Earnings Call Transcript - TTD Q2 2021

Operator, Operator

Good day, ladies and gentlemen, and welcome to The Trade Desk Second Quarter 2021 earnings conference call. At this time all participants have been placed on listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Toth, Vice President of Investor Relations at The Trade Desk. Sir, the floor is yours.

Chris Toth, Vice President, Investor Relations

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk second 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 operations are 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 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, and thank you all for joining us. I'm pleased to report that The Trade Desk had a very strong second quarter this year. Our revenue was up 101% from a year ago to $280 million, significantly surpassing our own expectations. Our growth was across all channels and speaks to our position as the leading DSP for the open internet. More of the world's top advertisers and their agencies signed up or expanded their use of our platform, which just continues to validate our business strategy. They are increasingly embracing the opportunities of the open internet in contrast to the limitations of Walled Gardens. Our performance this quarter and year-to-date has been led by CTV and premium video. The move from broadcast and cable to digital on-demand content is happening all over the world. While each major media market and nation has different dynamics impacting the adoption rates, every major market in the world is heading towards consumption of premium TV and movie content over the internet. Because of our products, including our new platform, Solimar, our objectivity and market shifts, CTV as a percentage of our business continues to grow very rapidly and is by far our fastest growing channel. Heading into the pandemic, our CTV growth had been driven by our leading position in the U.S. and Australia, and we continue to enjoy outsized growth in these markets. But now we're starting to see our CTV strategy scale more broadly around the world. For example, our CTV revenue in Europe was up more than tenfold in the second quarter. I'll expand on this in a moment, but I could not be more optimistic about our CTV business. Overall, we fired on all cylinders in the second quarter in large part because we realized the value of the investments we have made in our business over the last few years. Just as important, these investments leave us very strongly positioned for growth moving forward and of course we continue to invest. Our latest platform launch, Solimar, is the result of more than two years of engineering work and it addresses many of the opportunities in front of agencies and brands today. I'll touch on this in a minute too. In order to provide some more color on these results and our optimism for the future, I'd like to focus on three key areas. First is our strength in CTV. Even as our overall business doubled over the second quarter last year, our CTV business significantly outpaced that growth and I'd like to spend a moment on the various factors driving our progress there. Second, I want to touch on how major advertisers are thinking about the value of the open internet in contrast to the limitations of Walled Gardens, especially in terms of how they think about identity, first-party data and performance measurement. And third, I'd like to focus on international growth. Like last quarter our international growth outpaced North America and we are seeing some trend lines that give me great optimism for the years ahead. So first, CTV. Just to provide some context on our growth in CTV through just the first half of this year, the number of brands spending more than $1 million in CTV on our platform has already more than doubled year-over-year. And it's not just larger advertisers that are taking advantage of CTV anymore. The number of advertisers spending over $100,000 has also doubled. In total, we have nearly 10,000 CTV advertisers on our platform, up over 50% compared to last year. Large and medium sized advertisers alike are turning to us as the objective DSP for all digital media, but especially CTV and premium video. That exponential growth speaks to how rapidly the TV landscape is evolving. We've spoken before about the accelerated consumer shift to digital video, including CTV, and that shows no signs of slowing down. In fact, we have reached more households via CTV in the U.S. today than are reachable through linear TV. Today we reached more than 87 million households. Those trends are now well established. What is perhaps a little less appreciated is what's happening on the inventory side of TV and how advertiser demand for that inventory is also fueling the shift to CTV. In Q1 and Q2 of 2020, nearly every major advertiser had to pause or rethink their advertising campaigns due to the global pandemic; some adjusted in weeks, some took months, some are still adjusting. Some companies grew faster because of the pandemic and, of course, some companies are still below their growth and revenue levels pre-pandemic. Many companies such as CPGs and pharma companies have enjoyed significant growth in that one year. They were able to adapt their businesses, pivot their message and appeal to consumers as their lives were upended and changed. Others such as those in the hotel, cruises and airline industries have been largely treading water because of the various new restrictions we've all been living with. But regardless of where a company is on the growth spectrum, we're seeing the same response today. Those companies that enjoyed accelerated growth now need to market effectively to sustain that growth. Those that were struggling and hit the pause button are now playing catch up aggressively marketing to make up for lost time. Advertising and marketing matters more than ever in the formula for business success. The demand for growth, regardless of where a company is on the recovery curve has major implications for advertising. Brands are looking to their CMOs to find value in advertising that can help fuel new growth. The only way to find advertising efficiency in this market is with objective data-driven technology. And within that context, CTV offers some of the most effective advertising in the history of this space. The combination of moving picture, sound and data creates effectiveness and value that are unprecedented. We have significant premium CTV inventory at scale via our platform and partnerships as CTV growth moves to AVOD instead of the SVOD models that powered early adoption in the category. Indeed MoffettNathanson recently reported that the ad supported video on-demand market is growing from $4.4 billion in 2020 to about $18 billion as early as 2025 and every major ad supported platform, whether it's Disney, Hulu, Peacock, Discovery+, ViacomCBS' Paramount and Pluto, FOX's Tubi or FuboTV and many others all are reporting record viewership or ad spend figures and we see the rapid growth in AVOD in our CTV spend every quarter. The shift from legacy CTV to connected TV was especially apparent in this year's upfronts, which wrapped up in the second quarter. For the first time in the history of this annual process, every major broadcaster included programmatic packages and there is a wide range of reasons for that not least because CTV represents a greater percentage of their revenue than ever before. But perhaps most important, broadcasters recognized that the traditional upfront process is a mismatch. It doesn’t work in a digital world where data and personalization are required to succeed. The legacy upfront process is really hard to run in an environment with lots of change and lots of uncertainty. I believe that this year will mark a turning point in how the process is managed. In today’s fragmented TV environment linear audiences continue to erode, linear supply is shrinking and the prices are rising simply because of the scarcity. This year, broadcasters used that scarcity to their advantage and locked up commitments as the demand for growth intensified. But it is becoming increasingly difficult to predict who will watch which show or which live sports event, which means linear viewership commitments are harder to make and stand by. Advertisers will then rethink and seek out greater value in a data-driven spot market and a data-driven forward market for digital than the opacity and uncertainty of the legacy upfront market. They’ll take budget back. They’ll demand a new conversation next year and broadcasters are adapting by making CTV and programmatic a more significant part of the process. That conversation will also look at how to evolve the traditional focus on high gross rating points or GRPs. In the chase for high GRPs many advertisers are finding that they are under-reaching some percentage of their target audience and way over-reaching others more than ever. The average may be in their target range, but the actual consumer experience at the edges is highly inefficient. On the extreme over-reach side brands are actually paying to make consumers dislike them, showing the same ad over and over again to the same person. On the under-reach side, showing the ad so rarely that it isn’t noticed or even remembered. As a result, more advertisers are demanding that the data-driven agility of CTV become a larger component of the overall TV ad spend. That includes more measurement precision. GRPs become less important in a digital environment when you can have a direct interaction with the viewer and more precise measurement. For example, we recently worked with Ford to help build a CTV campaign that directly targeted households that were in market for a new car. That’s very different from the traditional mass market linear TV campaign, where there’s a great deal of waste. It’s precision marketing using custom audience tools that identify when a consumer is coming off a lease or buying a car for the very first time. With CTV, Ford can then reach that audience with ads that are relevant to the time and place that the ads are being consumed. This level of marketing precision is simply not possible on linear or broadcast television. Just as important in this equation is a large and growing CTV footprint. When you combine premium quality data and inventory scale, CTV becomes a very compelling proposition for advertisers and their agencies. In that same work with Ford, we found that 48% of the households reached were incremental to anything addressable through linear. That means if you’re limiting yourself to linear, you’re missing out on almost half of your potential target market. It was the same story with a large pharma and a medical device company. When compared to parallel linear TV ad campaigns, CTV delivered a 51% incremental reach and a 4x improvement when analyzing cost per household reach. These are not isolated cases. We are seeing many brands shift TV budgets to the data-driven precision of CTV. And I expect this trend to accelerate through the next years' upfronts. One major global food company is working with us to shift almost a quarter of its TV budget to CTV by next year, so that they can better manage targeting and frequency. A global entertainment brand is doubling down on CTV with us because it allows them to measure the full customer journey from exposure to purchase. And a major telco is enjoying measurable sales lift by shifting a significant portion of its TV budget to decisioned-CTV on our platform. The evolution of TV advertising is a great barometer for the advertising industry overall. More and more brands want to be able to apply data to optimize their CTV and premium video advertising, they want to be able to measure campaign performance across all channels, they are focused on the quality of the TV supply chain and they want to ensure that their partners, including The Trade Desk are delivering more value than they are extracting. We proved this in the U.S. and we’re seeing markets around the world have all similarly. And I still believe we are merely at the very beginning of the CTV innovation cycle. I can’t put it any better than Jonathan Halvorson, Vice President of Consumer Experience at the global food giant Mondelez. Speaking last week with me he said, and I quote, “I’ve been positively surprised by the advancements that The Trade Desk and other partners in CTV have made versus digital platforms. Their focus on advertisers' needs for advanced targeting, inventory management and guarantees are setting them apart from YouTube and the rest of the marketplace.” One last point on CTV. As the TV ecosystem gets more crowded and competitive, our strategic focus on objectivity is more valuable than ever. Some platforms that claim to be open and then primarily push their own content will lose favor with other content owners as the market progresses. We have great partnerships with content owners, because we bring them objective demand from our customers and we do not compete with them. We deliberately don’t own or favor content. This also brings me to my second point because CTV is also highly indicative of how advertisers are increasingly embracing the open internet, both as an alternative to walled gardens and as a part of their digital media plans. And I noticed this in various dimensions. If you notice some of the recent deals that we’ve signed and talked about publicly, some of the world’s largest advertisers have signed new contracts with us in recent weeks and months, increasing and extending their commitment to our platform. We’re just scratching the surface and demand for our platform is growing across industries around the world. And as these brands work with us, they are making a commitment to the open internet. This may be summed up by something that Arun Kumar, Chief Data Officer at IPG said at an Ad Week event with me a couple of weeks ago: he talked about how brands had relationships with consumers long before the major walled garden platforms came along and how those brands are working harder than ever to preserve those direct relationships, even as platforms try to disintermediate them. He believes there’s so much collaborative innovation going on to support the open internet precisely for this reason. What he’s also getting at there is a point that I think is often misunderstood about the motivations of brand advertisers. Most brands have decades-long relationships with their consumers; these relationships have been nurtured and curated carefully over a wide range of interactions, including long-term loyalty programs. In many cases, consumers volunteer preference information in return for some kind of value. Given the effort that they put into this over many years, brands have no interest in jeopardizing the trust they have established with their customers. Brands want to provide a relevant and enjoyable advertising experience that respects their relationship with customers. And that experience is best managed and delivered across the open internet, where the advertiser has more insight and flexibility. In addition to managing their existing customer relationships for the long-term, brands also want to find the next generation of customers who share some of the same characteristics as their most loyal ones. And that in a nutshell is why their first-party data is so important. Brands know a lot about their most loyal customers, and they want to put some of that data to work, to find others like them, or ad impressions that their prospects are most likely to interact with. But unleashing the potential of that first-party data requires a few things. First, it must respect the privacy of the customer and preserve the trusted relationship between the advertiser and the consumer. Second, it has to be secure, not just from a data protection perspective, but also in terms of brands retaining control of their data. It must be easy. You have to have simple integrations and on-ramps. And then lastly, they have to get some metric performance data back. They have to know whether it's working and how their prospects are reacting. Each of these requirements is challenging in a walled garden. None more so than the asymmetrical data relationship: any data a brand puts into a walled garden is often usable by that platform too. As media owners, they will put that data to work to their own benefit, as well as for advertisers. And the advertiser won't get the same grain of data back on their campaign performance. They'll get a report card saying that the campaign was successful, which is a bit like writing your own homework. But the results they get won't be the same kind of information that the brand can use to continue to refine their campaigns. And that's why, quarter-after-quarter, brands are gravitating to our plans and to the open internet. Walled gardens may provide easy access to scale. You can reach a lot of people very quickly, but they don't provide the precision and decisioning that are becoming so vital to today's marketer. And they don't provide much clarity on what content the brand is showing up against, what content they are funding and supporting and how to refine their campaigns into the future. On July 7, we launched a new version of our platform, Solimar. It is the biggest release in the history of the company and the reception has been fantastic. Again, it beat our own hopes and expectations and has great traction. At the current pace of adoption, by the beginning of next year, we expect the majority of the impressions on our platform to be bought using Solimar. A few of you joined us at our launch event in New York. And some of you joined the many thousands who watched online. I believe the remarkable interest in these events speaks to how rapidly our industry has evolved over the last 18 months and how Solimar is helping solve for many of the issues and opportunities in front of marketers today. Perhaps most important, with Solimar we believe we have created the industry's most advanced measurement marketplace. Not only can advertisers measure against traditional campaign performance metrics, but they can now integrate offsite measurement performance in a way that's only possible on the open internet. That means they can finally reach that holy grail of connecting their ad spend to actual business goals, whether it's in-store sales or foot traffic into a dealership or demand for tickets. Solimar has an ever-growing roster of third-party measurement data sources, including retailers who are eager to leverage the value of their shopper data so that they can attract more advertising demand. But you don't get to build that kind of measurement marketplace without simple and secure data onboarding and without the ability of brands and partners to protect their data, to make sure it's only being used for the intended purposes. And you don't get to real performance measurement without the ability to enter more precise campaign goals and Solimar provides for all of that and much more. We launched Solimar at a time when UID2 is also reaching critical scale in the market. This is important because UID2 allows advertisers and partners to onboard their data in a manner that provides more consumer control and protects their data. In recent months, three of the major advertising holding companies Publicis, Omnicom and IPG have announced their support for UID2. In addition, many of the major independent agencies, such as Horizon are also now leveraging UID2, as well as many of the world's major agencies and many of the world's leading brands. We're also working with many of the world's leading tech platforms, as they look at use cases for UID2. The publishing side is also embracing UID2. From a CTV perspective, major CTV industry tech consortiums, which are owned by the major networks, including Blockgraph and OpenAP are making their identifiers interoperable with UID2. That's an addition to networks such as AMC and FuboTV who are integrating directly and then traditional publishing groups, such as Maven, who own Sports Illustrated and Newsweek have also embraced UID2. A couple of weeks ago, Snowflake announced that they would deploy UID2. This one is a little different, but very indicative of the scale that UID2 is achieving. Snowflake provides a cloud-based data service that sits on a company's cloud infrastructure and enables data to be managed across clouds. Snowflake acts as a hub for many companies’ customer data, their first-party data, and that data can now be activated by using UID2 identifiers. What's really interesting about all this momentum around UID2, is that it has accelerated since Google announced that they would delay the deprecation of cookies by at least two years. You may remember that when Google first announced their intentions, I was somewhat skeptical and that's because the fundamental value exchange of the internet — free content in exchange for relevant advertising — is not going to change. What will change is how we give consumers more information about that value exchange and how we provide better tools to payoff that exchange in a way that improves the experience for advertisers, publishers, and consumers, and gives consumers more control. That's what the industry has been creating. UID2 is one leading example, but more important is the way that the industry is mobilizing to create a better approach to identity, one that reflects the fast moving cross-channel nature of today's digital advertising landscape. I cannot put this urgency any better than Joy Robbins, Chief Revenue Officer of The Washington Post organization, who spoke at our recent Solimar event in New York City. The Post, as you may know, through a Zeus platform, also powers the ad tech stack for more than a hundred other publications across the U.S., including many daily newspapers. So Joy's perspective is very insightful. To quote her directly, she said, “We need to make sure we're controlling our destiny. If we do nothing, we give our ad revenue stream to the walled gardens.” It's that sentiment across the industry and around the world, that's driving so much collaborative innovation in support of the open internet. The last area that I want to touch on is our international growth. Once again, our international markets grew faster than the U.S. in the second quarter and this is particularly encouraging as this industry speeds towards a $1 trillion TAM; about two-thirds of that will be outside the United States. We are investing to capitalize on that international growth and serve a global advertiser customer base. Let me give just a couple of examples that put our investments and our growth into perspective. We started planting the seeds of Connected TV in Europe a few years ago, and we are now seeing the green shoots. CTV in Europe is still relatively early in its lifecycle compared to the United States. But with the exponential revenue growth I mentioned earlier, it won't stay small for very long. In Europe, there is a significant consumer shift to streaming platforms, even for live sports. European broadcasters have developed their own streaming platforms, which is driving the inventory scale. That is so important to advertisers. For example, we're working with Sky, the largest media company in Europe, as they make their own content available over the internet. In fact, our partnership has significantly expanded this year. Sky has a huge presence in the UK, but they also enjoy strong market share across Europe. Like so many broadcasters today, Sky is also investing heavily in original content to attract new viewers. They are a dominant force in the European TV landscape and hold significant clout with brands and agencies there. Along with our existing partnership with Channel 4, as well as premium content providers in France, Germany, Spain, and Italy, our relationship with Sky gives us access to the majority of CTV ad impressions across the continent. I want to, again, underline the significance of our objectivity in our inventory partnerships. As we expand around the world, because we don't own content, we are able to cleanly and clearly partner with the biggest content and broadcast companies around the world. Let me also spend a moment on APAC and one new market in particular, India. We've only recently opened an office in India earlier this year, but we have already made some incredible progress. It's worth reiterating how large this potential is. According to research by GlobalWebIndex, Indians are spending an average of 8 hours a day online, most of it on the open internet, led by OTT content. These dynamics are fueling the rapid expansion of the digital advertising market in India expected to exceed $7 billion by 2024, up more than 10 fold since 2015. It's those same market dynamics that informed our premium video and CTV-first approach to India. And this was somewhat atypical for us. In nearly every other market we have led with display. So as we opened in India, the first thing we did was strike important inventory partnerships in CTV. These included a deal with Samsung Ads, which gives us access to inventory on Samsung Smart TV devices reaching 50 million highly coveted viewers. We also struck a partnership with Xiaomi, the world's largest smartphone manufacturer, bigger than even Apple. Xiaomi serves more than 10 billion ad impressions per day to those devices, all of which we have access to. In addition to device manufacturers, we've also established relationships with the leading content providers, such as Disney+ Hotstar, the leading OTT streaming service in India. And these partnerships are already yielding results. Brands, such as GSK are working with us in India to drive more data-driven precision in their ad campaigns, particularly with OTT content and have seen significant performance improvements. Our initial progress in India is starting from a small base, but it has been very rapid. And over time we will build on these relationships and scale our business methodically just as we are doing across Asia and of course the rest of the world. All of this progress gives us a great deal of optimism for the quarters and years ahead, and this has just been a snapshot. In every market where we operate — North America, AMEA and Asia and Australia — we are seeing significant growth. That's because we continue to innovate more quickly and efficiently than others in our industry, whether it's the future of television, new approaches to identity or trading platforms that bring advertisers closer to the business results of their work, we are able to invest in the success of our advertising clients. We are not maximizing profit for the short-term. We have discipline around profitability so that we can invest for the future of our business and theirs. And this quarter, more than ever we can see how our prior investments can yield impressive results. And even as we make these investments, we are still generating EBITDA at rates much higher than nearly all of our high growth software peers. In the second half of the year, we expect this approach to show more green shoots, as we expand our work in retail. Walmart will launch a new DSP, which integrates Walmart shopper data and is built on our platform. This is a leading example of how we are working with our advertising customers to help unlock the value of retail data, estimated at $100 billion to $200 billion market. Each retailer will approach this differently, but we are working with many of them, both here and around the world, but one position they do all share: they are all convinced that the value of their data is best realized on the open internet, not within the confines of the Walled Gardens. Our progress is also increasingly rooted in our ability to drive industry consensus around important issues that build overall trust in our industry. Our strategy will raise all boats. You are seeing that most clearly in the work we are doing around identity, but it's also present in how we approach the supply chain, fraud management, CTV scale, and many other areas. We remain convinced that the open internet is the best platform for our customers to achieve their marketing goals. And there's a large and growing coalition of advertisers, publishers, and partners who not only share that perspective, but who are actively working with us to realize it. All of that contributed to a great second quarter. We have very strong momentum and with these investments and the hard work of The Trade Desk employees around the world, I expect the wind to stay at our backs. And for that reason, as pleasing as the numbers are for the quarter, I am even more excited about the future growth prospects. Now I'd like to turn the call over to Blake, before moving to Q&A. Blake?

Blake Grayson, Chief Financial Officer

Thank you, Jeff, and good afternoon, everyone. As you have seen in our results, Q2 is a very strong quarter. Revenue of $280 million was up 101% from a year-ago. Excluding political spend related to the U.S. elections last year, which represented a low-single-digit percentage share of our business in Q2 of 2020, revenue increased around 103% year-over-year. During the quarter, we benefited from continued improvement in the digital advertising environment from both agencies and brands. Growth was broad-based across all regions, channels and verticals. We saw continued strength from CTV, which again led our growth from a channel perspective. Our year-over-year revenue growth rates benefited from lapping slower growth related to the pandemic during the second quarter of 2020. With the continued strong top-line performance in Q2, we generated $118 million in adjusted EBITDA, or about 42% of revenue. EBITDA continues to benefit from temporarily lower than expected operating expenses, partly driven by the virtual environment. This includes items such as travel and live company events that we've only just started to slowly resume. I'm proud of our sustained efforts to consistently generate meaningfully positive EBITDA, while continuing to invest in the critical areas of our business that can drive our future growth. From a channel perspective: video, audio, and even display all more than doubled in Q2 from a year ago. Exiting Q2, mobile — currently our largest channel — represented a low-40s percentage share of our business. Video, which includes CTV, represented a high-30s percentage share of our business. Video as a percent of our mix continued to grow very rapidly. The increase in video is driven by CTV, which by a wide margin again, led our growth during the quarter. And finally display and audio represented about 15% and 5% of our business respectively. Geographically, North America represented 87% of spend and international represented 13% as International's faster growth year-over-year resulted in a rising share of spend. In APAC, Shanghai and Hong Kong's spend growth were both very strong. In terms of our overall growth; Europe led the way growing well over 100% year-over-year in Q2. All of our offices in Europe, London, Hamburg, Paris, and Madrid showed particularly strong growth. As Jeff highlighted, CTV drove our AMEA performance growing over 10-fold year-over-year. CTV more than doubled its relative share of spend in Europe, while still small relative to the share of CTV spend produced in North America. We are optimistic about the trends we are seeing during the first half of 2021. In terms of the verticals that represent at least 1% of our spend, the majority of them at least doubled during the quarter. Those verticals most impacted by COVID showed the most improvement overall, including travel, shopping and automotive. Home and garden, personal finance and food and drink were also very strong. We believe that there is still a lot of recovery ahead of us in these segments and we can remain cautiously optimistic as we continue to see signs of improvement. Operating expenses were $218 million in Q2, up 41% year-over-year. The growth in operating expenses in the quarter was primarily driven by stock-based compensation. Operating expenses, excluding stock-based compensation, grew 32% year-over-year. As we discussed last quarter, the majority of the growth in stock-based compensation expense in the first half of the year was related to the company's employee stock purchase plan. Our growth and operating expenses, excluding stock-based compensation on a year-over-year basis is influenced not only by lower expense growth in the prior year associated with impacts related to COVID, but also by continued investments in our team, particularly in areas like sales and marketing, technology and development, and the team supporting that progress as we continue to scale for longer term growth. Income tax was $13.9 million for the quarter representing a tax rate of about 23%. Adjusted net income for the quarter was $88 million or $0.18 per fully diluted share. Net cash provided by operating activities was $10.4 million in Q2; this was driven by a change in working capital driven by strong sequential growth from Q1 to Q2. I would like to remind you that the timing of cash collections and payments can significantly impact quarterly results. DSOs exiting in Q2 were 82 days, down 14 days from a year ago. DPOs were 67 days, down eight days from a year-ago; the resulting 15 day gap between DSOs and DPOs is the smallest in the company's history. We exited Q2 with a strong cash and liquidity position. Our balance sheet had $705 million in cash, cash equivalents and short-term investments, at the end of the quarter. We have no debt on the balance sheet. In June, we refinanced a new revolving credit facility and currently have $443 million available under the facility. In addition, we also executed a 10-for-one stock split. Turning to our outlook for the third quarter; we estimate Q3 revenue to be at least $282 million, which will represent growth of 30.5% on a year-over-year basis. Excluding the U.S. political election spend, which represented a mid-single-digits percent of spend that we benefited from in Q3 2020 our estimated growth rate in Q3 of this year would be about 38% on a year-over-year basis. We estimated adjusted EBITDA to be approximately $100 million in Q3. In closing we're extremely pleased with our strong performance in the quarter. We continue to execute and build on our solid foundation, and I could not be more excited about building on our progress in the second half of the year. That concludes our prepared remarks. And with that operator, let's open up the call for questions.

Operator, Operator

Thank you. And the first question is coming from Tim Nollen from Macquarie. Tim, your line is live.

Tim Nollen, Analyst (Macquarie)

Thanks very much. Jeff, I'd like to talk about CTV a bit more if I could. You mentioned your growth in Q2, I think you said it significantly outpaced your overall growth. I wonder if you could comment about how that difference looks in the second half and even into next year, CTV versus overall Trade Desk growth. And also Q2, you talked about the upfront; Q2 was the quarter that the Upfront market occurred. So I'm intrigued by your comments on an eventual decline and the role that the Upfront will play for TV, or at least certainly for linear TV. My question is what did The Trade Desk do with advertisers and network groups in the Upfront? Or should we think really of your role more as helping expand the scatter market reaching all those incremental households that are otherwise slipping away from linear? And I guess the scatter market having been so strong going into the Upfront; I guess that's what must have supported your growth. So just want to understand how that continues from here? Thanks.

Jeff Green, Founder & CEO

Thanks, Tim. So first on the macro related to CTV: in a year where nearly everything doubled year-over-year in this quarter-over-quarter basis, CTV once again led the way with massive growth in the quarter we just reported. We of course expect CTV to continue to drive our growth over the next couple of years and beyond as the leading channel for the open internet. I do believe Upfronts are driving more to CTV as well; I'll talk about that as I answer your second question in just a second. One thing I want to highlight about CTV is that unlike any other channel, this is being driven by users. When programmatic first got started, it was because a bunch of B2B companies like ourselves wanted to create something more efficient for the internet. That's very different than the trend that's happening in CTV, which is users are moving from their cable subscriptions to the internet because it's better. It's on-demand content; it's just a better way to consume. They can watch what they want, when they want, and that's something that can't be stopped. That's a secular tailwind that is going to benefit us, as far as I can see into the future. There is a lot of subscription fatigue especially in SVOD. Over the last year or two we consumed much content from Netflix or Amazon, and now today we have lots more choices and more channels. Many of those incremental channels that we're adding are AVOD, so there's more and more inventory coming online. One of the things that we're constantly saying to advertisers is whatever you thought you knew about scale and reach of CTV six months ago, it has changed dramatically. That's underlined by the fact that we said 87 million households are reached on CTV, which is more than linear inside of linear or cable television. So CTV has an edge that it didn't have a year ago. Now on the Upfront: this Upfront was really interesting in that the CPMs and the cost per unit went up because of scarcity. So despite the fact that you're reaching fewer people the price went up and so we think that puts a lot of pressure on the Upfront and then sets it up for some amount of under delivery. Most of the forecasts that were given to advertisers I would say advertisers don't believe. They go into it skeptical and are saying we need to be prepared to be flexible, and in fact one of the large advertisers using our platform said, we are looking to go to an annual calendar and looking to take as much commitment out of the commitment as possible, essentially maximizing flexibility. I think that sort of summarizes what's happened, and so as a result, you're seeing people move into the scatter and spot market and we benefit tremendously from that. So right now you can describe the Upfront market which historically has been a forward market, and then there's a spot market, and that has more and more moved to be a programmatic-driven market. I think there are insights to be gleaned from the ratings that were reported on the Olympics, which are of course down versus past Olympics. I don't think that's because of any one network; it was a question of discovery and the nuance of the pandemic. But that does make it so people are asking what can I expect out of shows, and people are looking for more and more flexibility. That may be, at the very heart of your question, what role will we play in the Upfronts going forward? One of the biggest opportunities that our company has in its future is to play a central role in a more sophisticated forward market that replaces the Upfronts, where you can put data to work. It won't be an event or a party where everyone gets together, but an always-on forward market that is data-driven and built on top of the spot market where people can make commitments and forecasting is better than it's ever been done in television, because the data is available. That's something that we're working very closely with some of the biggest names in TV, some of the biggest brands, and some of the biggest agencies in the world to make certain that we upgrade the Upfronts, and that will make it so that programmatic is present not only in the spot market but in the forward market as well.

Blake Grayson, Chief Financial Officer

Thanks, Tim.

Operator, Operator

Thank you. And the next question is coming from Vasily Karasyov from Cannonball Research. Vasily, your line is live.

Vasily Karasyov, Analyst (Cannonball Research)

Thank you. Good morning. So, Jeff, you had highlighted growth in connected TV outside of the U.S. Can you talk a little more about the growth you're seeing in Europe where, I think, you mentioned over tenfold rate of increases? And would you characterize this growth as an inflection point? Or is it just a low base effect? And as a follow-up, maybe you can talk about APAC a little more especially about the premium video and CTV growth that you highlighted. Maybe you can explain to us in a little more detail the difference between premium video, which I assume is mainly mobile, and connected TV over there. Thank you very much.

Jeff Green, Founder & CEO

Absolutely, thank you. So maybe one of the most bullish numbers that we shared in this report is that CTV growth in EMEA grew 11x year-over-year; that number is really astounding and really surpasses our own expectations. One way to characterize what's happened for us in CTV is to say The Trade Desk was leading in Australia and the United States going into the pandemic. Over the last 18 months or so, everything in the world has changed and consumption patterns have shifted. We had three to five years worth of change in television happen in that period of time. So I believe those represent green shoots. I do believe it's the start of a change where, because we were leading just in the U.S. and Australia, we're now seeing amazing results in Germany and the UK and Scandinavia and France and Spain. We continue to maintain that all of it will eventually be traded programmatically or bought programmatically because that is a data-driven way that is more effective and it's the only way to preserve the premium state of TV around the world, which is you get premium content, you see fewer and more relevant ads, and that creates a better user experience which can fund more content. That virtuous cycle can only be perpetuated with a data-driven marketplace. As it relates to APAC, APAC is a little bit different in that CTV is not always the place where premium content starts; that's much more common in the U.S. Because it is such a mobile region where mobile phones are often the place where content is consumed, you have to think of premium video and CTV kind of in one bundle, especially in that market. It's great to look at a case study: India. Because we just started in India this year, seeing this go into a market as big as India and then see us create partnerships in a matter of months with Samsung Ads, Xiaomi — which has a huge presence in India — and then Disney+ Hotstar to have those three content partnerships for premium content and to show ads on top of that in the most populated market in the world after only being there for months is indicative of just the momentum as well as how we continue to grab land around the world. So I'm really optimistic about what I'm seeing around the world and the fact that our playbook that we've tested and proven in the U.S. and Australia is applicable to many other regions in the world.

Chris Toth, Vice President, Investor Relations

Thanks, Vasily.

Operator, Operator

Thank you. And the next question is coming from Shyam Patel from SIG. Shyam, your line is live.

Shyam Patel, Analyst (SIG)

Hi, guys. Congrats on the quarter. I had a couple of questions. The first one, Jeff, can you talk a little bit more about CTV and what you're seeing in Europe? It seems like it could be inflecting and maybe a few years behind the U.S., love your perspective on that. And then just a quick follow-up for Blake, I know you're not guiding beyond the third quarter. But when we look at Q4, is there any color that you could offer just in terms of how to think about seasonality for revenue? Thank you.

Jeff Green, Founder & CEO

Yes. So I'll just reiterate what I just said about CTV in EMEA. We had 11x growth year-over-year, which is one of the most bullish metrics that we've shared in this report. And we still feel like we're in early stages, but the green shoots that we're seeing I think are indicative of more to come and our partnerships in content around the world whether that's in London or Germany or Spain or Italy or France, are all indicative of great things to come. Blake, on the second part.

Blake Grayson, Chief Financial Officer

Sure and thanks for the question. I think, Shyam, I'll just talk a little bit about Q3 and then I'll try to address what I can on your question for the rest of the year in Q4. With Q3, there's so many positive trends and momentum in Q2 and you've heard Jeff highlight those already. CTV is leading the way. The fundamentals of the business are really strong. The thing on Q3 is excluding political, which I would encourage people to think about as far as how to evaluate the underlying strength of the business on a year-over-year basis, we're showing significant acceleration year-on-year in Q3. I think that we're talking about excluding election Q3 of around 38% year-on-year and we were in the mid 20s for Q3 in the prior year, so really excited about that. As you think about moving on to Q4, it does have more difficult comps than we see in Q3. You'll recall last year and we talked about this a couple of times, political spend in Q4 last year was the biggest quarter that we had as a company and was a high single-digit percent of our business, so really meaningful on a year-over-year basis. Also if you recall last year, Q4 is driven not just by that high single digit political spend, but we also had a rebound in digital advertising as well. But I would just say regardless of the comps, there is so much momentum for us and the fundamentals of this business are so strong. I'm really optimistic about it.

Chris Toth, Vice President, Investor Relations

Thanks, Shyam.

Operator, Operator

Thank you. And the next question is coming from Youssef Squali from Truist Securities. Youssef, your line is live.

Youssef Squali, Analyst (Truist Securities)

Great. Thank you very much and good morning guys. Congrats on the solid performance again. Two questions please. Jeff, maybe going back to Solimar, I know it's very early. I think you've only had it out for maybe about a month now. But just wondering if you can share any early feedback from clients, any improvement in campaign performance so far relative to next wave at least within those customers that have used it for a few weeks now and any impact so far on overall spend? Again I suspect not, but just wanted to ask. And then Blake, maybe the outperformance in the bottom line was particularly impressive. Can you maybe just walk us through the biggest contributors to the bottom line beat, and what's non-repeatable as we go into second half of this year and early next year? Thank you.

Jeff Green, Founder & CEO

Yes. So I'm really glad you've asked this question and I don't mind just being really open here. Whenever you release a new platform there's always some amount of anxiety; you do as much research as possible, you test the market as much as possible, you listen as much as possible, and then you hope you got it right. We were really excited to ship Solimar, which is the biggest release in the history of the company. We had more engineering hours and people on this release than anything we've ever shipped. To do most of that work during the pandemic, where it's a little bit harder to do all those things like listening, I was anxious to see how it would be received. We were optimistic and we were convinced we did the right thing, but you always want to see it in the numbers and that's exactly what we've seen. We've seen amazing traction. We're nearly a month in and the response has been fantastic. It does represent a behavior change though for the user, so they have to relearn something. But those that have taken the time to do it have all given us fantastic feedback that it is a better experience, which is exactly what we expected. Because it is a better experience that's why we're so optimistic that the majority of our ads will be bought on this new platform by the beginning of next year. That represents more efficiency for the user. I'm especially excited about this going into Q4 because often what happens is Q4 is the biggest quarter of the year for us. But it's also where you prove yourself because much of the advertising spend is determined by a calendar cycle. In Q4 you spend the most and perform the most. In Q1, you make a decision about where you’re going to spend for the next year. If we have a really strong Q4, it sets up our Q1 really nicely for next year. So I’m optimistic that the performance will set us up for next year. I couldn’t be happier with the way Solimar has gone so far; it’s very early as you highlighted, and it represents a behavioral change. But I’m convinced that that change is going to happen over time and I’m really excited about what that means for efficacy on our platform.

Blake Grayson, Chief Financial Officer

And then I’ll just take the second part of that question on the beat on the bottom line for EBITDA. More than half of the beat in the quarter on EBITDA was driven by the top-line outperformance in the business. As many of you know, we don’t have a lot of variable costs associated with higher top-line. So when we see it come in, the flow is almost directly down to EBITDA, so you see that. We did have some expense benefits as well. Some of that’s timing, but it was broad-based, there wasn’t anything I would majorly call out. A little bit lower platform ops expense, a little bit of timing on some fixed marketing expense. We had better bad debt than expected a little bit because of continued health of the receivables, but nothing major that I would call out as non-repeatable.

Operator, Operator

Thank you. And the next question is coming from Laura Martin from Needham. Laura, your line is live.

Laura Martin, Analyst (Needham)

Hey there. So Jeff, you were talking about how the CTV open internet consortium was integrating into UID2, and then you said Fubo was integrating directly into UID2. I was wondering how that affects your ability to target, whether people are going indirect, like affiliating versus Fubo directly integrated into UID2? And then my second one is on the Walmart deal. Are we still on track to be fully integrated with Walmart by 4Q? And as — do you get paid on that because you get the 15% platform fee. Is that how you make money on the Walmart deal when CPG spends money on your platform? Thank you.

Jeff Green, Founder & CEO

You bet. Appreciate the question. So as many may know, one of the things that is really important about preserving the premium state of CTV is to provide relevant ads on the shows that you’re watching when it’s ad funded. Because of the nature of devices in CTV, it requires a bit more collaboration between the content owners and those representing advertisers. What we need is a better currency and a way for a content owner to have the same understanding of a user and pass that to those of us representing advertisers. That way we have a common understanding and can provide relevant advertising as well as ensure we don't show the same ad five times in the same commercial break or an ad that's irrelevant to a viewer, which makes advertising more effective. All the TV companies have different ways of integrating with Unified ID 2.0. Some of them have gone to coalitions like Blockgraph or OpenAP and said, you're a consortium and you’re doing the work for all of us. Others have said working in a consortium can take too long and we want to integrate directly and make sure we can put our data to work immediately. From our standpoint, we're indifferent to whether a consortium does the work or whether content owners do the work directly. Many have put them on parallel paths, which is a commentary on how critically and strategically important it is for them and for us to get the IDs set up so that we can provide those relevant ads. Fubo moving to integrate directly with UID2 is exciting because they want to make certain they do it as quickly as possible. We expect that trend to continue just because the future of television is dependent on it. And then on Walmart: yes, Walmart is on track. We continue to have really fantastic discussions with them. As it relates to how we’ll be paid, we’re paid the same way that we would with any other partnership where we have our standard platform fees and then they put their data exclusively to work in this version of their DSP, which is built on our platform.

Blake Grayson, Chief Financial Officer

Just Walmart.

Laura Martin, Analyst (Needham)

Thank you very much. Great numbers. Thank you.

Operator, Operator

Thank you. And the next question is coming from Matt Swanson from RBC Capital Markets. Matt, your line is live.

Matt Swanson, Analyst (RBC Capital Markets)

Yes. Thank you so much for taking the questions. I’ve got two as well. They’re both going to kind of be follow-ups to Laura’s a second ago now. Great traction on UID2.0 adoption. You used the term critical scale. Could you just help us with a little more color on what you think of as far as what is critical scale in terms of if cookies went away tomorrow, what you think of the efficacy of the replacement? And if there’s any way to think about endings or percentages of how far are you away from kind of the ideal state that would be really helpful. The other on the Walmart example, is it possible to use this as kind of a proof-of-concept for other retailers? I’m sure with Amazon doing what they are with their DSP, it’s becoming an increasing area of focus for other retailers who maybe don’t have the internal tech platform that Amazon does. It seems like that’s a great place for Trade Desk to come in.

Jeff Green, Founder & CEO

Yes. So the term critical scale is a very important phrase and I think it describes the moment we're in regarding how the internet will work. To be clear, Google announced that they don't expect cookies to go away before 2023. When they first announced their intentions, I was skeptical and that's because replacing cookies wasn't the point. Creating UID was not about replacing cookies. It was about creating a better internet, and that doesn't just apply to the browsing internet, which is a smaller portion of the internet. It applies to mobile apps and connected TV as well, all of which depend on different identifiers. When you get to a place where a currency is so widely accepted it becomes critical to doing business — think of it like Visa or Mastercard — if you do not accept that currency in your local store, you are going to struggle to get business. That's where I believe UID is at an inflection point where it's become so interoperable with other identifiers that making certain you're interoperable is essential. When I say critical scale, that's what I mean: you can't afford not to be part of it. As it relates to the retail proof-of-concept, it's great to partner first with a very large retailer like Walmart because it creates a case study and lays down the gauntlet for others. It would be strategically suboptimal for us not to work on bringing other retailers and their data into the platform. Especially because we're trying to help the open internet be an amazing contrast to walled gardens. By making everything comparable and measurable on the open internet, you make it a much better place to spend than inside opaque walled gardens. Companies that sell their products in stores want insight into how advertising translated into in-store sales and performance. They want to see performance at Walmart, but also at other retailers. Bringing more retail data onto the open internet is critical and we're actively working on those relationships so advertisers can see what is actually working across retailers, which is central to demonstrating the value of the open internet.

Operator, Operator

Thank you. And the next question is coming from Brian Fitzgerald from Wells Fargo. Brian, your line is live.

Brian Fitzgerald, Analyst (Wells Fargo)

Thanks, guys. I want to go back to Solimar and you talked about some new capabilities specifically around onboarding and a measurement marketplace. Just wondering if you could discuss the revenue opportunities and the mechanics around those as well. If the measurement marketplace is going to be a take-rate model and will onboarding have a revenue component. And if so — is that going to be more volume than spend oriented, just some more on the mechanics?

Blake Grayson, Chief Financial Officer

Yes. So both making it easier to onboard your first-party data, as well as making it easier to measure success, are not about making more money for us directly. I like the Amazon metaphor of spinning the flywheel faster: there are some activities you do in your business to make the core activity go better and make the value exchange more obvious so your customers spend more and do more with you. In both cases, onboarding first-party data and the measurement marketplace, my idea was that they're both free. So there's not an incremental take rate for those exact features. But if you get more spend on the platform, you make more money. If you produce better results, you get more spend and you make more money. There will be cases in the measurement marketplace where people do pay and that's appropriate — similar to paid apps on your phone — and having some paid offerings creates a high-quality competitive marketplace. But I think the default should be free because that creates more usage and the better experience.

Chris Toth, Vice President, Investor Relations

Thanks, Brian. And Paul, we have time for one more question.

Operator, Operator

The final question will be coming from Justin Patterson from KeyBanc. Justin, your line is live.

Justin Patterson, Analyst (KeyBanc)

Great. Thank you very much. Two, if I can first. Jeff, could you expand on the Snowflake UID2 integration? It sounds like something that could broaden your reach from large advertisers there. So that's question one. And then question two, you talked about efforts to simplify the supply chain, could you talk about what that entails and just how that creates new opportunities ahead? Thanks so much.

Jeff Green, Founder & CEO

You bet. I really appreciate the question because Snowflake adopting UID2 is one of the biggest headlines that has happened for UID to date and not enough has been said about why this is so important. Snowflake makes it really easy for companies to manage and put their data to work across clouds. If they're trying to put data to work, they need to be leveraging identifiers that have scale. Snowflake using UID2 underscores how much critical mass UID2 already has. It makes it possible for that data to be used and protected so that companies can do the right thing for consumers. As it relates to Solimar and its impact on the supply chain: we have been spending a tremendous amount of time shedding light on the supply chain. We're constantly asking whether the participants in the supply chain are adding more value than they extract. We expect our own company to do that and we expect others to do the same. We want to provide transparency so the market can make those decisions. Because we represent so much demand, shining a light of transparency on the supply chain will enable the market to remove participants who extract more value than they create. The open market has to compete with walled gardens. One advantage walled gardens have is a shorter supply chain because they control it all. We need the open market to be equally efficient and that requires transparency. Thanks, Justin, and thanks for everyone for joining the call today. Paul, I'll leave it with you to close it out.

Operator, Operator

Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.