deprecate the legacy platform before the fourth quarter of this year. To accomplish a complete transition to the new platform within about a year is an impressive feat by anyone's standards. It speaks to the value that advertisers are realizing with Solimar. Solimar was created to help advertisers make better data-driven decisions at every step of the marketing funnel and in doing so take full advantage of the power of the Open Internet. We wanted to make setup easier and decisions more data driven. We also wanted to make certain that our AI and machine learning product branded as Koa was always on when the benefit was obvious. With a better blend of human and machine, advertisers can apply the right data automatically. Solimar can optimize everything from predictive clearing to audience targeting to price discovery. Every ad campaign becomes more effective, every ad dollar is working as hard as it can. As a result, the flywheel spins faster, activating even more campaign dollars. Let me share some data about how the move to Solimar is going. First, co-adoption on Solimar is now over 90%, nearly 50% higher than with the legacy platform. Nearly all of our advertisers are getting richer data-driven insights and recommendations on how to reach and measure their target audiences most effectively and across the full scope of channels to optimize performance. In fact, average channel usage for Solimar campaigns has also increased about 50%. With Solimar, advertisers get a better perspective on cross-channel performance and insight into how an omnichannel campaign can take a consumer through an integrated advertising experience. And finally, and probably one of the most important changes: for those advertisers that have switched to Solimar, the average number of data elements applied to each impression has more than doubled. Many of the amazing results we are seeing from Solimar are due to restructuring of our data marketplace, and the courage of our data partners to try something new in the hopes of upgrading the entire Open Internet. As a result, Solimar is a bit of a twofer: one, a better decisioning engine, and two, a better data marketplace. Let me spend a moment on the improved data marketplace as it represents a significant upgrade to how the entire industry currently thinks about data and data pricing. Until now I would describe the marketplace for data in digital advertising as somewhat anemic. That's largely because of the way that data has traditionally been priced across the web. In Walled Gardens, data pricing is opaque with effectively zero price discovery. In the Open Web, historically data pricing has been more fixed than variable, which leaves little room for price discovery or even value discovery. It's akin to a real estate agent charging a fixed dollar rate regardless of the value of the home that's been sold. In the case of data that has meant that each data element could be too expensive relative to the value of the impression. This then becomes an inhibitor to advertisers who want to apply a full scope of data to every impression. But with Solimar and the new data marketplace, we have shifted our data pricing model away from fixed rates toward percentage of CPM. This would never have been possible without the support and commitment of the hundreds of data partners who participate on our platform and who were willing to make this change. This allows for much greater flexibility and data deployment based on both value and relevance. We have created a market where there's more accurate price discovery for data, which is more closely aligned to the value it creates instead of high fixed rates. Additionally, there's another major data marketplace design change that will fully roll out in the first half of '22. This change will address the major obstacle to cure the Open Internet data anemia. Currently, there is a disincentive to layer multiple data elements onto the same impression because the cost is prohibitive and price discovery has been a problem. With variable pricing now universal in our data marketplace, we can now add fractional pricing. This means we can offer, for example, a basket of data options for customers that in total doesn't necessarily cost them more, but activates more data sources and pays suppliers based on precise value created for the advertiser. In doing so data providers have the opportunity to make more money in aggregate. This creates incentive to use data whenever it adds value, and rewards data companies for the value they create. We expect that this will create the most robust data marketplace ever on the Open Internet. Not only will the Open Internet benefit, but we will be able to layer in more data significantly enriching each ad impression for the advertiser. In total, this increases the use of data. As we enrich each impression, advertisers on our platform become more effective and they invest more. Already our data marketplace changes have been so successful that we have seen advertiser bid win rates increase significantly because they have been much more precise in understanding the value of each ad impression. Again, this means advertisers are inclined to spend more because they are achieving even better ROI, making the flywheel spin faster. Looking back on another highlight from this last year, we blazed new trails in the rapidly emerging world of shopper marketing, another green field that is open to us because of the use of data. As of the fourth quarter, we're up and running with the Walmart DSP with select major advertisers. The initial results have been very encouraging. BIC is one of the early adopters. BIC is headquartered in France but is a global leader in consumer products such as ballpoint pens, lighters, and grooming. Walmart is a major retail partner for them. In December BIC ran holiday campaigns for some key products, including men's and women's razors using the new Walmart DSP. The results were even better than we hoped for. BIC achieved return on ad spend or ROAS of just under 500%. That means for every advertising dollar, they drove $5 in consumer purchases. This data is significant for a few reasons. First, with closed loop measurement, BIC is able to get a very rapid assessment of ROAS; the shopper data available in the Walmart DSP makes it much easier for brands like BIC to make the connection between campaign spend and consumer purchase. Second, ROAS of 500% is well above the industry average. According to Nielsen, a good ROAS is around 270%. So to take an industry standard benchmark and almost double it is pretty staggering. Matt DePaolo is BIC Senior Manager of omnichannel growth, and he recently spoke about the power of the Walmart DSP. To quote him directly, he said, "I don't want to overstate it. But this is something the industry has been waiting for, for a very long time. And now we finally have at our disposal... we had suspected that The Trade Desk would be a powerful complement to Walmart's capabilities, and this validated our suspicions." This represents the sentiment of many advertisers. They want retail data to help them improve their ad spend in digital. They want to better understand how media moves people through the purchase journey. I firmly believe that 2022 will be the year that advertisers start to realize the power of shopper marketing. Walmart is leading the charge here. Amy Lanzi is the Commerce Practice Lead at Publicis for North America. She recently spoke with The Current, our online news site, about how the Walmart DSP is capturing the attention of CMOs, who previously weren't as hands-on with the retailers. To quote her directly, she said, "It used to be that you would negotiate how you've got a better display in a physical store. Now it is a dynamic conversation that includes their digital shelves, and how brands can reach Walmart shoppers who are outside the retailer's ecosystem." In the coming quarters, I'll have more to say about how we're partnering with other retailers in innovative ways to unlock the power of shopper marketing data for advertisers. As I mentioned, this is just one of the areas where brand marketing leaders are gaining a greater appreciation of the value of programmatic. When looking back on the amazing success and land grab year that was 2021, it is impossible to not spend some time talking about the rise of CTV. In 2021, CTV was once again the largest driver of spend on our platform. Last year, more than 15,000 advertisers spent on CTV on our platform, and we saw the number of advertisers that spent over $1 million in CTV almost double compared to 2020. I highlight CTV again because it is such an important driver of the brand shift to programmatic more broadly. For most brands, TV is the largest element of their advertising campaigns. The TV team is often the power center of a brand marketing department. As TV digitizes, thanks to the massive consumer shift to streaming, advertisers are embracing the power of programmatic in their most significant channel. Once TV advertisers realize its potential, focus rapidly shifts to the value of programmatic in an omnichannel context. This is what I mean when I say that CTV is probably the most important driver of change across digital advertising. Of course, it is not just the consumer shift that's driving advertisers to embrace CTV. TV content companies are also evolving their models at warp speed, and we continue to partner with all of the major CTV providers worldwide. Each year, the inventory avails on our platform continue to rapidly increase. As we enter this year's upfront season, I expect we'll continue to see large TV companies further prioritize CTV as a part of that process. Indeed, The Trade Desk has already been invited to participate in some of the digital upfront programs this year. While we've talked a lot in recent quarters about partnerships with major TV content companies in North America and Europe, the same dynamic is happening now in Asia, where viewers are also rapidly shifting to CTV, or OTT. For example, we recently launched with GYAO!, one of the fastest growing streaming platforms in Japan. Regardless of location, major brand advertisers increasingly realize the vital role that CTV plays in reaching audiences that have left or were never present on linear TV. We recently ran a campaign for one of Europe's top carmakers, Renault, in Spain, working with our agency, Omnicom. That campaign focused on the launch of a new SUV in Spain and Renault wanted to reach as many potentially interested car buyers as possible. With CTV, Renault achieved a significant double-digit incremental reach over linear. We're seeing the same phenomenon with brand advertisers around the world. They're embracing CTV as an essential element of their massive TV ad campaigns. Because of the outsized effect that TV has on most marketing departments, this growing adoption spins the flywheel faster for us across all advertising channels. Now switching gears a bit, I'd like to talk about the future and why 2022 is set up to be our biggest year ever, not just in financial performance, but also in strategic leadership, and increasing our market share. Yesterday, we announced another very big initiative, OpenPath. This is the biggest direct step we've made yet to improve the supply chain for our clients, us and the Open Internet. Let me take a moment to explain what this is. OpenPath is a product that enables content owners from TV and across the web to plug in to CTV directly. OpenPath is a direct pipeline to publisher inventory for any publisher that chooses to integrate directly with us. An inefficient supply chain is bad for advertisers and for publishers. We're very pleased to launch OpenPath with some of the largest journalistic publishers in the world, including The Washington Post, Condé Nast, Reuters, the Tribune, and USA Today. OpenPath is especially helpful for larger publishers and content owners that want to do their own yield management. We're not competing with SSPs or becoming an ad network, we represent the advertisers in the auction. Our goal in creating this product is to provide a high bid directly to publishers and content owners who want to do their own yield management. One of our core operating principles since our inception is the pursuit of a level playing field for digital advertising with transparency on all sides. We believe that's the best way to build trust in digital advertising, which will drive overall market growth. We also believe that on a level playing field, everyone gets to compete fairly on the value they provide. As a demand side platform, we're confident that on a level playing field, we will continue to outperform and gain more market share of the growing TAM. With this product launch, we also announced that we are no longer buying from Google's so-called Open Bidding or OB product. You may recall that Open Bidding is one of the main focus areas of recent antitrust lawsuits against Google. With this and as part of our ongoing supply chain optimization initiatives, we will continue to prune supply paths that are opaque, unfair or inefficient. That said, we plan to continue to buy on Google's Ad Exchange, and where all the SSPs that provide yield optimization for publishers exist, we expect that this product and policy change will result in more spend to them. You might be interested as to why we started with journalism in terms of our initial partners. Journalism has more stake than perhaps any other market segment here. Journalism relies on advertising. The ad model for newspapers of 30 years ago has evolved into something very different today. It's vital that we preserve the value exchange of advertising for journalism content, because journalism is such an important factor in the free flow of trusted information in any functioning society. But OpenPath will scale to any publisher that wants a direct path to our demand. Let me just reiterate that this does not mean that The Trade Desk is getting into the SSP or the supply side business. This is not about that at all. We won't be getting into yield management or any of the various value propositions that a number of the great SSPs provide. OpenPath is simply a direct path into inventory. This is something that our advertising clients have been asking us for a long time. They have become more aware of the supply side inefficiencies over the past few months. The impact will be positive for SSPs that have invested in their publisher relationships and are offering value in terms of yield management from companies such as Magnite, PubMatic and Index Exchange. As with any maturing market, as it becomes more efficient, the companies that succeed will be the ones that provide clear value and differentiate themselves to customers. As I said, we are launching OpenPath in partnership with some of the world’s leading journalistic outlets. They have been incredibly enthusiastic about this initiative. Condé Nast said, "We are pleased to be working with The Trade Desk on OpenPath to enable deeper conversations with our clients about inventory transparency and performance." The Washington Post said, "We have long believed that a more streamlined supply chain benefits both advertisers and publishers." McClatchy said, "OpenPath aligns with our objective to build a transparent, well-lit digital ad environment, driven by journalism that strengthens the communities we serve." Those are just a few, but I could not be more excited about the early momentum for OpenPath. Of course, another area I'm especially excited about for 2022 is the progress the industry is making with UID2. More major publishers around the world are committing to UID2, and more advertisers are transacting on UID2 on our platform. KG Media, Indonesia's biggest media network, is the latest publisher in Asia to announce its support of UID2. KG boasts an extensive portfolio of publishing properties including newspapers, TV networks, and retail. They believe that UID2 is not just a replacement but a significant upgrade to cookies as a common currency of the open internet, creating a better experience for both consumers and advertisers. That was certainly the experience for CoCoVillage, a manufacturer and retailer of high-end children’s toys and furniture servicing the North American market. They wanted to secure an easy way to leverage their valuable first-party CRM data to find new audiences for their products. Working with UID2 they were able to model new potential customer groups, drive incremental reach of almost 40%, and a return-on-ad-spend of more than 1000%. Additionally, we believe many of the same publishers that are signing up for OpenPath will also sign up for UID2. We expect that these two products, which both improve the Open Internet, will help to increase the adoption of the other. In addition to publishers and advertisers who are adopting UID2, important industry trade groups are also weighing in with their support. Perhaps one of the most important groups is the MMA, because they represent the voice of the brand marketer, and their board comprises many of the world’s leading CMOs. I was invited to join their board last year, precisely because brand marketers want to be fully engaged in new approaches to identity and measurement. The MMA views UID2 as a solution that can solve for the identity needs of the open internet. To quote their CEO, Greg Stuart, directly: "Identity is the key to the future of marketing, and especially important to marketers in taking full advantage of the larger reach and need for transparency to consumer consent that the open web affords. UID2 has great potential to be a solution that the whole industry can work on collectively to craft a compliant and effective identity solution for everyone." To finish, let me just summarize why I’m so bullish about 2022 and our future. More than ever, the biggest brands in the world appreciate the value of data-driven advertising, and increasingly they are embracing our platform. I’ve spent time today talking about some of the more compelling recent drivers of that growing interest. Over the years, we have built trust with those advertisers and their agencies that we can deliver premium value to their campaigns. This business model is key in generating alpha in revenue and market share growth. We continue to have a customer retention rate over 95%. Our engineering teams continue to lead the industry in innovation, charting new value opportunities for our advertisers. As a result, we are one of a few high-growth technology companies that consistently generates strong adjusted EBITDA and free cash flow. Our profitability and positive cash generation allow us to make the long-term investments that will ensure we can continue to provide that premium value, which includes Solimar, which is creating new value for advertisers by unleashing data and driving a greater return-on-ad-spend, spinning the flywheel for advertisers’ campaigns. It’s driving our leadership in CTV, the fastest-growing channel in digital advertising, and a driver of new thinking across the marketing spectrum. It positions us to make the supply chain more efficient for our advertisers and agencies in 2022, with initiatives like OpenPath. It enables us to pioneer work in shopper marketing, a $100 billion market. You’ll see us forge partnerships with major retailers worldwide, including Walgreens. Just yesterday, they announced that advertisers will be able to leverage new audience data services on our platform, based on anonymized Walgreens' shopper data. It has allowed us to become a leader in political advertising. 2022 will be an important midterm election year in the United States. We have spent years building an objective and independent platform, open to registered candidates on all sides, that can help drive discussions of substance in the political arena. In 2022 we will make meaningful progress with partners and industry bodies to make measurement better, especially for CTV and all digital spend outside of the U.S. Profitability and free cash flow will also allow us to invest for global growth. Roughly two-thirds of global advertising spend is outside the U.S. This is a major focus for us. Once again, we saw strong growth in our international markets in the fourth quarter, driven by CTV. In fact, our CTV share of spend more than doubled in Europe in the quarter. We continue to open promising new markets, such as Taiwan, India, Italy and the Nordics, with impressive leaders who are making very rapid inroads. We are a global company and we expect our international revenue to outpace North America over the long-term because of the investments we’re making in these markets. We are very well positioned for 2022 and beyond. Our business has many growth drivers, as we’ve discussed today. What I’m most excited about is the shift we’re seeing among more and more senior brand marketers. In a variety of dimensions, marketers are becoming more familiar and enthusiastic about programmatic advertising. Whether it’s the performance value of Solimar, the holy grail of retail data, the CTV revolution, or new supply path models, they understand the power of data-driven advertising to help them differentiate and drive growth in their businesses. And that’s the most rewarding thing of all. I could not be more excited about the opportunity in front of us and our growth prospects into 2022 and beyond. With that, I’ll pass the baton to Blake, who will give you more color on the quarter.

Blake Grayson, Chief Financial Officer

Thank you Jeff, and good morning everyone. We delivered strong results in the fourth quarter, capping off a great year for our business. Q4 revenue was $396 million, a 24% increase from a year ago. Excluding political spend related to the U.S. elections which represented a high-single digit percentage share of our business in Q4 of 2020, revenue increased approximately 36% year-over-year. That represented a slight acceleration from the prior year which is impressive considering we experienced a strong recovery at the end of 2020. For 2021, we ended the year with almost $6.2 billion in spend on our platform and nearly $1.2 billion in revenue, representing 43% year-over-year revenue growth. We also ended the year with adjusted EBITDA of just over $500 million and generated nearly $320 million in free cash flow in 2021. We are enthusiastic that the combination of our business strategy — of being the default DSP for the open internet where we only represent the buy-side and avoid conflicts too often prevalent in our industry by those who own inventory — along with a proven business model that generates strong adjusted EBITDA and free cash flow, is producing solid and consistent growth, as we continue our progression towards a total addressable market of around $1 trillion. We have been encouraged to see advertisers accelerate their shift to data-driven advertising in 2021. Our results reflect the ongoing strength of programmatic advertising and the value that The Trade Desk provides thousands of agencies and brands as they work to connect with their customers across our platform every day. For both the quarter and the full-year, Connected TV continued to be our fastest growing channel at scale around the world. As Jeff mentioned, Solimar is now over 50% adoption and we are seeing promising results as customers, on average, are utilizing Solimar to leverage more data elements than they did previously. In Q4, our partnership with Walmart officially kicked off, UID2 had significant momentum and as we have consistently stated, we have seen no material impact on our business from the iOS platform changes in 2021. In addition to the strong top-line performance in Q4, we generated $192 million in adjusted EBITDA, or about 48% of revenue. When we outperform on the top-line, we often see that outperformance drop down to EBITDA, which it did again in Q4. EBITDA continued to benefit from temporarily lower than expected operating expense growth, partly driven by the continued virtual environment that we are still predominantly operating in. Even recognizing that, we are extremely proud of our continued ability to substantially grow our top-line revenue while also producing meaningfully positive EBITDA. From a scaled channel perspective, CTV, by a wide margin, led our growth again during the quarter. For Q4, Video, which includes CTV and mobile, each represented the largest percent share of spend. Display, which also grew very nicely in Q4, and audio ended the year representing about 15% and 5% of our business, respectively. Geographically, North America represented 86% and International represented 14% of our business for the quarter. Shanghai and Hong Kong drove spend growth in Northern APAC and Australia and Singapore led our growth in Southern APAC. In terms of EMEA, our London and Paris offices led the way. CTV growth across EMEA was again quite strong in Q4, and still represents a fraction of the share of spend we see in North America. In terms of the verticals that represent at least 1% of our spend, nearly all of them exhibited healthy growth during the quarter. Shopping, which includes ecommerce, Hobbies & Interest, and Business were the strongest performers in Q4. We believe there is still the potential for share gain and improvement in most of our verticals. The Law & Politics vertical decelerated materially year-over-year in Q4, as expected, due to the comparison against the 2020 U.S. election cycle. Operating expenses were $421 million in Q4, up 97% from a year ago. As expected, the growth in operating expenses during the quarter was driven primarily by stock-based compensation, specifically $158 million in stock-based compensation expense related to a long-term CEO performance award that was recorded in G&A expense. The $158 million expense included a tranche of the grant that accelerated based on stock price achievement and relative benchmark performance thresholds during Q4. In Q4, excluding stock-based compensation, operating expenses were $216 million, up 23% year-over-year. For the full year, we gained significant operating leverage in both our platform operations and G&A areas as we scaled the business and improved our efficiency. Income tax was a benefit of $35 million in the quarter mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. Adjusted net income for the quarter was $208 million or $0.42 per fully diluted share. Net cash provided by operating activities was $163 million and free cash flow was $151 million in Q4. The strong cash generation during the quarter was driven predominantly by our operating results. I would like to remind you that the timing of cash collections and payments can significantly impact cash from operating activities and free cash flow results on a quarterly basis. DSOs exiting Q4 were 107 days, down 14 days from a year ago. DPOs were 91 days, down 10 days from a year ago. We exited Q4 with a strong cash and liquidity position. Our balance sheet had $959 million in cash, cash equivalents and short-term investments at the end of the quarter. We have no debt on the balance sheet. Turning now to our outlook. The year has started out strong and we estimate Q1 revenue to be at least $303 million which would represent growth of 38% on a year-over-year basis which is a slight acceleration over the prior year. We estimate adjusted EBITDA to be approximately $91 million in Q1. Turning now to expenses. In 2022, we anticipate our stock-based compensation to rise from our normal run-rate. This is being driven by approximately $265 million of stock-based compensation expense we expect to include in 2022 related to the long-term CEO performance award. At the end of 2021, the performance award had $661 million in unrecognized stock-based compensation, which is expected to be included in our G&A expense over approximately four years but could be accelerated if the threshold criteria is met earlier than expected. The total amount expensed is unrelated to whether any of the performance award thresholds are ever met. Only shares that have met the threshold criteria outlined in the performance plan are factored into our total shares outstanding. Excluding the performance grant, for 2022, we expect total operating expense growth to increase on a year-over-year basis. Considering our ability to generate strong EBITDA and cash flow, we see significant opportunities to invest in our business with a massive available market in front of us that can generate long-term growth, such as the generational shift to connected TV, the expanding retail data opportunity and the expectation that our international operations will grow faster than North America over the long-term. To help take advantage of those opportunities, we expect to increase our rate of hiring over pandemic-affected periods and will do so in a competitive hiring market. We also expect that return-to-work expenses will begin to revert to pre-pandemic levels, including live events, travel and other related activities. Understanding all of that, we do expect the operating expense structure of the company to be better than it was prior to the pandemic, and over the long term expect Sales & Marketing and Technology & Development areas to represent a larger share of our investment. We are proud of the fact that we are one of a few high-growth technology companies that can consistently generate strong adjusted EBITDA and free cash flow. We expect 2022 capital expenditures and capitalized software investments to be at least $75 million. We expect data center and infrastructure spend to drive the majority of the growth year-over-year and represent a larger share of our expenditures relative to office facilities compared to the prior year. And finally, with regards to tax — absent any changes to U.S. tax laws, we expect our full-year 2022 tax rate to be about 25%. This is obviously impacted by any tax benefits associated with employee stock-based awards, the timing of which can be variable. In closing, we are pleased with the momentum of our business and the strong start to the year. We are highly optimistic about the long-term prospects for our business in 2022 and beyond. With large growth drivers such as CTV, our international business, our retail data opportunity that just kicked off in Q4 with the Walmart DSP, the 2022 mid-term elections in the US, and our recent platform upgrade in Solimar, I believe we have significant opportunities to grow our business. In addition, we are in a position to drive not only long-term growth but also to scale our business efficiently and continue to improve in the years to come. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

Operator, Operator

Certainly. Ladies and gentlemen the floor is now open for questions. Your first question is coming from Shyam Patil from Susquehanna. Your line is live.

Shyam Patil, Analyst (Susquehanna)

Hey guys, congrats on the fourth quarter results and the strong outlook. I've got one question, Jeff. There's some news out this morning. I was hoping you comment on, just curious for your initial thoughts on the Android news. And just what kind of impact you see for The Trade Desk and the industry? Thank you.

Jeff Green, Founder & CEO

Thanks, Shyam. I'm incredibly proud of the team and what we accomplished in 2021 and especially the strong finish in Q4. I'm equally encouraged by the momentum so far this year. There has been a lot of discussion about Google's announcement this morning. I don't believe this will have a negative impact on our business; I think it has a good chance of having a positive impact. Google is under scrutiny from antitrust and privacy perspectives, so this move is not a surprise. They created an extended transition period, which I think is very good for the industry. They have learned from Apple's rollout and the rhetoric is focused on improving the Internet. From our perspective, we support an explicit opt-in future. When a UID is present and we have an opt-in, great. When we don't, we'll do modeling, and we'll be fine. Google recently tested FLoC and Topics, and those haven't been well received in antitrust and privacy discussions. I'm encouraged by Google indicating they will treat themselves equally in agreements with regulators. Foundationally, Google needs targeted advertising, which makes them an important participant in this broader industry shift. Regarding mobile specifically, device IDs are relevant to in-app advertising but that isn't all of mobile. Facebook and others monetize many impressions on mobile, but we evaluate ad opportunities across all channels and choose the ones that are best for our clients. Even if some impressions lose metadata, we still get to choose among ad opportunities, and it doesn't change our core value proposition. It may shift some dollars toward impressions with richer metadata, notably CTV. If I were Google, I'd want solutions like UID2 to succeed but I'm under too much scrutiny to endorse it outright. What they did today effectively clears a path that could benefit UID2 adoption and makes CTV advertising even more appealing. Everything in CTV has a login controlled by content owners, none of whom have monopolistic control, so personalization is managed by content owners. Lastly, Apple is doing more non-ad personalization using Apple ID, and I think this points to an opt-in future with clear consent — the kind of future we've advocated for. So, bring on the explicit opt-in future.

Operator, Operator

Thank you. Your next question is coming from Vasily Karasyov from Cannonball Research. Your line is live.

Vasily Karasyov, Analyst (Cannonball Research)

Thank you very much. Jeff, I wanted to follow-up on your comments on shopper marketing. So can you give us more details about how the Walmart launch went in Q4, and the way your relationship with Walmart is going this year and maybe in the future, and also Walgreens announcement yesterday, how different is that from what you're doing with Walmart? And are you talking to other retailers and if you are, what kind of pushback or gating factors are you seeing there?

Jeff Green, Founder & CEO

Thanks, Vasily. Walmart has been a fantastic partner. We're working very closely to pioneer new thinking about retailer and brand relationships, and of course, shopper marketing and retail data. We launched in Q4 in a test phase with roughly 20 large brands that were running on a Walmart DSP powered on our platform. We are continuing to partner with more retailers. Most notably, we announced our partnership with Walgreens yesterday, where they are launching their own self-service and cleanroom solutions on our platform. The shopper marketing TAM is at least $100 billion. Retail is highly fragmented, so antitrust concerns are less relevant in this space compared to other areas. We're talking to many retailers. The value of retail data is about closing the loop to enable end-to-end measurement at the time of conversion. While some measurement issues have impacted other platforms, retailers providing conversion-time data deliver clearer signals. The changes in the industry over the past months highlight the need for these retail partnerships. We're very encouraged and expect more partnerships to come. 2022 will be an important year for shopper marketing growth.

Operator, Operator

Thank you. Your next question is coming from Justin Patterson from KeyBanc. Your line is live.

Justin Patterson, Analyst (KeyBanc)

Great, thank you very much. Jeff, could you please expand on why OpenPath isn't a threat to the SSPs as well as just the significance in dropping Google's Open Bidding and then for Trade Desk specifically, how should we think about the potential benefit to spend and unit economics on the platform from this type of initiative, particularly as it starts to pair up with Unified ID 2, thank you so much.

Jeff Green, Founder & CEO

Sure. Let me explain both parts. First, Open Bidding is Google's response to header bidding. Header bidding was an important development that made the market more competitive and shifted publisher decisioning away from a single dominant actor. Google created Open Bidding as an alternative, and while it had some positive effects, it did not create a level playing field and favored certain parties. There are antitrust concerns related to Open Bidding. We decided to stop participating in Open Bidding because nearly every publisher in that system has another path to inventory. We don't lose inventory; rather, we bias toward paths that are more transparent and fair, which we believe is better for advertisers and publishers. The only parties negatively impacted are those who benefited from an unfair structure. OpenPath is different. It gives publishers the ability to integrate directly with us. This is not us getting into the SSP business. SSPs provide yield management and try to maximize publisher yield. With OpenPath, when publishers want to do their own yield management, they can receive our bid directly and compare it to other demand sources. This is likely to be relevant for very large publishers. We think OpenPath will improve the supply chain for both CTV and journalism specifically. We started with journalism because it has been heavily affected by supply chain changes and identity fights. Many journalistic outlets need higher CPMs to stay in business. We're excited that our launch represents a path to 70% of newspaper readership in the U.S. between partners like Reuters, The Washington Post, USA Today, Hearst, Condé Nast, Tribune, and others. I want to emphasize that preserving our objectivity is paramount. We represent buyers — advertisers and agencies — and we are not doing yield management. We're simply willing to transmit a bid directly to content owners when they want that. We believe this creates a more effective supply chain and gives momentum to the Open Internet, which is being fueled largely by Connected TV.

Operator, Operator

Thank you. Your next question is coming from Tim Nollen from Macquarie. Your line is live.

Tim Nollen, Analyst (Macquarie)

Thanks very much. I'd like to turn back to the CTV topic, if I could, Jeff. You mentioned the upfront markets coming up and your role in the digital upfront, wonder if you could talk a bit more about maybe the upfront in general, I think it's not just digital and sort of what you're doing with the network groups and the agencies in that process. Relatedly, could you address the availability of ad impressions in CTV, which I guess fluctuated over the years from being in short supply to being more plentiful? Maybe what is the current state overall, and within all of these OTT services that you're servicing? And then lastly, relatedly, as well, you mentioned measurement for CTV, any more color you could give us on your efforts in helping measure CTV more effectively would be great. Thanks.

Jeff Green, Founder & CEO

Absolutely. I've never been more bullish on CTV than I am right now. Our partnerships with content owners and their evolution toward AVOD, SVOD and hybrid models are accelerating adoption. AVOD is often a better way for many content owners to monetize, and consumers often prefer ad-supported models when done well. In many cases, a large portion of consumers prefer lower-cost ad-supported options. We're also seeing subscription fatigue — too many subscriptions, high costs — which pushes consumers and content owners toward advertising. Regarding inventory, the landscape shifted from a handful of dominant SVOD players to many more AVOD and hybrid services. As more publishers embrace advertising, the inventory pool grows. This increases the value of real-time decisioning and programmatic buying. With more publishers prioritizing advertising, and with more inventory becoming available, the importance of sophisticated audience-based decisioning increases, which plays to our strengths. On upfronts: historically, upfronts were about committing to TV inventory and shows, but increasingly data and audience are being brought into that conversation. Advertisers want audience targeting and real-time decisioning even when planning inventory months in advance. We're seeing invitation to participate in upfronts and evolving digital upfront formats where data-driven decisioning is central. That transformation is positive for us because we enable better decisioning, higher CPMs for publishers, and better outcomes for advertisers. We expect upfronts to continue to evolve in this direction over the coming years.

Chris Toth, Head of Investor Relations

Thanks, Tim.

Operator, Operator

Thank you. Your next question is coming from Youssef Squali from Truist Securities. Your line is live.

Youssef Squali, Analyst (Truist Securities)

Thank you very much, Jeff, congrats on the consistent performance. Two questions, please. For Unified ID 2.0, you're clearly getting a lot of adoption within agencies, within streaming media networks, et cetera. Can you maybe speak to adoption within the large advertiser base, maybe anything to share in terms of adoption within the Top 100, can you give maybe examples of how they're actually using it? And on Solimar, thanks for some of the metrics you shared, but can you maybe share some additional color on any learnings from the upgrade in terms of the customer experience, and maybe the lift in spend relative to either the previous platform you had or even relative to your expectations? Thanks.

Jeff Green, Founder & CEO

Thanks, Youssef. On UID2: momentum has been very strong. January avails with UID presence reached an all-time high and we continue to grow rapidly outside the United States. We're partnering with infrastructure providers like LiveRamp and Snowflake, and many of the largest advertisers on our platform are now transacting on UID or in the process of implementing it. Solimar makes adoption easier, and OpenPath will have a huge impact on accelerating UID because when we integrate directly with publishers, SDKs can include capabilities that encourage implementation of UID so we can provide more data-driven advertising and higher CPMs. We've seen significant increases globally, particularly in APAC. We're on over billions of devices at this point. External pressures around privacy and antitrust are creating secular tailwinds for UID2 adoption. On Solimar: adoption has been rapid. We achieved majority impression buying on Solimar earlier than expected — over 50% of impressions are now bought on Solimar. We expect 100% of impressions to be on Solimar before the end of the year, possibly sooner. Solimar improves the user experience, makes implementation easier and increases stickiness. The average number of data elements applied to each impression has more than doubled. Koa adoption is over 90%. Average number of channels used has increased by about 50%, indicating more holistic buying across mobile, display, CTV, video, audio. There's been a massive increase in first-party data usage, which is enabled by Solimar and encouraged by UID. Overall, Solimar has had a positive impact on both UX and data usage, and I expect it to accelerate UID as well.

Operator, Operator

Thank you. Your next question is coming from Laura Martin from Needham. Your line is live.

Laura Martin, Analyst (Needham)

Good morning. Can you hear me okay, Jeff?

Jeff Green, Founder & CEO

We can, how are you, Laura?

Laura Martin, Analyst (Needham)

Hi, I'm great, Jeff. Thanks. So the question I've gotten more frequently this morning after you reported earnings for CTV. So you said a couple of times that CTV is growing faster and driving your growth, so the question then becomes, you grew your total year revenue at 42%. But the fourth quarter was 24%, does that mean that CTV growth essentially had... any kind of metrics you can give us and how big is CTV today as a percent of your total revenue? Any kind of clarity you can give us about CTV size and momentum and whether it's flowing? Second, business-model housekeeping item: very excited about the data marketplace, you talked about a lot today. My question is, do you have a rev share like other platforms for the data that's bought on your platform or are you just getting more spend on your platform? And that's how you're making more money from implementing that data marketplace? Thanks, Jeff.

Jeff Green, Founder & CEO

Great questions, Laura. We don't break out specific channel revenue percentages publicly. What I can say is CTV is definitely growing faster than our other channels and is a leading driver of our growth. The Q4 24% reported growth is affected by comparisons to a strong Q4 2020 that included elevated political spend and a recovery late in 2020, which complicates direct interpretation. The acceleration we reported excluding election-related comps shows the underlying business is strong. Regarding the data marketplace and business model: we do make money on data that gets purchased on our platform. It's not just about creating spend in media; we earn on forms of spend such as data purchases as well. We aim to ensure we add more value than we extract. The changes in the data marketplace are creating significantly more value for advertisers by enabling more effective, granular pricing and fractional pricing for data bundles. We don't expect material changes to take rate unit economics as a result; instead, we expect the flywheel to spin faster. We're incentivized to drive more data usage because it often improves campaign performance for advertisers, which in turn drives more spending on the platform.

Blake Grayson, Chief Financial Officer

Laura, to add quickly on the comp point: Q4's 24% year-over-year revenue growth compares against a very difficult comp due to the 2020 U.S. election, which represented a high single-digit share of our spend in Q4 2020. Excluding that election-related spend, Q4 revenue growth was approximately 36%, which is a slight acceleration. On channel mix, video, including CTV and mobile, each represent around 40% of spend, with display and audio around 15% and 5%, respectively. That should give you some context on mix.

Chris Toth, Head of Investor Relations

Thanks, Laura.

Operator, Operator

Thank you. Your next question is coming from Tom White from D.A. Davidson. Your line is live.

Tom White, Analyst (D.A. Davidson)

Great, guys. Thanks for taking my question and nice results. Just on the OpenPath announcement, can you just elaborate a bit more on the future of that strategy? For example, do you see it going beyond just the web and maybe into other channels like mobile or CTV? And then maybe for Blake, maybe comment on the impact to your financials from the strategy over time, just curious about how we should think about maybe savings on infrastructure costs, and maybe possible revenue capture from the publishers that participate? Thanks.

Jeff Green, Founder & CEO

Yes. We see OpenPath as extensible into CTV, which we've already indicated will happen, and potentially into mobile as well. Publishers increasingly want to clean up supply paths and advertisers want more efficient supply chains. We want to enable direct integration when content owners want to do their own yield management. This is particularly relevant in CTV where content owners often want to manage yield directly. I want to stress again: we are not trying to become an SSP. We are not doing yield management. We represent the buy-side and we will continue to do that while enabling direct integrations for publishers that want them.

Blake Grayson, Chief Financial Officer

To be clear from a P&L perspective, we expect no material impact to our take rate or profitability from OpenPath. There are opportunities to spin the flywheel and support the open Internet, but we don't have an incentive to steer purchases and we're not conducting yield management. We represent the buy-side, and we do not expect material P&L changes because of this initiative.

Operator, Operator

Thank you. Your next question is coming from Brent Thill from Jefferies. Your line is live.

Brent Thill, Analyst (Jefferies)

Jeff, everyone would love to hear your perspective on the international opportunity. I know you've put a lot of investment in time in trying to crack the code there. What's your view there? And for Blake, can you maybe just talk about the magnitude of Q4 upside was a little bit lower than we've seen? Was there anything on supply chain or advertisers pulling a little bit at the end of the quarter given the COVID overhang or any thoughts you have on that side? Thanks.

Jeff Green, Founder & CEO

I'm very excited about international. We're focused on capturing the large opportunity outside North America. Roughly two-thirds of the global advertising market is outside the U.S., and many of our large global advertisers want one partner across multiple markets. We've been expanding CTV globally. CTV more than doubled across APAC, and CTV and EMEA grew strongly in 2021. Shanghai and Hong Kong drove growth in Northern APAC, with Australia and Singapore strong in Southern APAC. Samsung Smart TV reach is over 50 million in certain regions, and we've partnered with companies like Xiaomi in India and Disney+ Hotstar. China has been our fastest-growing office again; while individual market sizes differ, consistent execution matters and we've seen repeated success there. CTV dynamics occurring in the U.S. are also happening internationally, sometimes with different timing, but the secular trend is global. We expect to continue to lead in CTV worldwide.

Blake Grayson, Chief Financial Officer

On Q4: the quarter was fundamentally very strong. The apparent moderation is due to the hard comp in Q4 2020 which included elevated election spending and a COVID-related flash recovery late in 2020. Looking at two-year stacks and other period measures, the momentum is clear and accelerating. We did not see any material supply chain issues affecting advertising spend in Q4. Overall, we remain encouraged by continued strength and momentum.

Operator, Operator

Thank you. Our final question comes from Matt Swanson at RBC. Your line is live.

Matt Swanson, Analyst (RBC)

All right. Thank you guys so much for squeezing me in here. I'll ask two quickly. First for Jeff, thinking about ramp time for shopper data in two ways: one as far as how long it takes a partnership like what we're seeing with Walgreens to come together; and then also on the Walmart side, the milestones you're thinking of how that's going to ramp over time. Recognize it's early. And then for Blake, Q1 guidance is really strong at 38% growth, even accelerating off the adjusted 36%. I guess the two things: one, you mentioned a really strong start to the year if you want to elaborate on that. And then is there anything from a seasonality standpoint, when we're trying to maybe make an inference to a full-year number that you would point out as being different or special in 2022? Thank you.

Jeff Green, Founder & CEO

Thanks, Matt. Shopper and retail partnerships vary in ramp time depending on the retailer's strategy and agility and the privacy and governance frameworks they want to establish. Brands are cautious about privacy and want to build long-term relationships without alienating consumers, so deployments can take time and differ by partner. Ultimately the goal is similar: to enable advertisers to optimize to in-store or online conversions and close the loop. The pace of onboarding depends on the retailer's readiness and the integration approach, but we expect steady onboarding and adoption throughout 2022. On Walmart specifically, we view the initial phase as a test with roughly 20 large brands in Q4. We will expand partnerships and capabilities over time and expect retailers to provide more closed-loop measurement that will encourage broader brand adoption.

Blake Grayson, Chief Financial Officer

Regarding Q1: yes, a strong start to the year. The momentum we saw in January has continued into early February. It's broad-based across channels and geographies. Key drivers include CTV, international growth, the retail data opportunity, Solimar adoption, and UID scaling. On seasonality, absent major macro disruptions, we expect 2022 to generally revert toward pre-pandemic seasonality patterns over time. That said, each year has its unique dynamics, so I wouldn't over-interpret small deviations in seasonality versus prior years.

Jeff Green, Founder & CEO

Thanks, Matt. And thanks to everyone for joining today.

Operator, Operator

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect at this time and have a wonderful day. Thank you for your participation.