10-Q 1 ttd-20220930.htm 10-Q ttd-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-37879
______________________________
ttd-20220930_g1.jpg
THE TRADE DESK, INC.
(Exact name of registrant as specified in its charter)
______________________________
Delaware27-1887399
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
42 N. Chestnut Street
Ventura, California 93001
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (805) 585-3434
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, par value $0.000001 per shareTTDThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
As of October 31, 2022, the registrant had 445,287,977 shares of Class A common stock and 44,223,150 shares of Class B common stock outstanding.


THE TRADE DESK, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page


PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE TRADE DESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(Unaudited)
As of
September 30,
2022
As of
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$994,656 $754,154 
Short-term investments, net326,745 204,625 
Accounts receivable, net of allowance for credit losses of $10,244 and $7,374 as of September 30, 2022 and December 31, 2021, respectively
2,026,929 2,020,720 
Prepaid expenses and other current assets67,033 112,150 
TOTAL CURRENT ASSETS3,415,363 3,091,649 
Property and equipment, net166,078 135,856 
Operating lease assets230,917 234,091 
Deferred income taxes67,640 68,244 
Other assets, non-current43,956 47,500 
TOTAL ASSETS$3,923,954 $3,577,340 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable$1,651,447 $1,655,684 
Accrued expenses and other current liabilities82,768 101,472 
Operating lease liabilities51,025 46,149 
TOTAL CURRENT LIABILITIES1,785,240 1,803,305 
Operating lease liabilities, non-current215,728 238,449 
Other liabilities, non-current8,698 8,280 
TOTAL LIABILITIES2,009,666 2,050,034 
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, par value $0.000001
Class A, 1,000,000 shares authorized; 445,219 and 439,206 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
Class B, 95,000 shares authorized; 44,235 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
  
Additional paid-in capital1,319,961 915,177 
Retained earnings594,327 612,129 
TOTAL STOCKHOLDERS’ EQUITY1,914,288 1,527,306 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,923,954 $3,577,340 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3

THE TRADE DESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenue$394,773 $301,091 $1,087,058 $800,869 
Operating expenses:
Platform operations70,124 53,400 201,504 154,709 
Sales and marketing85,038 59,278 245,146 176,797 
Technology and development79,915 55,847 235,397 163,301 
General and administrative130,892 52,120 391,517 155,884 
Total operating expenses365,969 220,645 1,073,564 650,691 
Income from operations28,804 80,446 13,494 150,178 
Other expense (income):    
Interest expense (income), net(1,741)317 (1,321)556 
Foreign currency exchange loss (gain), net43 1,153 (435)1,004 
Total other expense (income), net(1,698)1,470 (1,756)1,560 
Income before income taxes30,502 78,976 15,250 148,618 
Provision for income taxes14,633 19,592 33,052 18,895 
Net income (loss)$15,869 $59,384 $(17,802)$129,723 
Earnings (loss) per share:
Basic$0.03 $0.12 $(0.04)$0.27 
Diluted$0.03 $0.12 $(0.04)$0.26 
Weighted-average shares outstanding:    
Basic487,963 478,101 486,168 475,496 
Diluted500,300 498,912 486,168 497,942 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4

THE TRADE DESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Class A and B
Common Stock
Additional
Paid-In
Capital
Retained
 Earnings
Total
 Stockholders’
Equity
Shares Amount
Balance as of December 31, 2020473,401 $— $538,778 $474,367 $1,013,145 
Exercise of common stock options1,794 — 12,621 — 12,621 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes110 — (17,080)— (17,080)
Stock-based compensation— — 52,985 — 52,985 
Net income— — — 22,642 22,642 
Balance as of March 31, 2021475,305 — $587,304 $497,009 $1,084,313 
Exercise of common stock options1,401 — 13,718 — 13,718 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes409 — (12,155)— (12,155)
Issuance of common stock under employee stock purchase plan1,334 — 22,758 — 22,758 
Stock-based compensation— — 46,015 — 46,015 
Net income— — — 47,697 47,697 
Balance as of June 30, 2021478,449 $— $657,640 $544,706 $1,202,346 
Exercise of common stock options1,808 — 13,220 — 13,220 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes307 — (9,038)— (9,038)
Issuance of common stock related to acquisition25 — 1,816 — 1,816 
Stock-based compensation— — 35,086 — 35,086 
Net income— — — 59,384 59,384 
Balance as of September 30, 2021480,589 $— $698,724 $604,090 $1,302,814 
     
Balance as of December 31, 2021483,441 $— $915,177 $612,129 $1,527,306 
Exercise of common stock options2,395 — 24,408 — 24,408 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes190 — (13,428)— (13,428)
Stock-based compensation— — 125,415 — 125,415 
Net loss— — — (14,598)(14,598)
Balance as of March 31, 2022486,026 — 1,051,572 597,531 1,649,103 
Exercise of common stock options657 — 7,387 — 7,387 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes661 — (9,768)— (9,768)
Issuance of common stock under employee stock purchase plan946 — 25,547 — 25,547 
Stock-based compensation— — 126,635 — 126,635 
Net loss— — — (19,073)(19,073)
Balance as of June 30, 2022488,290 $— $1,201,373 $578,458 $1,779,831 
Exercise of common stock options918 — 10,917 10,917 
Issuance of restricted stock, net of forfeitures and shares withheld for taxes246 — (14,058)(14,058)
Stock-based compensation— — 121,729 121,729 
Net income— — 15,869 15,869 
Balance as of September 30, 2022489,454 $— $1,319,961 $594,327 $1,914,288 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
5

THE TRADE DESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
OPERATING ACTIVITIES:
Net income (loss)$(17,802)$129,723 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization37,581 29,969 
Stock-based compensation371,111 132,010 
Non-cash lease expense32,554 29,914 
Allowance for credit losses on accounts receivable2,961 520 
Deferred income taxes604 5,044 
Other3,694 6,730 
Changes in operating assets and liabilities:  
Accounts receivable24,905 (48,637)
Prepaid expenses and other current and non-current assets42,913 20,627 
Accounts payable(68,758)(44,105)
Accrued expenses and other current and non-current liabilities(18,778)(14,790)
Operating lease liabilities(35,731)(31,886)
Net cash provided by operating activities
375,254 215,119 
INVESTING ACTIVITIES:  
Purchases of investments(379,206)(233,427)
Sales of investments1,977 4,539 
Maturities of investments252,699 192,077 
Purchases of property and equipment(36,394)(43,920)
Capitalized software development costs(4,833)(3,684)
Business acquisition (13,261)
Net cash used in investing activities
(165,757)(97,676)
FINANCING ACTIVITIES:  
Payment of debt financing costs (1,924)
Proceeds from exercise of stock options42,712 39,559 
Proceeds from employee stock purchase plan25,547 22,758 
Taxes paid related to net settlement of restricted stock awards(37,254)(38,273)
Net cash provided by financing activities
31,005 22,120 
Increase in cash and cash equivalents
240,502 139,563 
Cash and cash equivalents—Beginning of period754,154 437,353 
Cash and cash equivalents—End of period$994,656 $576,916 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Cash paid for operating lease liabilities$42,921 $39,006 
Operating lease assets obtained in exchange for operating lease liabilities$28,729 $23,293 
Capitalized assets financed by accounts payable$29,577 $8,934 
Tenant improvements paid by lessor$425 $ 
Asset retirement obligation$438 $1,609 
Stock-based compensation included in capitalized software development costs$2,668 $2,076 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6

THE TRADE DESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Nature of Operations
The Trade Desk, Inc. (the “Company”) is a global technology company that empowers buyers of advertising. Through the Company’s self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). The Company’s platform integrations with major inventory, publisher and data partners provides ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to develop on top of the platform.
The Company is a Delaware corporation formed in November 2009 and headquartered in Ventura, California with offices in various cities in North America, Europe, Asia and Australia.
Note 2—Basis of Presentation and Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.
There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.
The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.
Management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for credit losses, (3) operating lease assets and liabilities, including our incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of stock-based compensation and (7) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
As of September 30, 2022, the impacts to the Company’s business due to the coronavirus (“COVID-19”) pandemic, geopolitical developments and macroeconomic factors, such as rising interest rates, inflation, changes in foreign currency exchange rates and supply chain disruptions, continue to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macroeconomic factors in the market, which require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.
7

Business Combinations
The results of a business combination are included in the Company's condensed consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business are generally recorded at their estimated fair values on the acquisition date, which may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable companies. The Company engages valuation specialists to assist in determining the fair values of these acquired assets and liabilities. Any excess consideration over the fair value of these acquired assets and liabilities assumed is recognized as goodwill.
In July 2021, the Company acquired all of the equity interests of a technology company for a GAAP purchase price of $18 million, subject to purchase price adjustments. The purchase consideration was primarily attributable to non-deductible goodwill of $11 million, with the remainder allocated to acquired technology and other assets. In 2022, no additional acquisitions have occurred to date.
Note 3—Earnings Per Share
The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings (loss) per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.
The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Numerator:
Net income (loss)$15,869 $59,384 $(17,802)$129,723 
Denominator:
Weighted-average shares outstanding—basic487,963 478,101 486,168 475,496 
Effect of dilutive securities12,337 20,811  22,446 
Weighted-average shares outstanding—diluted500,300 498,912 486,168 497,942 
Basic earnings (loss) per share$0.03 $0.12 $(0.04)$0.27 
Diluted earnings (loss) per share$0.03 $0.12 $(0.04)$0.26 
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings (loss) per share*7,823 1,439  1,439 
_______________
* Diluted earnings (loss) per share attributable to the Company for the nine months ended September 30, 2022 excluded all potentially dilutive securities because there was a net loss for the period and the inclusion of these securities would have been anti-dilutive. Potentially dilutive securities excluded from the calculation of diluted earnings (loss) per share were 28 million shares under stock-based award plans for the nine months ended September 30, 2022.
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Note 4—Cash, Cash Equivalents and Short-Term Investments, Net
Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):
As of September 30, 2022
Cash and
Cash
Equivalents
Short-Term
Investments
Total
Cash$244,058 $— $244,058 
Level 1:   
Money market funds656,640 — 656,640 
Level 2:   
Commercial paper93,958 113,960 207,918 
Corporate debt securities 132,495 132,495 
U.S. government and agency securities 80,290 80,290 
Total$994,656 $326,745 $1,321,401 
As of December 31, 2021
Cash and
Cash
Equivalents
Short-Term
Investments
Total
Cash$272,058 $— $272,058 
Level 1:  
Money market funds431,299 — 431,299 
Level 2:  
Commercial paper47,544 70,804 118,348 
Corporate debt securities3,253 85,425 88,678 
U.S. government and agency securities 48,396 48,396 
Total$754,154 $204,625 $958,779 
The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three and nine months ended September 30, 2022 and 2021, were immaterial.
The contractual maturities of the Company’s short-term investments are as follows (in thousands):
September 30, 2022
Due in one year$294,093 
Due in one to two years32,652 
Total$326,745 
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Note 5—Leases
The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Operating lease cost$13,139 $12,402 $38,415 $38,288 
Short-term lease cost345 229 1,296 592 
Variable lease cost2,064 1,891 6,478 4,848 
Sublease income(635)(751)(1,882)(2,114)
Total lease cost$14,913 $13,771 $44,307 $41,614 
Note 6—Debt
Credit Facility
On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, the Company has the right to increase the Credit Facility by an amount not to exceed $300 million. The Credit Facility is collateralized by substantially all of the Company’s assets, including a pledge of certain of its accounts receivable, deposit accounts, intellectual property, investment property and equipment.
Loans under the Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted London Interbank Offered Rate (“LIBOR”), plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a rate per annum for any day equal to the greatest of (1) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (2) the New York Federal Reserve Bank Rate in effect on such day plus half of 1%, and (3) the adjusted LIBOR rate for a one-month interest period on such day plus 1%. The applicable margin is between 0.25% to 1.25% for Base Rate Borrowings and between 1.25% and 2.25% for LIBOR Rate Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the Credit Facility ranges, based on the applicable leverage, from 0.200% to 0.350%. The Company is also required to pay customary letter of credit fees, as necessary.
On December 17, 2021, the Company amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.
As of September 30, 2022, the Company did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $445 million as of September 30, 2022, which is net of outstanding letters of credit of $5 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026.
The Credit Facility contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Credit Facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00. As of September 30, 2022, the Company was in compliance with all covenants.
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Note 7—Stock-Based Compensation
Stock-Based Compensation Expense
Stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Platform operations$3,517 $2,518 $14,254 $11,624 
Sales and marketing14,861 9,099 48,718 37,362 
Technology and development22,641 11,269 67,258 41,337 
General and administrative79,984 11,573 240,881 41,687 
Total$121,003 $34,459 $371,111 $132,010 
Stock Options
The following summarizes stock option activity:
Shares
Under Option
(in thousands)
Weighted-
Average
Exercise Price
Outstanding as of December 31, 2021
18,984$15.14 
Granted1,47461.07 
Exercised(3,970)10.76 
Expired/Forfeited(534)44.22 
Outstanding as of September 30, 2022
15,954$19.50 
Exercisable as of September 30, 2022
12,167$11.43 
At September 30, 2022, the Company had unrecognized stock-based compensation relating to stock options, excluding the CEO Performance Option (as defined below), of approximately $98 million, which is expected to be recognized over a weighted-average period of 2.2 years.
CEO Performance Option
In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $68.29 per share. At September 30, 2022, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three and nine months ended September 30, 2022. Stock-based compensation of $66 million and $197 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $465 million that is expected to be recognized over a weighted-average period of 2.4 years, assuming no acceleration of vesting.
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Restricted Stock
The following summarizes restricted stock activity:
RSU
(in thousands)
Weighted-
Average
Grant Date
Fair Value
Unvested as of December 31, 2021
5,597 $51.54 
Granted5,586 60.51 
Vested(1,716)46.18 
Forfeited(827)59.61 
Unvested as of September 30, 2022
8,640 $57.63 
At September 30, 2022, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $461 million, which is expected to be recognized over a weighted-average period of 3.0 years.
Employee Stock Purchase Plan (“ESPP”)
Stock-based compensation expense related to the ESPP totaled $4 million for both the three months ended September 30, 2022 and 2021, and $46 million for both the nine months ended September 30, 2022 and 2021. At September 30, 2022, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $9 million, which is expected to be recognized over a weighted-average period of 0.9 years.
Note 8—Income Taxes
In determining the interim provision for income taxes, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. Due to our forecasted level of profitability and significant permanent differences primarily related to the CEO Performance Option, the Company is unable to utilize the annual effective tax rate method.
For the three months ended September 30, 2022 and 2021, the provision for income taxes included benefits associated with stock-based awards of $11 million and $22 million, respectively. For the nine months ended September 30, 2022 and 2021, the provision for income taxes included benefits associated with stock-based awards of $42 million and $58 million, respectively.
For the nine months ended September 30, 2022 and 2021, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation, the impact of tax benefits associated with stock-based awards, state and foreign taxes and research and development tax credits.
There were no material changes to the Company’s unrecognized tax benefits during the nine months ended September 30, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. The Company is in the process of evaluating the provisions of the IRA, but the Company does not currently believe the IRA will have a material impact on its financial results.
Note 9—Segment and Geographic Information
The Company has one primary business activity and operates in one reportable and operating segment.
The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients based on the gross
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amount of Supplier Features they purchase through its platform and the platform fees (“Gross Billings”), net of allowances. The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
Gross Billings, based on the address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
U.S.89 %87 %88 %86 %
International11 %13 %12 %14 %
Total100 %100 %100 %100 %
Note 10— Commitments and Contingencies
Guarantees and Indemnification
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at September 30, 2022.
Litigation
From time to time, the Company is subject to various legal proceedings, litigation and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings, litigation and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

On June 28, 2021, a class action lawsuit captioned City Pension Fund for Firefighters and Police Officers in the City of Miami Beach v. The Trade Desk, Inc., et al., No. 2021-0560 was filed against the Company, the members of the Company’s board of directors and one of the Company’s executive officers in the Court of Chancery of the State of Delaware. The complaint alleged generally that the defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020. On February 1, 2022, the defendants moved to dismiss the complaint, and on July 29, 2022, the court dismissed the complaint in its entirety with prejudice.
On May 27, 2022, a stockholder of the Company filed a derivative lawsuit captioned Huizenga v. Green, et al., No. 2022-0461, asserting claims on behalf of the Company against certain members of the Company’s board of directors in the Court of Chancery of the State of Delaware. On June 27, 2022, a second derivative lawsuit captioned Pfeiffer v. Green, et al., No. 2022-0560, was filed in the Court of Chancery of the State of Delaware alleging substantially similar claims. Those lawsuits were consolidated on August 18, 2022, and a lead plaintiff was appointed on October 7, 2022. The two complaints allege generally that the defendants breached their fiduciary duties to the Company and its stockholders in connection with the negotiation and approval of the CEO Performance Option. The plaintiffs seek a court order rescinding the CEO Performance Option and monetary damages. The defendants expect the lead plaintiff to file a consolidated complaint, and the defendants intend to move to dismiss the consolidated complaint.

Litigation is inherently uncertain and there can be no assurance regarding the likelihood that the motions to dismiss or defense of the various actions will be successful.
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Employment Contracts
The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock options in the event of changes in control, as defined, and involuntary terminations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of the COVID-19 pandemic and other macroeconomic factors on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a global technology company that empowers buyers of advertising. Through our self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). Our platform’s integrations with major data, inventory and publisher partners provide ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces enable our clients to develop on top of the platform.
We commercially launched our platform in 2011, targeting the display advertising channel and have continued to add additional advertising channels. The gross spend on our platform comes from multiple channels including mobile, video (which includes CTV), display, audio, native, digital-out-of-home and social channels.
Our clients are primarily the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.
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Executive Summary
Highlights

Three Months Ended September 30,Nine Months Ended September 30,
DollarsChangeDollarsChange
20222021$%20222021$%
Revenue$394,773 $301,091 $93,682 31 %$1,087,058 $800,869 $286,189 36 %
Net income (loss)$15,869 $59,384 $(43,515)(73)%$(17,802)$129,723 $(147,525)(114)%
__________________
Note: Amounts in thousands, except percentages.
Trends, Opportunities and Challenges
The growing digitization of media and fragmentation of audiences has increased the complexity of advertising and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and advertising inventory. We believe that key opportunities include our ongoing global expansion, continuing development of our CTV, video, audio and native ad inventory, and continuing development of the data usage, measurement and targeting capabilities provided by our platform.
We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.
Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory that we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our integrations with supply-side partners.
We invest for long-term growth. We anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.
We believe the markets outside of the United States, and in particular across Europe, China and India for example, offer opportunities for growth, although such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.
We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.
Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.
COVID-19 and Other Macroeconomic Factors
The worldwide spread of COVID-19, including the emergence of variants and subvariants, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current
16

uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, including the duration and spread of COVID-19 and its variants and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of the macroeconomic factors on our business.
During the three months ended September 30, 2022, many of our employees adopted a hybrid work schedule consisting of both in-person work and working from home. Additionally, we resumed travel and in-person events in accordance with applicable regional guidance. Our costs and expenses may increase as we continue to increase office activity globally, further increase travel, participate in and hold more in-person meetings and events and increase capital expenditures for additional office space. We continue to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate to limit the impact on our business.
Results of Operations for the Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021
The following tables set forth our condensed consolidated results of operations for the periods presented.
Three Months Ended September 30,
20222021
(in thousands)(% of Revenue)(in thousands)(% of Revenue)
Revenue$394,773 100 %$301,091 100 %
Operating expenses:
Platform operations70,124 18 %53,400 18 %
Sales and marketing85,038 22 %59,278 20 %
Technology and development79,915 20 %55,847 19 %
General and administrative130,892 33 %52,120 17 %
Total operating expenses365,969 93 %220,645 73 %
Income from operations28,804 %80,446 27 %
Total other expense (income), net(1,698)— %1,470 — %
Income before income taxes30,502 %78,976 26 %
Provision for income taxes14,633 %19,592 %
Net income$15,869 %$59,384 19 %

Nine Months Ended September 30,
20222021
(in thousands)(% of Revenue)(in thousands)(% of Revenue)
Revenue$1,087,058 100 %$800,869 100 %
Operating expenses:
Platform operations201,504 19 %154,709 19 %
Sales and marketing245,146 23 %176,797 22 %
Technology and development235,397 22 %163,301 20 %
General and administrative391,517 36 %155,884 19 %
Total operating expenses1,073,564 99 %650,691 81 %
Income from operations13,494 %150,178 19 %
Total other expense (income), net(1,756)— %1,560 — %
Income before income taxes15,250 %148,618 19 %
Provision for income taxes33,052 %18,895 %
Net income (loss)$(17,802)(2)%$129,723 16 %
_______________
Note: Percentages may not sum due to rounding.
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Revenue
Revenue increased by $94 million, or 31%, and $286 million, or 36%, for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, respectively. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by more advertisers and higher spend per campaign executed by existing clients.
Platform Operations
Platform operations expense increased by $17 million, or 31%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily due to increases of $6 million in personnel costs, which included $1 million in stock-based compensation; $5 million in hosting costs; $3 million in data-related costs; and $2 million in facilities costs and allocated overhead. The increase in personnel costs was due to an increase in headcount. The increase in hosting costs was primarily attributable to support related to the increased use of our platform by our clients. The increase in data-related costs was primarily attributable to investments in new data providers. The increase in facilities costs was primarily driven by new data centers to support the hosting infrastructure of our platform.
Platform operations expense increased by $47 million, or 30%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily due to increases of $17 million in personnel costs, which included $3 million in stock-based compensation; $12 million in data-related costs; $9 million in hosting costs; and $6 million in facilities costs and allocated overhead. The increase in personnel costs was primarily due to an increase in headcount, as well as employee engagement costs, including in-person events that did not occur in the prior year. The increase in data-related costs was primarily attributable to investments in new data providers. The increase in hosting costs was primarily attributable to support related to the increased use of our platform by our clients. The increase in facilities costs was primarily driven by new data centers to support the hosting infrastructure of our platform.
We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our growth.
Sales and Marketing
Sales and marketing expense increased by $26 million, or 43%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily due to increases of $21 million in personnel costs, which included $6 million of stock-based compensation; $3 million in advertising and marketing costs; and $2 million in allocated facilities costs. The increase in personnel costs was primarily due to an increase in headcount to support our sales efforts and to continue to develop and maintain relationships with our clients, as well an increase in incentive compensation and return-to-office and travel costs that did not occur in the prior year. The increase in advertising and marketing costs was primarily due to an increase in marketing campaigns, events and sponsorships. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.
Sales and marketing expense increased by $68 million, or 39%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily due to increases of $50 million in personnel costs, which included $11 million of stock-based compensation; $14 million in advertising and marketing costs; and $4 million in allocated facilities costs. The increase in personnel costs was primarily due to an increase in headcount to support our sales efforts and continue to develop and maintain relationships with our clients; an increase in incentive compensation; and return-to-office, travel and in-person event costs that did not occur in the prior year. The increase in advertising and marketing costs was primarily due to an increase in marketing campaigns, events and sponsorships. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.
We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.
Technology and Development
Technology and development expense increased by $24 million, or 43%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily due to
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increases of $22 million in personnel costs, which included $11 million of stock-based compensation, and $2 million in allocated facilities costs. The increase in personnel costs was primarily attributable to increased headcount to maintain and support further development of our platform, as well as return-to-office and travel costs that did not occur in the prior year. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.
Technology and development expense increased by $72 million, or 44%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily due to increases of $68 million in personnel costs, which included $26 million of stock-based compensation, and $3 million in allocated facilities costs. The increase in personnel costs was primarily attributable to increased headcount to maintain and support further development of our platform, as well as return-to-office, travel and in-person event costs that did not occur in the prior year. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.
We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and support the increase in volume of advertising spending by our customers on our platform. We also intend to invest in technology to further automate our business processes.
General and Administrative
General and administrative expense increased by $79 million, or 151%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to a $66 million increase in stock-based compensation related to the CEO Performance Option granted in the fourth quarter of the prior year, and a $10 million increase in payroll costs related to hiring to support our growth, as well as return-to-office and travel costs that did not occur in the prior year.
General and administrative expense increased by $236 million, or 151%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to a $197 million increase in stock-based compensation related to the CEO Performance Option granted in the fourth quarter of the prior year, and a $28 million increase in payroll costs related to hiring to support our growth, as well as return-to-office, travel and in-person event costs that did not occur in the prior year.
We expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth.
Total Other Expense (Income), Net
Total other income, net increased by $3 million for the three months ended September 30, 2022, as compared to total other expense, net for the three months ended September 30, 2021. The increase was primarily due to higher interest income on our short-term investments driven by increased purchases and rising interest rates, partially offset by credit loss expense on available-for-sale securities.
Total other income, net increased by $3 million for the nine months ended September 30, 2022, as compared to total other expense, net for the nine months ended September 30, 2021. The increase was primarily due to higher interest income on our short-term investments driven by increased purchases and rising interest rates, partially offset by credit loss expense on available-for-sale securities.
Provision for Income Taxes
The U.S. federal statutory tax rate was 21% for the three and nine months ended September 30, 2022 and 2021, respectively.
The provision for income taxes decreased by $5 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease was primarily attributable to lower pre-tax profitability, partially offset by lower tax benefits associated with employee stock-based awards.
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The provision for income taxes increased by $14 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was primarily attributable to higher nondeductible stock-based compensation, primarily related to the CEO Performance Option, and lower tax benefits associated with employee stock-based awards.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our financial results.
Liquidity and Capital Resources
As of September 30, 2022, we had working capital of $1,630 million, which included $995 million in cash and cash equivalents, $30 million of which was held by our international subsidiaries, and $327 million in short-term investments in marketable securities. Additionally, we had $445 million of availability under our Credit Facility (refer to the “Credit Facility” section below). For the nine months ended September 30, 2022, we generated $375 million in cash flows from operating activities.
We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. Further, we have a shelf registration statement on Form S-3 on file with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Item 1A. Risk Factors” within this Quarterly Report on Form 10-Q.
In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.
There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.
Credit Facility
On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). This Credit Facility replaced our prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.
As of September 30, 2022, we did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $445 million as of September 30, 2022, which is net of outstanding letters of credit of $5 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of September 30, 2022, we were in compliance with all covenants.
For additional information regarding the Credit Facility, refer to Note 6—Debt.
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Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine Months Ended September 30,
20222021
(in thousands)
Net cash provided by operating activities$375,254 $215,119 
Net cash used in investing activities$(165,757)$(97,676)
Net cash provided by financing activities$31,005 $22,120 
Operating Activities
Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.
For the nine months ended September 30, 2022, cash provided by operating activities of $375 million resulted primarily from net income adjusted for non-cash items of $431 million, and a net decrease in our operating assets and liabilities of $55 million. The net decrease in our operating assets and liabilities was primarily due to a $69 million decrease in accounts payable, a $36 million decrease in operating lease liabilities and a $19 million decrease in accrued expenses and other liabilities, partially offset by a $43 million decrease in prepaid expenses and other assets and a $25 million decrease in accounts receivable. The decrease in accounts payable was due to seasonality and the timing of payments to suppliers. The decrease in operating lease liabilities was due primarily to rent payments. The decrease in accrued expenses and other liabilities was due primarily to payments of taxes associated with stock-based awards, bonus payments and reduction of the liability related to the ESPP due to the purchase of shares in accordance with the plan. The decrease in prepaid expenses and other assets was primarily due to a decrease in the income tax receivable including the receipt of an income tax refund, partially offset by current year estimated income tax payments. The decrease in accounts receivable was due to seasonality and the timing of cash receipts from clients.
For the nine months ended September 30, 2021, cash provided by operating activities of $215 million resulted primarily from net income adjusted for non-cash items of $334 million and a net decrease in our operating assets and liabilities of $119 million. The net decrease in our operating assets and liabilities was primarily due to a $49 million increase in accounts receivable, a $44 million decrease in accounts payable and a $32 million decrease in operating lease liabilities. The increase in accounts receivable was due to seasonality and the timing of cash receipts from clients. The decrease in accounts payable was due to the timing and seasonality of payments to suppliers. The decrease in operating lease liabilities was primarily due to rent payments.
Investing Activities
Our primary investing activities consist of investing in short-term marketable securities, purchases of property and equipment for the expansion of our new facilities in support of our expanding headcount as a result of our growth, and capital expenditures to develop our software in support of enhancing our technology platform. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.
For the nine months ended September 30, 2022, we used $166 million of cash in investing activities, consisting of $125 million of net purchases of short-term investments, $36 million to purchase property and equipment and $5 million of investments in capitalized software.
For the nine months ended September 30, 2021, we used $98 million of cash in investing activities, consisting of $37 million of net purchases of short-term investments, $44 million to purchase property and equipment, $13 million for certain assets accounted for as a business acquisition and $4 million of investments in capitalized software.
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Financing Activities
For the nine months ended September 30, 2022, cash provided by financing activities of $31 million was primarily due to $43 million of proceeds from stock option exercises and $26 million of proceeds from our employee stock purchase plan, partially offset by $37 million of taxes paid for restricted stock award settlements.
For the nine months ended September 30, 2021, cash provided by financing activities of $22 million was primarily due to $40 million of proceeds from stock option exercises and $23 million of proceeds from our employee stock purchase plan, partially offset by $38 million of taxes paid for restricted stock award settlements.
Off-Balance Sheet Arrangements
We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements at September 30, 2022 other than the indemnification agreements described below.
Contractual Obligations
Our principal commitments consist of our non-cancelable operating leases for our various office facilities and other contractual commitments consisting of obligations to our hosting services providers, marketing contracts and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.
The following table summarizes our non-cancelable contractual obligations at September 30, 2022 (in thousands):
Payments Due by Period
Less than One Year
One Year or More
Total
Operating lease commitments$14,578 $282,562 $297,140 
Other contractual commitments69,791 472,674 542,465 
Total$84,369 $755,236 $839,605 
In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at September 30, 2022.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based
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compensation expense and income taxes have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Recently Issued Accounting Pronouncements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign currency exchange risks.
Interest Rate Risk
We are exposed to market risk from changes in interest rates under our Credit Facility, which accrues interest at a variable rate. No amount was owed on our Credit Facility as of September 30, 2022. We have not used any derivative financial instruments to manage our interest rate risk exposure. Based upon the short-term investments amount as of September 30, 2022, a hypothetical one percentage point increase or decrease in the interest rate would result in a corresponding increase or decrease in investment income of approximately $3 million annually.
Foreign Currency Exchange Risk
We have foreign currency exchange risk related to transactions denominated in currencies other than the U.S. Dollar, principally the Euro, Australian Dollar, British Pound, Canadian Dollar, Japanese Yen and Indonesian Rupiah. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. As of September 30, 2022, an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts would result in a foreign currency loss of approximately $28 million. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may be more greatly affected by exchange rate fluctuations.
We enter into forward contracts or other derivative transactions in an attempt to hedge our foreign currency risk. There can be no assurance that such transactions will be effective in hedging some or all of our foreign currency exposures and under some circumstances could generate losses for us.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2022. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the
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realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are subject to various legal proceedings, litigation and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings, litigation and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

On June 28, 2021, a class action lawsuit captioned City Pension Fund for Firefighters and Police Officers in the City of Miami Beach v. The Trade Desk, Inc., et al., No. 2021-0560 was filed against us, the members of our board of directors and one of our executive officers in the Court of Chancery of the State of Delaware. The complaint alleged generally that the defendants breached their fiduciary duties to our stockholders in connection with the negotiation and approval of the amendments to our certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020. On February 1, 2022, the defendants moved to dismiss the complaint, and on July 29, 2022, the court dismissed the complaint in its entirety with prejudice.

On May 27, 2022, a stockholder filed a derivative lawsuit captioned Huizenga v. Green, et al., No. 2022-0461, asserting claims on our behalf against certain members of our board of directors in the Court of Chancery of the State of Delaware. On June 27, 2022, a second derivative lawsuit captioned Pfeiffer v. Green, et al., No. 2022-0560, was filed in the Court of Chancery of the State of Delaware alleging substantially similar claims. Those lawsuits were consolidated on August 18, 2022, and a lead plaintiff was appointed on October 7, 2022. The two complaints allege generally that the defendants breached their fiduciary duties to us and our stockholders in connection with the negotiation and approval of the CEO Performance Option. The plaintiffs seek a court order rescinding the CEO Performance Option and monetary damages. The defendants expect the lead plaintiff to file a consolidated complaint, and the defendants intend to move to dismiss the consolidated complaint.

Litigation is inherently uncertain and there can be no assurance regarding the likelihood that the motions to dismiss or defense of the various actions will be successful.

Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our Class A common stock. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business and Industry
If we fail to maintain and grow our client base and spend through our platform, our revenue and business may be negatively impacted.
To sustain or increase our revenue, we must regularly add new clients and encourage existing clients to maintain or increase the amount of advertising inventory purchased through our platform and adopt new features and functionalities that we make available. If competitors introduce lower cost or differentiated offerings that compete with or are perceived to compete with our offerings, our ability to sell our services to new or existing clients could be impaired. We have spent significant effort in cultivating our relationships with advertising agencies, which has resulted in an increase in the budgets allocated to, and the amount of advertising purchased on, our platform. However, it is possible that we may reach a point of saturation at which we cannot continue to grow our revenue from such agencies because of internal limits that advertisers may place on the allocation of their advertising budgets to digital media to a particular provider or otherwise. While we generally have master services agreements (“MSAs”) in place with our clients, such agreements allow our clients to change the amount they spend through our platform or terminate our services with limited notice. We do not typically have exclusive relationships with our clients and there is limited cost to moving their media spend to our competitors. As a result, we have limited visibility to our future advertising revenue streams. We cannot assure you that our clients will
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continue to use our platform or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenue. If a major client representing a significant portion of our business decides to materially reduce its use of our platform or to cease using our platform altogether, it is possible that our revenue or revenue growth rate could be significantly reduced, and our business negatively impacted.
The loss of advertising agencies as clients could significantly harm our business, financial condition and results of operations.
Our client base consists primarily of advertising agencies. We do not have exclusive relationships with advertising agencies, and we depend on agencies to work with us to build and maintain advertiser relationships and execute advertising campaigns.
The loss of agencies as clients could significantly harm our business, financial condition and results of operations. If we fail to maintain satisfactory relationships with an advertising agency, we risk losing business from the advertisers represented by that agency.
Advertisers may change advertising agencies. If an advertiser switches from an agency that utilizes our platform to one that does not, we will lose revenue from that advertiser. In addition, some advertising agencies have their own relationships with suppliers of advertising inventory and can directly connect advertisers with such suppliers. Our business may suffer to the extent that advertising agencies and inventory suppliers purchase and sell advertising inventory directly from one another or through intermediaries other than us.
We had approximately 980 clients, consisting primarily of advertising agencies, as of December 31, 2021. Many of these agencies are owned by holding companies, where decision making is decentralized such that purchasing decisions are made, and relationships with advertisers are located, at the agency, local branch or division level. If all of our individual client contractual relationships were aggregated at the holding company level, Publicis Groupe and WPP plc would have each represented more than 10% of our gross billings for 2021.
In most cases, we enter into separate contracts and billing relationships with the individual agencies and account for them as separate clients. However, some holding companies for these agencies may choose to exert control over the individual agencies in the future. If so, any loss of relationships with such holding companies and consequently, of their agencies, local branches or divisions, as clients could significantly harm our business, financial condition and results of operations.
If we fail to innovate or make the right investment decisions in our offerings and platform, we may not attract and retain advertisers and advertising agencies and our revenue and results of operations may decline.
Our industry is subject to rapid and frequent changes in technology, evolving client needs and the frequent introduction by our competitors of new and enhanced offerings. We must constantly make investment decisions regarding offerings and technology to meet client demand and evolving industry standards. We may make bad decisions regarding these investments. If new or existing competitors have more attractive offerings, we may lose clients or clients may decrease their use of our platform. New client demands, superior competitive offerings or new industry standards could require us to make unanticipated and costly changes to our platform or business model. In addition, as we develop and introduce new products and services, including those incorporating or utilizing artificial intelligence and machine learning and new processing of personal information, they may raise new, or heighten existing, technological, legal and other challenges, may cause unintended consequences, and may not function properly or may be misused by our clients. If we fail to adapt to our rapidly changing industry or to evolving client needs, or we provide new products and services that exacerbate technological, legal or other challenges, demand for our platform could decrease and our business, financial condition and results of operations may be adversely affected.
The market for programmatic buying for advertising campaigns is relatively new and evolving. If this market develops slower or differently than we expect, our business, growth prospects and financial condition would be adversely affected.
The substantial majority of our revenue has been derived from clients that programmatically purchase advertising inventory through our platform. We expect that spending on programmatic ad buying will continue to be our primary source of revenue for the foreseeable future and that our revenue growth will largely depend on increasing spend through our platform. The market for programmatic ad buying is an emerging market, and our current and potential clients may not
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shift to programmatic ad buying from other buying methods as quickly as we expect, which would reduce our growth potential. If the market for programmatic ad buying deteriorates or develops more slowly than we expect, it could reduce demand for our platform, and our business, growth prospects and financial condition would be adversely affected.
In addition, our revenue may not necessarily grow at the same rate as spend on our platform. As the market for programmatic buying for advertising matures, growth in spend may outpace growth in our revenue due to a number of factors, including pricing competition, quantity discounts and shifts in product, media, client and channel mix. A significant change in revenue as a percentage of spend could reflect an adverse change in our business and growth prospects. In addition, any such fluctuations, even if they reflect our strategic decisions, could cause our performance to fall below the expectations of securities analysts and investors, and adversely affect the price of our common stock.
The effects of health epidemics, such as the ongoing global COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, financial condition and results of operations.
Our business and operations have been, and could in the future be, adversely affected by health epidemics, such as the global COVID-19 pandemic. The COVID-19 pandemic and efforts to control its spread have curtailed the movement of people, goods and services worldwide, including in the regions in which we and our clients and partners operate, and have significantly impacted economic activity and financial markets. Many marketers have decreased or paused their advertising spending as a response to the economic uncertainty, decline in business activity and other COVID-19-related impacts, which have negatively impacted, and may continue to negatively impact, our revenue and results of operations, the extent and duration of which we may not be able to accurately predict. In addition, our clients’ and advertisers’ businesses or cash flows have been and may continue to be negatively impacted by the COVID-19 pandemic, which has led, and may continue to lead, them to seek adjustments to payment terms or delay making payments or default on their payables, any of which may impact the timely receipt and/or collectability of our receivables. Typically, we are contractually required to pay advertising inventory and data suppliers within a negotiated period of time, regardless of whether our clients pay us on time, or at all, and we may not be able to renegotiate better terms. As a result, our financial condition and results of operations may be adversely impacted.
Our operations are subject to a range of external factors related to the COVID-19 pandemic that are not within our control. We have taken precautionary measures intended to minimize the risk of the spread of the virus to our employees, partners and clients, and the communities in which we operate. A wide range of governmental restrictions has also been imposed on our employees, clients and partners’ physical movement to limit the spread of COVID-19. There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm our business and results of operations.
The economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for us to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. We have committed, and we plan to continue to commit, resources to grow our business, including to expand our international presence, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, including the emergence of new variant strains of COVID-19 and the measures taken by governments, businesses and other organizations in response, and if we are not able to respond to and manage the impact of such events effectively, our business may be harmed.
The market in which we participate is intensely competitive, and we may not be able to compete successfully with our current or future competitors.
We operate in a highly competitive and rapidly changing industry. We expect competition to persist and intensify in the future, which could harm our ability to increase revenue and maintain profitability. New technologies and methods of buying advertising present a dynamic competitive challenge, as market participants develop and offer new products and services aimed at capturing advertising spend or disrupting the digital marketing landscape, such as analytics, automated media buying and exchanges.
We may also face competition from new companies entering the market, including large established companies and companies that we do not yet know about or do not yet exist. If existing or new companies develop, market or resell competitive high-value products or services that result in additional competition for advertising spend or advertising
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inventory or if they acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our results of operations could be harmed.
Our current and potential competitors may have significantly more financial, technical, marketing, and other resources than we have, which may allow them to devote greater resources to the development, promotion, sale and support of their products and services. They may also have more extensive advertiser bases and broader publisher relationships than we have, and may be better positioned to execute on advertising conducted over certain channels, such as social media, mobile, and video. Some of our competitors may have a longer operating history and greater name recognition. As a result, these competitors may be better able to respond quickly to new technologies, develop deeper advertiser relationships or offer services at lower prices. Any of these developments would make it more difficult for us to sell our platform and could result in increased pricing pressure, increased sales and marketing expense, or the loss of market share.
Any decrease in the use of the advertising channels that we are primarily dependent upon, failure to expand the use of emerging channels, or unexpected shift in use among the channels in which we operate, could harm our growth prospects, financial condition and results of operations.

Historically, our clients have predominantly used our platform to purchase mobile, display and video advertising inventory. In particular, the CTV market is quickly evolving and the demand for CTV inventory on our platform has been a significant driver of growth. We expect that these will continue to be significant channels used by our clients for digital advertising in the future. We also believe that our revenue growth may depend on our ability to expand within social, native, audio, and especially CTV, and we have been, and are continuing to, enhance such channels. Any decrease in the use of mobile, display and video advertising, whether due to clients losing confidence in the value or effectiveness of such channels, regulatory restrictions or other causes, or any inability to further penetrate social, native, audio or CTV, or enter new and emerging advertising channels, could harm our growth prospects, financial condition and results of operations.

Each advertising channel presents distinct and substantial risk and, in many cases, requires us to continue to develop additional functionality or features to address the particular requirements of the channel. Our ability to provide capabilities across multiple advertising channels, which we refer to as omnichannel, may be constrained if we are not able to maintain or grow advertising inventory for such channels, and some of our omnichannel offerings may not gain market acceptance. If we fail to maintain a diversified channel mix, a decrease in the demand for any channel or channels that we become primarily dependent upon could harm our business, financial condition and results of operations. We may not be able to accurately predict changes in overall advertiser demand for the channels in which we operate and cannot assure you that our investment in channel development will correspond to any such changes. Furthermore, if our channel mix changes due to a shift in client demand, such as clients shifting their spending more quickly or more extensively than expected to channels in which we have relatively less functionality, features, or inventory, then demand for our platform could decrease, and our business, financial condition, and results of operations could be adversely affected.
We often have long sales cycles, which can result in significant time between initial contact with a prospect and execution of a client agreement, making it difficult to project when, if at all, we will obtain new clients and when we will generate revenue from those clients.
Our sales cycle, from initial contact to contract execution and implementation, can take significant time. Our sales efforts involve educating our clients about the use, technical capabilities and benefits of our platform. Some of our clients undertake an evaluation process that frequently involves not only our platform but also the offerings of our competitors. As a result, it is difficult to predict when we will obtain new clients and begin generating revenue from these new clients. Even if our sales efforts result in obtaining a new client, under our usage-based pricing model, the client controls when and to what extent it uses our platform. As a result, we may not be able to add clients or generate revenue as quickly as we may expect, which could harm our revenue growth rates.
We are subject to payment-related risks that may adversely affect our business, working capital, financial condition and results of operations, including from advertising agencies that do not pay us until they receive payment from their advertisers and from clients that dispute or do not pay their invoices.
Spend on our platform primarily comes through our agency clients. Many of our contracts with advertising agencies provide that if the advertiser does not pay the agency, the agency is not liable to us, and we must seek payment solely from the advertiser, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or may develop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with advertisers. This credit risk may vary depending on the nature of an advertising agency’s aggregated advertiser base. In addition, typically, we are contractually required to pay advertising inventory and data suppliers within a
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negotiated period of time, regardless of whether our clients pay us on time, or at all. In addition, we typically experience slow payment cycles by advertising agencies as is common in our industry. While we attempt to negotiate long payment periods with our suppliers and shorter periods from our clients, we are not always successful. As a result, we often face a timing issue with our accounts payable on shorter cycles than our accounts receivables, requiring us to remit payments from our own funds, and accept the risk of credit loss.
This collections and payments cycle may increasingly consume working capital if we continue to be successful in growing our business. If we are unable to borrow on commercially acceptable terms, our working capital availability could be reduced, and as a consequence, our financial condition and results of operations would be adversely impacted.
We may also be involved in disputes with clients, and in the case of agencies, their advertisers, over the operation of our platform, the terms of our agreements or our billings for purchases made by them through our platform. If we are unable to resolve disputes with our clients, we may lose clients or clients may decrease their use of our platform and our financial performance and growth may be adversely affected. If we are unable to collect or make adjustments to bills to clients, we could incur write-offs for credit loss, which could harm our results of operations. In the future, credit loss may exceed reserves for such contingencies and our credit loss exposure may increase over time. Any increase in write-offs for credit loss could harm our business, financial condition and results of operations. Even if we are not paid by our clients on time or at all, we are still obligated to pay for the advertising inventory, third-party data and other add-on features that clients purchase on our platform, and as a consequence, our business, financial condition and results of operations would be adversely impacted.
We may experience fluctuations in our results of operations, which could make our future results of operations difficult to predict or cause our results of operations to fall below analysts’ and investors’ expectations.
Our quarterly and annual results of operations have fluctuated in the past and we expect our future results of operations to fluctuate due to a variety of factors, many of which are beyond our control. Fluctuations in our results of operations could cause our performance to fall below the expectations of analysts and investors, and adversely affect the price of our common stock. Because our business is changing and evolving rapidly, our historical results of operations may not be necessarily indicative of our future results of operations. Factors that may cause our results of operations to fluctuate include the following:
changes in demand for programmatic advertising and for our platform, including related to the seasonal nature of our clients’ spending on digital advertising campaigns;
changes to availability of and pricing of competitive products and services, and their effects on our pricing;
changes in the pricing or availability of data and other third-party services, including pricing structure changes and the alignment of our pricing model with our data partners;
changes in our client base and platform offerings;
the addition or loss of advertising agencies and advertisers as clients;
changes in advertising budget allocations, agency affiliations or marketing strategies;
changes to our product, media, client or channel mix;
changes and uncertainty in the regulatory environment for us, advertisers or others in the advertising industry, and the effects of our efforts and those of our clients and partners to address changes and uncertainty in the regulatory environment;
changes in the economic prospects of advertisers or the economy generally, which could alter advertisers’ budgets or spending priorities, or could increase the time or costs required to complete advertising inventory sales;
changes in the pricing and availability of advertising inventory, including through real-time advertising exchanges or in the cost of reaching end consumers through digital advertising;
disruptions or outages on our platform;
factors beyond our control, such as natural disasters, terrorism, war and public health crises;
the introduction of new technologies or offerings by our competitors or others in the advertising marketplace;
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changes in our capital expenditures as we acquire the hardware, equipment and other assets required to support our business;
timing differences between our payments for advertising inventory and our collection of related advertising revenue;
the length and unpredictability of our sales cycle;
costs related to acquisitions of businesses or technologies and development of new products;
cost of employee recruiting and retention; and
changes to the cost of infrastructure, including real estate and information technology.
Based upon the factors above and others beyond our control, we have a limited ability to forecast our future revenue, costs and expenses. If we fail to meet or exceed the operating results expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future performance that are unrealistic or that we do not meet, the market price of our common stock could decline. In addition, if one or more of the analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention from other business concerns.
If our access to quality advertising inventory is diminished or fails to expand, our revenue could decline and our growth could be impeded.
We must maintain a consistent supply of attractive ad inventory. Our success depends on our ability to secure quality inventory on reasonable terms across a broad range of advertising networks and exchanges and social media platforms, including video, display, CTV, audio and mobile inventory. The amount, quality and cost of inventory available to us can change at any time. A few inventory suppliers hold a significant portion of the programmatic inventory either generally or concentrated in a particular channel, such as audio and social media. In addition, we compete with companies with which we have business relationships. For example, Google is one of our largest advertising inventory suppliers in addition to being one of our competitors. If Google or any other company with attractive advertising inventory limits our access to its advertising inventory, our business could be adversely affected. If our relationships with certain of our suppliers were to cease, or if the material terms of these relationships were to change unfavorably, our business would be negatively impacted. Our suppliers are generally not bound by long-term contracts. As a result, there is no guarantee that we will have access to a consistent supply of quality inventory on favorable terms. If we are unable to compete favorably for advertising inventory available on real-time advertising exchanges, or if real-time advertising exchanges decide not to make their advertising inventory available to us, we may not be able to place advertisements or find alternative sources of inventory with comparable traffic patterns and consumer demographics in a timely manner. Furthermore, the inventory that we access through real-time advertising exchanges may be of low quality or misrepresented to us, despite attempts by us and our suppliers to prevent fraud and conduct quality assurance checks.
Inventory suppliers control the bidding process, rules and procedures for the inventory they supply, and their processes may not always work in our favor. For example, suppliers may place restrictions on the use of their inventory, including prohibiting the placement of advertisements on behalf of specific advertisers. Through the bidding process, we may not win the right to deliver advertising to the inventory that is selected through our platform and may not be able to replace inventory that is no longer made available to us.
As new types of inventory become available, we will need to expend significant resources to ensure we have access to such new inventory. For example, although television advertising is a large market, only a very small percentage of it is currently purchased through digital advertising exchanges. We are investing heavily in our programmatic television offering, including by increasing our workforce and by adding new features, functions and integrations to our platform. If the CTV market does not continue to grow as we anticipate or we fail to successfully serve such market, our growth prospects could be harmed.
Our success depends on consistently adding valued inventory in a cost-effective manner. If we are unable to maintain a consistent supply of quality inventory for any reason, client retention and loyalty, and our financial condition and results of operations could be harmed.
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Current or future global market uncertainties or downturns and associated macroeconomic conditions beyond our control could adversely affect our business, financial condition and results of operations.

Our business depends on the overall demand for advertising and on the economic health of advertisers that benefit from our platform. Current or future global market uncertainties or downturns and associated macroeconomic conditions, such as growing inflation, rising interest rates, recessionary fears, changes in foreign currency exchange rates and the impact of geopolitical instability in many parts of the world and the COVID-19 pandemic or other public health crises, may disrupt the operations of our clients and partners and cause advertisers to decrease or pause their advertising budgets, which could reduce spend though our platform and adversely affect our business, financial condition and results of operations. As we explore new countries to expand our business, economic downturns or unstable market conditions in any of those countries could also result in our investments not yielding the returns we anticipate.
Seasonal fluctuations in advertising activity could have a negative impact on our revenue, cash flow and results of operations.
Our revenue, cash flow, results of operations and other key operating and performance metrics may vary from quarter to quarter due to the seasonal nature of our clients’ spending on advertising campaigns. For example, clients tend to devote more of their advertising budgets to the fourth calendar quarter to coincide with consumer holiday spending. Moreover, advertising inventory in the fourth quarter may be more expensive due to increased demand for it. Political advertising could also cause our revenue to increase during election cycles and decrease during other periods. Our historical revenue growth has lessened the impact of seasonality; however, seasonality could have a more significant impact on our revenue, cash flow and results of operations from period to period if our growth rate declines, if seasonal spending becomes more pronounced, or if seasonality otherwise differs from our expectations.
Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and results of operations.
We have experienced and continue to experience significant growth in a short period of time. To manage our growth effectively, we must continually evaluate and evolve our organization. We must also manage our employees, operations, finances, technology and development and capital investments efficiently. Our efficiency, productivity and the quality of our platform and client service may be adversely impacted if we do not train our new personnel, particularly our sales and support personnel, quickly and effectively, or if we fail to appropriately coordinate across our organization. Additionally, our rapid growth may place a strain on our resources, infrastructure and ability to maintain the quality of our platform. Our revenue growth and levels of profitability in recent periods should not be considered as indicative of future performance. In future periods, our revenue or profitability could decline or grow more slowly than we expect. Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and results of operations.
As our costs increase, we may not be able to generate sufficient revenue to sustain profitability.
We have expended significant resources to grow our business in recent years by increasing the offerings of our platform, growing our number of employees and expanding internationally. Despite the initial decline in revenue in response to the COVID-19 pandemic, we anticipate continued growth that could require substantial financial and other resources to, among other things:
develop our platform, including by investing in our engineering team, creating, acquiring or licensing new products or features, and improving the availability and security of our platform;
continue to expand internationally by growing our sales force and client services team in an effort to increase our client base and spend through our platform, and by adding inventory and data from countries our clients are seeking;
improve our technology infrastructure, including investing in internal technology development and acquiring outside technologies;
expand our platform’s reach in new and growing channels such as CTV, including expanding the supply of CTV inventory;
cover general and administrative expenses, including legal, accounting and other expenses necessary to support a larger organization;
cover sales and marketing expenses, including a significant expansion of our direct sales organization;
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cover expenses relating to data collection and use and consumer privacy compliance, including additional infrastructure, product features, security, automation and personnel; and
explore strategic acquisitions.
Investing in the foregoing, however, may not yield anticipated returns, especially during the period of impact from the COVID-19 pandemic. Consequently, as our costs increase, we may not be able to generate sufficient revenue to sustain profitability.
We allow our clients to utilize application programming interfaces (“APIs”) with our platform, which could result in outages or security breaches and negatively impact our business, financial condition and results of operations.
The use of APIs by our clients has significantly increased in recent years. Our APIs allow clients to build their own media buying and data management interface by using our APIs to develop custom integration of their business with our platform. The increased use of APIs increases security and operational risks to our systems, including the risk for intrusion attacks, data theft, or denial of service attacks. Furthermore, while APIs allow clients greater ease and power in accessing our platform, they also increase the risk of overusing our systems, potentially causing outages. We have experienced system slowdowns due to client overuse of our systems through our APIs. While we have taken measures intended to decrease security and outage risks associated with the use of APIs, we cannot guarantee that such measures will be successful. Our failure to prevent outages or security breaches resulting from API use could result in government enforcement actions against us, claims for damages by consumers and other affected individuals, costs associated with investigation and remediation damage to our reputation and loss of goodwill, any of which could harm our business, financial condition and results of operations.
We may experience outages and disruptions on our platform if we fail to maintain adequate security and supporting infrastructure as we scale our platform, which may harm our reputation and negatively impact our business, financial condition and results of operations.
As we grow our business, we expect to continue to invest in technology services and equipment, including data centers, network services and database technologies, as well as potentially increase our reliance on open source software. Without these improvements, our operations might suffer from unanticipated system disruptions, slow transaction processing, unreliable service levels, impaired quality or delays in reporting accurate information regarding transactions in our platform, any of which could negatively affect our reputation and ability to attract and retain clients. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance our business will increase. If we fail to respond to technological change or to adequately maintain, expand, upgrade and develop our systems and infrastructure in a timely fashion, our growth prospects and results of operations could be adversely affected. The steps we take to increase the reliability, integrity and security of our platform as it scales are expensive and complex, and our execution could result in operational failures and increased vulnerability to cyberattacks. Such cyberattacks could include denial-of-service attacks impacting service availability (including the ability to deliver ads) and reliability, tricking company employees into releasing control of their systems to a hacker, or the introduction of computer viruses or malware into our systems with a view to steal confidential or proprietary data. Cyberattacks of increasing sophistication may be difficult to detect and could result in the theft of our intellectual property and data, including personal information, from our platform. We are also vulnerable to unintentional errors or malicious actions by persons with authorized access to our systems that exceed the scope of their access rights, distribute data erroneously, or, unintentionally or intentionally, interfere with the intended operations of our platform. Moreover, we could be adversely impacted by outages and disruptions in the online platforms of our inventory and data suppliers, such as real-time advertising exchanges. Outages and disruptions of our platform, including due to cyberattacks, may harm our reputation and negatively impact our business, financial condition and results of operations.
Operational, performance and internal control issues with our platform may adversely affect our business, financial condition and results of operations and subject us to liability.

Our platform is complex and proprietary, and we rely on the expertise of members of our engineering, operations and software development teams for its continued performance. Operational, performance and internal control issues may arise due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors and other internal and external variables. Such issues have caused errors, failures, vulnerabilities and bugs in the past and may again in the future. Our platform also relies on third-party technology and systems to perform properly and is often used in connection with computing environments utilizing different operating systems, system management software, equipment and networking configurations, which may cause errors in, or failures of, our platform or such other computing
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environments. Operational, performance and internal control issues with our platform, which we may experience and have experienced in the past, could include the failure of our user interface, outages, errors, discrepancies in costs billed versus costs paid, unauthorized bidding, cessation of our ability to bid or deliver impressions, deletion of our reporting information, unanticipated volume overwhelming our databases, server failure or catastrophic events affecting one or more server farms.
Operational, performance and internal control issues with our platform, whether real or perceived, could also result in negative publicity, damage to our brand and reputation, loss of clients, loss of or delay in market acceptance of our platform, increased costs or loss of revenue, loss of the ability to access our platform, loss of competitive position, claims by clients for losses sustained by them and loss of stockholder confidence in the accuracy and completeness of our financial reports. Alleviating problems resulting from such issues could require significant expenditures of capital and other resources and could cause interruptions, delays or the cessation of our business, any of which may adversely affect our business, financial condition and results of operations.
If unauthorized access is obtained to user, client or inventory and third-party provider data, or our platform is compromised, our services may be disrupted or perceived as insecure, and as a result, we may lose existing clients or fail to attract new clients, and we may incur significant reputational harm and legal and financial liabilities.
Our products and services involve the storage and transmission of significant amounts of data from users, clients and inventory and data providers, a large volume of which is hosted by third-party service providers. Our services and the data on our platform and in our systems could be exposed to unauthorized access due to activities that breach or undermine security measures, including: negligence or malfeasance by internal or external actors; attempts by outside parties to fraudulently induce employees, clients or vendors to disclose sensitive information; or errors or vulnerabilities in our systems, products or processes or in those of our service providers, clients, and vendors. For example, from time to time, we experience cyberattacks of varying degrees and other attempts to obtain unauthorized access to our systems, including to employee mailboxes. We have dedicated and expect to continue to dedicate resources toward security protections that shield data from these activities. However, such measures cannot provide absolute security. Further, we can expect that the deployment of techniques to circumvent our security measures may occur with more frequency and sophistication and may not be recognized until launched against a target. Accordingly, we may be unable to anticipate or detect these techniques or to implement adequate preventative measures. Finally, while we have developed worldwide incident response teams and dedicated resources to incident response processes, such processes could, among other issues, fail to be adequate or accurately assess the incident severity, not proceed quickly enough, or fail to sufficiently remediate an incident.
Many of our employees now have a hybrid work schedule consisting of both in-person work and working from home. Although we have implemented work-from-home protocols and provide work-issued devices to employees, the actions of our employees while working from home may have a greater effect on the security of our systems, the platform and the data we process, including by increasing the risk of compromise to our systems, confidential information or data arising from employees’ combined personal and private use of devices, accessing our systems or data using wireless networks that we do not control or the ability to transmit or store company-controlled data outside of our secured network.

A breach of our security and/or our failure to respond sufficiently to a security incident could disrupt our services and result in theft, misuse, loss, corruption, or improper use or disclosure of data. This could result in government investigations, enforcement actions and other legal and financial liability, and/or loss of confidence in the availability and security of our products and services, all of which could seriously harm our reputation and brand and impair our ability to attract and retain clients. As we launch new products and services, some of which involve the receipt and processing of identifiable information, the risk of breach to our systems increases, and we could be subject to contractual breach and indemnification claims from other clients and partners and otherwise suffer damage to our reputation, brand, and business. Our platform may also receive data in aggregated or pseudonymized form, and if our systems are breached and such data or information is compromised, it could be damaging to our brand, reputation, and business. Cyberattacks could also compromise our own trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business.
Privacy and data protection laws to which we are subject may cause us to incur additional or unexpected costs, subject us to enforcement actions for compliance failures, or cause us to change our platform or business model, which may have a material adverse effect on our business.
Information relating to individuals and their devices (sometimes called “personal information” or “personal data”) is regulated under a wide variety of local, state, national and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer (including transfer across national boundaries) and other processing of such data. We typically collect and store IP addresses and other device identifiers (such as unique cookie identifiers and mobile
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application identifiers), which are or may be considered personal data or personal information in some jurisdictions or otherwise may be the subject of regulation. In connection with new products and services, we may also collect information that directly identifies individuals, such as email addresses and phone numbers, both directly from consumers and via our clients though we deploy technical and contractual measures to limit how such identifying information can be used and shared.
The global regulatory landscape regarding the protection of personal information is evolving, and U.S. (state and federal) and foreign governments are considering enacting additional legislation and rulemaking related to privacy and data protection and we expect to see an increase in, or changes to, legislation and regulation in this area. For example, in the United States, the Federal Trade Commission recently released an advance notice of proposed rulemaking on “commercial surveillance” covering a host of privacy and security topics, and a potential federal privacy law remains the subject of active discussion, with a bill that would have substantial impacts on the online advertising ecosystem drawing bipartisan support.

The State of California adopted two laws broadly regulating businesses’ processing of personal information, the California Consumer Privacy Act of 2018 (“CCPA”), and the California Privacy Rights Act (“CPRA”). The CCPA, which went into effect January 1, 2020, defines “personal information” broadly enough to include online identifiers provided by individuals’ devices, applications, and protocols (such as IP addresses, mobile application identifiers and unique cookie identifiers) and individuals’ location data. The CCPA establishes a privacy framework for covered businesses by, among other requirements, establishing new data privacy rights for consumers in the State of California (including rights to request deletion of and access to personal information), imposing special rules on the collection of consumer data from minors, creating new notice obligations and new limits on the “sale” of personal information. Recent enforcement actions reflect that regulators interpret “sales” broadly to include common advertising technology practices, which may impact our practices and those of our clients and others in the advertising industry. These actions also signal willingness of regulators to pursue in-depth investigations and impose substantial penalties on entities they deem in violation of the statute, including with respect to advertising practices. The statute also creates a potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. The CCPA also offers the possibility for a consumer to recover statutory damages for certain violations and could open the door more broadly to additional risks of individual and class-action lawsuits even though the statute’s private right of action is limited in scope.

The CPRA, which takes effect in January 2023, expands upon the CCPA and imposes additional notice and opt out obligations on the digital advertising space, including an obligation to provide an opt-out for behavioral advertising. The State of California has begun the formal rulemaking process and introduced an initial set of draft regulations for implementing the CPRA. The proposed regulations update existing CCPA regulations to harmonize them with the CPRA, include requirements for operationalizing new rights and concepts introduced by the CPRA, and expand upon other provisions of the law. Although the rulemaking process is still underway, the CPRA regulations may ultimately increase compliance costs and obligations on us, our clients, and other companies in the advertising industry. Thus, we expect that continuing to maintain compliance with California’s legal requirements, including monitoring and adjusting to new regulations and interpretations that affect our approach to compliance, will require significant time, resources, and expense, as will the effort to monitor whether additional changes to our business practices and our backend configuration are needed, all of which may increase operating costs, or limit our ability to operate or expand our business.

In addition, four other states have enacted comprehensive consumer privacy laws, and more states are expected to follow. Like the CPRA, the Virginia Consumer Data Protection Act will go into effect on January 1, 2023. The Colorado Privacy Act and the Connecticut Act Concerning Personal Data Privacy and Online Monitoring will both take effect on July 1, 2023. The Utah Consumer Privacy Act takes effect on December 31, 2023. All of these laws protect a broadly-defined concept of “personal data,” and each law grants individuals a range of privacy rights relating to such data, including the right to opt out of targeted advertising and certain profiling activities. The State of Colorado began the formal rulemaking process and introduced an initial set of draft regulations for implementing the Colorado Privacy Act (“CPA”). Although the rulemaking process is still underway, the CPA regulations, as well as the other state laws, may ultimately increase compliance costs and obligations on us, our clients, and other companies in the advertising industry. Although we have attempted to mitigate certain risks posed by these laws through contractual and platform changes, we cannot predict with certainty the effect of these laws and their implementing regulations on our business.