ttd-10q_20180930.htm

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 ☒

As of October 31, 2018, the registrant had 36,251,162 shares of Class A common stock and 6,990,958 shares of Class B common stock outstanding.

	As of		As of
	September 30, 2018		December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	166,349	$	155,950
Accounts receivable, net		640,098		599,565
Prepaid expenses and other current assets		18,614		10,298
TOTAL CURRENT ASSETS		825,061		765,813
Property and equipment, net		29,402		17,405
Deferred income taxes		3,359		3,359
Other assets, non-current		15,891		10,587
TOTAL ASSETS	$	873,713	$	797,164
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	493,284	$	490,377
Accrued expenses and other current liabilities		35,927		28,155
TOTAL CURRENT LIABILITIES		529,211		518,532
Debt, net		—		27,000
Other liabilities, non-current		7,488		6,049
TOTAL LIABILITIES		536,699		551,581
Commitments and contingencies (Note 9)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of September 30, 2018 and December 31, 2017		—		—
Common stock, par value $0.000001; 1,000,000 Class A shares authorized as of September 30, 2018 and December 31, 2017; 35,734 and 32,486 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively; 95,000 Class B shares authorized as of September 30, 2018 and December 31, 2017; 7,451 and 9,155 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		—		—
Additional paid-in capital		252,329		209,603
Retained earnings		84,685		35,980
TOTAL STOCKHOLDERS’ EQUITY		337,014		245,583
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	873,713	$	797,164

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018			2017		2018			2017
Revenue	$	118,825		$	79,413	$	316,826		$	205,569
Operating expenses:
Platform operations		29,344			17,397		78,842			45,097
Sales and marketing		23,287			16,200		60,007			42,842
Technology and development		22,621			13,181		59,806			35,777
General and administrative		21,310			14,227		59,816			41,815
Total operating expenses		96,562			61,005		258,471			165,531
Income from operations		22,263			18,408		58,355			40,038
Other expense (income):
Interest expense (income), net		(237	)		513		(113	)		1,290
Foreign currency exchange loss, net		395			1,841		2,035			3,159
Total other expense, net		158			2,354		1,922			4,449
Income before income taxes		22,105			16,054		56,433			35,589
Provision for income taxes		1,813			5,825		7,728			1,602
Net income	$	20,292		$	10,229	$	48,705		$	33,987
Earnings per share:
Basic	$	0.47		$	0.25	$	1.15		$	0.85
Diluted	$	0.44		$	0.23	$	1.07		$	0.77
Weighted average shares outstanding:
Basic		42,721			40,700		42,178			39,977
Diluted		46,576			44,245		45,460			43,919

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

	Nine Months Ended September 30,
	2018			2017
OPERATING ACTIVITIES:
Net income	$	48,705		$	33,987
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,107			5,157
Stock-based compensation		27,958			12,406
Bad debt expense		1,727			3,943
Other		2,396			(1,312	)
Changes in operating assets and liabilities:
Accounts receivable		(44,736	)		(95,215	)
Prepaid expenses and other assets		(10,597	)		(7,296	)
Accounts payable		(2,804	)		51,855
Accrued expenses and other liabilities		7,789			3,506
Net cash provided by operating activities		38,545			7,031
INVESTING ACTIVITIES:
Purchases of property and equipment		(10,383	)		(8,357	)
Capitalized software development costs		(4,340	)		(2,479	)
Net cash used in investing activities		(14,723	)		(10,836	)
FINANCING ACTIVITIES:
Repayment on line of credit		(27,000	)		—
Payment of debt financing costs		—			(153	)
Payment of financing obligations		—			(677	)
Proceeds from exercise of stock options		7,165			1,768
Proceeds from employee stock purchase plan		7,014			2,294
Taxes paid related to net settlement of restricted stock awards		(602	)		(29	)
Net cash provided by (used in) financing activities		(13,423	)		3,203
Increase (decrease) in cash and cash equivalents		10,399			(602	)
Cash and cash equivalents—Beginning of period		155,950			133,400
Cash and cash equivalents—End of period	$	166,349		$	132,798
SUPPLEMENTAL CASH FLOW INFORMATION:
Capitalized assets financed by accounts payable	$	6,624		$	945
Tenant improvements paid by lessor	$	1,017		$	640
Asset retirement obligation	$	386		$	—
Debt financing costs included in debt, net	$	—		$	1,153
Stock-based compensation included in capitalized software development costs	$	1,192		$	453

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

The Trade Desk, Inc. (the “Company”) was formed in November 2009 as a Delaware corporation. The Company is headquartered in Ventura, California and has offices in various cities in North America, Europe, Asia and Australia. The Company is a global technology company that empowers ad buyers by providing a self-service omnichannel platform that enables its clients to purchase and manage data-driven digital advertising campaigns across various advertising channels and formats.

The Company is subject to certain business risks, including dependence on key employees, competition, market acceptance of the Company’s platform, ability to source demand from buyers of advertising inventory, availability of equity or debt financings and dependence on growth to achieve its business plan.

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, 2017 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, 2017.

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The adoption of ASU 2014-09 did not result in a change in the timing or amount of revenue recognized. Accordingly, there was no cumulative effect adjustment recorded in the condensed consolidated financial statements upon adoption.

On July 1, 2018, the Company early adopted ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, using the prospective method. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Previously, all implementation costs for a hosting arrangement that was a service contract were expensed when incurred. The Company’s adoption of ASU 2018-15 did not have a material impact on its consolidated financial statements.

Except for the adoption of ASU 2014-09 and ASU 2018-15, there have been no other changes to the Company’s accounting policies 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, 2017, 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 operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results expected for the full year ending December 31, 2018.

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 under different assumptions or circumstances.

The Company maintains agreements with each client and supplier in the form of master service agreements, which set out the terms of the relationship and access to the Company’s platform. The Company’s performance obligation is to provide the use of its platform to clients to develop ad campaigns and select the advertising inventory, data and other add-on features. The Company charges clients a platform fee, based on a percentage of a client’s purchases through the platform, and the transaction price is determined based on the consideration to which it expects to be entitled in exchange for the completion of a transaction, that is, when a bid is won. The platform fee percentage is based on the level of purchases by the client through the platform during the month. The Company recognizes revenue for its platform fee at a point in time when a purchase by the client occurs through its platform, which is when a bid is won. Subsequent to a bid being won through the Company’s platform, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material.

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 determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis for the amount of the Supplier Features the clients purchase using the platform plus the Company’s platform fees or on a net basis for the amount of platform fees charged to the client, requires judgment. The Company determined that it is not primarily responsible for the purchase of Supplier Features, but rather, it is primarily responsible to provide a platform that enables clients to bid on advertising inventory, and use data and other add-on features in designing and executing their campaigns. The Company does not control the Supplier Features prior to the purchase by the client, and it does not have pricing latitude with respect to the cost of such features. The platform fee the Company charges clients is a percentage of their purchases through its platform, similar to a commission, and the platform fee is not contingent on the results of an advertising campaign. Based on these and other factors, the Company determined that it is not the principal in the purchase and sale of Supplier Features in all of its arrangements, and therefore, it reports revenue on a net basis for the platform fees charged to clients.

The Company generally bills clients for the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances (“Gross Billings”). Some of the Company’s clients have payment relationships directly with advertising inventory suppliers in which case the Company only bills these clients for third-party data, other add-on features and its platform fees. The Company invoices its clients on a monthly basis for the purchases occurring during the month. Invoice payment terms, negotiated on a client-by-client basis, are typically between 30 to 90 days. However, for certain agency clients with sequential liability terms, payments are not due to the Company until such agency client has received payment from its customers who are advertisers. 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 billing address of the clients or client affiliates, were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
US	$	479,489	$	337,134	$	1,282,178	$	843,557
International		89,255		59,370		242,519		146,286
Total	$	568,744	$	396,504	$	1,524,697	$	989,843

The allowance for doubtful accounts was $2.8 million and $2.3 million as of September 30, 2018 and December 31, 2017, respectively.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The guidance offers specific accounting guidance for a lessee, lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of comprehensive income. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. The original guidance required application on a modified retrospective basis to the earliest period presented. In August 2018,

the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which includes an option to not restate comparative periods in transition but rather to elect to use the effective date of ASU 2016-02, as the date of initial application of transition. Although the Company is in the process of evaluating the impact of this guidance on its consolidated financial statements, the Company currently believes the most significant change will be that most of its operating lease commitments will be recognized as right-of-use assets and liabilities upon adoption of the new guidance, which will be material to the Company’s consolidated balance sheet. ASU 2016-02 will also require the Company to make additional disclosures regarding its leases. The Company plans to elect the option provided by ASU 2018-11 and not restate comparative periods.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement-Disclosure Framework (Topic 820). The updated guidance modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings per share (“EPS”) 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 EPS is as follows (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Numerator:
Net income	$	20,292	$	10,229	$	48,705	$	33,987
Denominator:
Weighted-average shares outstanding—basic		42,721		40,700		42,178		39,977
Effect of dilutive securities:
Options to purchase common stock		3,239		3,078		2,780		3,593
Employee stock purchase plan shares		270		322		273		250
Restricted stock		346		145		229		99
Weighted-average shares outstanding—diluted		46,576		44,245		45,460		43,919
Basic EPS	$	0.47	$	0.25	$	1.15	$	0.85
Diluted EPS	$	0.44	$	0.23	$	1.07	$	0.77
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted EPS		167		899		167		899

Cash equivalents, consisting of money market funds, of $12.6 million and $5.0 million at September 30, 2018 and December 31, 2017, respectively, were classified as Level 1 of the fair value hierarchy and valued using quoted market prices in active markets. The Company had no other material financial instruments that were measured at fair value as of September 30, 2018 and December 31, 2017.

On May 9, 2017, the Company, a syndicate of banks, led by Citibank, N.A., and Citibank, N.A., as agent, entered into an amended and restated loan and security agreement (the “Revolving Credit Facility”). Availability under the Revolving Credit Facility was $196.6 million at September 30, 2018, based on a percentage of eligible accounts receivable and reduced by certain reserves. As of September 30, 2018, the Company was in compliance with all covenants.

On October 26, 2018, the Company and a syndicate of banks, led by Citibank, N.A. as agent, entered into a second amended and restated loan and security agreement (the “Second A&R Credit Agreement”). Refer to Note 10—Subsequent Event for additional information.

Stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Platform operations	$	1,234	$	818	$	3,137	$	1,543
Sales and marketing		3,033		1,500		7,757		3,277
Technology and development		4,013		1,990		8,905		3,981
General and administrative		3,137		1,585		8,159		3,605
Total	$	11,417	$	5,893	$	27,958	$	12,406

On January 1, 2018, the number of shares authorized for grant under the Company’s 2016 Incentive Award Plan was increased by 1.7 million shares in accordance with plan provisions.

Stock-based compensation expense related to the ESPP totaled $4.4 million and $3.2 million for the three months ended September 30, 2018 and 2017, respectively. Stock-based compensation expense related to the ESPP totaled $11.0 million and $6.1 million for the nine months ended September 30, 2018 and 2017, respectively.

On January 1, 2018, the number of shares available for issuance under the Company’s Employee Stock Purchase Plan was increased by 0.4 million shares in accordance with plan provisions.

In determining the interim provision for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income and adds the tax effects of any discrete items in the reporting period in which they occur.

For the nine months ended September 30, 2018, the Company’s effective tax rate differed from the United States (“U.S.”) federal statutory tax rate of 21% primarily due to state and foreign taxes, nondeductible stock-based compensation and the impact of tax benefits associated with stock-based awards. For the nine months ended September 30, 2017, the Company’s effective tax rate differed from the U.S. federal statutory tax rate of 35% primarily due to the impact of tax benefits associated with stock-based awards, nondeductible stock-based compensation and state and foreign taxes.

For the three months ended September 30, 2018 and 2017, the provision for income taxes included $7.7 million and $3.2 million, respectively, of benefits associated with stock-based awards. For the nine months ended September 30, 2018 and 2017, the provision for income taxes included $14.2 million and $17.1 million, respectively, of benefits associated with stock-based awards.

There were no material changes to the Company’s unrecognized tax benefits during the nine months ended September 30, 2018, and the Company does not expect to have any significant changes to unrecognized tax benefits within the next 12 months.

As of September 30, 2018, the Company’s non-cancelable minimum lease commitments were as follows (in thousands):

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, 2018.

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings 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.

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed at-will. 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.

On October 26, 2018, the Company and a syndicate of banks, led by Citibank, N.A., as agent, entered into the Second A&R Credit Agreement. The Second A&R Credit Agreement amends and restates the Company’s existing credit facility previously entered into on May 9, 2017, and consists of a $150.0 million revolving loan facility, with a $20.0 million sublimit for swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit (the “Second A&R Credit Facility”). Under certain circumstances, the Company has the right to increase the Second A&R Credit Facility by an amount not to exceed $100.0 million. The Second A&R Credit Agreement 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 Second A&R 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 a LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a fluctuating interest rate equal to the greatest of (1) the federal funds rate plus 0.50%, (2) Citibank, N.A.’s prime rate, and (3) one month LIBOR rate plus 2.00%. 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 Second A&R Credit Facility ranges, based on the applicable leverage, from 0.225% to 0.400%. The Company will also be required to pay customary letter of credit fees, as necessary.

The Second A&R Credit Facility matures and all outstanding amounts become due and payable on May 9, 2022.

The Second A&R Credit Agreement contains customary conditions to borrowings, events of default and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our 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 Second A&R Credit Agreement also requires the Company to maintain compliance with (a) a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00 and (b) a minimum ratio of consolidated EBITDA to interest expense of at least 3.00 to 1.00.

The Company entered into the Second A&R Credit Agreement primarily to lower its borrowing costs and to change from an asset-based structure to a cash-flow based structure.

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. 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, operating results, 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, or 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, 2017, 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.

We are a global technology company that empowers ad buyers by providing a self-service omnichannel platform that enables our clients to purchase and manage data-driven digital advertising campaigns. Our platform allows clients to manage integrated advertising campaigns across various advertising channels and formats, including connected TV (CTV), mobile, video, audio, display, social and native, on a multitude of devices, including smart TVs, computers, and various mobile devices including phones and tablets.

We commercially launched our platform in 2011 targeting display advertising. We have since extended our platform to address additional advertising formats, and in 2017, approximately 62% of gross spend on our platform was for mobile, video, audio, social, and native.

Our clients are the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements, or MSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising, data and other features through our platform.

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, mobile, native, audio and video ad inventory, and continuing development of data usage and advertising targeting capabilities.

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 recent 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 operations.

In addition, we believe the markets outside of the United States (“U.S.”) offer an opportunity for growth, and we intend to make additional investments in sales and marketing and product development to expand in these markets, including China, 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.

The following tables set forth our condensed consolidated statements of comprehensive income data for each of the periods presented and as a percentage of our revenue for those periods:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in thousands)
Revenue	$	118,825	$	79,413	$	316,826	$	205,569
Operating expenses:
Platform operations		29,344		17,397		78,842		45,097
Sales and marketing		23,287		16,200		60,007		42,842
Technology and development		22,621		13,181		59,806		35,777
General and administrative		21,310		14,227		59,816		41,815
Total operating expenses		96,562		61,005		258,471		165,531
Income from operations		22,263		18,408		58,355		40,038
Total other expense, net		158		2,354		1,922		4,449
Income before income taxes		22,105		16,054		56,433		35,589
Provision for income taxes		1,813		5,825		7,728		1,602
Net income	$	20,292	$	10,229	$	48,705	$	33,987

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2018			2017			2018			2017
	(as a percentage of revenue*)
Revenue			100	%		100	%		100	%		100	%
Operating expenses:
Platform operations			25			22			25			22
Sales and marketing			20			20			19			21
Technology and development			19			17			19			17
General and administrative			18			18			19			20
Total operating expenses			81			77			82			81
Income from operations			19			23			18			19
Total other expense, net			—			3			1			2
Income before income taxes			19			20			18			17
Provision for income taxes			2			7			2			1
Net income			17	%		13	%		15	%		17	%

The increases in revenue for the three and nine months ended September 30, 2018, compared to the same prior year periods, were primarily due to increases in gross spend on our platform by existing clients, which was driven by increases in the number of advertising campaigns executed per client.

							Change
	2018			2017			$		%
	($ in thousands)
Three months ended September 30,	$	29,344		$	17,397		$	11,947		69	%
Percent of revenue		25	%		22	%
Nine months ended September 30,	$	78,842		$	45,097		$	33,745		75	%
Percent of revenue		25	%		22	%

The increase in platform operations expense for the three months ended September 30, 2018, compared to the same prior year period, was primarily due to increases of $9.1 million in hosting costs and $1.4 million in personnel costs, including $0.4 million of stock-based compensation. The increase in hosting costs was due to the increased use of our platform by our clients. The increase in personnel costs was primarily due to an increase in headcount for our client support team.

The increase in platform operations expense for the nine months ended September 30, 2018, compared to the same prior year period, was primarily due to increases of $25.0 million in hosting costs and $5.8 million in personnel costs, including $1.6 million of stock-based compensation. These increases were primarily attributable to the factors described above.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of transactions through our platform and hire additional personnel to support our clients.

		Page
Part I.	FINANCIAL INFORMATION		3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017		3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19
Item 4.	Controls and Procedures		19
Part II.	OTHER INFORMATION		21
Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		21
Item 6.	Exhibits		41
Signatures			42

	Shares Under Option (in thousands)			Weighted- Average Exercise Price
Outstanding as of December 31, 2017		4,745		$	17.96
Granted		1,253			59.61
Exercised		(1,110	)		6.46
Cancelled		(59	)		44.31
Outstanding as of September 30, 2018		4,829		$	31.09
Exercisable as of September 30, 2018		2,016		$	12.36

	Shares (in thousands)			Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2017		418		$	39.95
Granted		126			57.04
Vested		(43	)		40.92
Forfeited		—			—
Unvested as of September 30, 2018		501		$	44.17

Year	Amount
Remainder of 2018	$	2,540
2019		11,762
2020		13,471
2021		15,659
2022		10,511
Thereafter		35,103
	$	89,046

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