UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

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

THE TRADE DESK, INC.

(Exact name of registrant as specified in its charter)

Delaware	27-1887399
(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 class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.000001 per share	TTD	The 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  ☒    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, 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	☒	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  ☒

As of October 30, 2020, the registrant had 41,948,956 shares of Class A common stock and 5,015,339 shares of Class B common stock outstanding.

THE TRADE DESK, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page
Part I.	FINANCIAL INFORMATION		3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019		3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019		4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019		5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019		6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019		7
	Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
Part II.	OTHER INFORMATION		24
Item 1.	Legal Proceedings		24
Item 1A.	Risk Factors		24
Item 6.	Exhibits		46
Signatures			47

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		As of
	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	434,371	$	130,876
Short-term investments, net of allowance for credit losses    of $11 and $0 as of September 30, 2020 and December 31, 2019, respectively		122,909		124,112
Accounts receivable, net of allowance for credit losses    of $7,182 and $3,920 as of September 30, 2020 and December 31, 2019, respectively		1,139,860		1,166,376
Prepaid expenses and other current assets		58,847		27,857
TOTAL CURRENT ASSETS		1,755,987		1,449,221
Property and equipment, net		111,862		64,012
Operating lease assets		202,172		173,449
Deferred income taxes		39,928		18,950
Other assets, non-current		28,479		23,129
TOTAL ASSETS	$	2,138,428	$	1,728,761
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	919,694	$	868,618
Accrued expenses and other current liabilities		57,724		47,178
Operating lease liabilities		34,735		14,577
TOTAL CURRENT LIABILITIES		1,012,153		930,373
Operating lease liabilities, non-current		205,408		174,873
Debt, net		72,000		—
Other liabilities, non-current		16,240		10,998
TOTAL LIABILITIES		1,305,801		1,116,244
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, 2020 and December 31, 2019		—		—
Common stock, par value $0.000001    Class A, 1,000,000 shares authorized; 41,930 and 40,305 shares issued and outstanding       as of September 30, 2020 and December 31, 2019, respectively    Class B, 95,000 shares authorized; 5,015 and 5,171 shares issued and outstanding       as of September 30, 2020 and December 31, 2019, respectively		—		—
Additional paid-in capital		510,017		380,079
Accumulated other comprehensive income		145		—
Retained earnings		322,465		232,438
TOTAL STOCKHOLDERS’ EQUITY		832,627		612,517
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,138,428	$	1,728,761

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

3

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue	$	216,113		$	164,203		$	516,128		$	445,114
Operating expenses:
Platform operations		44,826			39,932			127,167			108,913
Sales and marketing		44,637			36,142			116,002			89,951
Technology and development		41,079			29,185			117,931			83,949
General and administrative		42,789			37,017			117,252			102,755
Total operating expenses		173,331			142,276			478,352			385,568
Income from operations		42,782			21,927			37,776			59,546
Other expense (income):
Interest expense (income), net		235			(1,480	)		(740	)		(3,763	)
Foreign currency exchange (gain) loss, net		(12	)		(412	)		1,574			784
Total other expense (income), net		223			(1,892	)		834			(2,979	)
Income before income taxes		42,559			23,819			36,942			62,525
Provision for (benefit from) income taxes		1,312			4,397			(53,473	)		5,152
Net income	$	41,247		$	19,422		$	90,415		$	57,373
Earnings per share:
Basic	$	0.89		$	0.43		$	1.96		$	1.29
Diluted	$	0.84		$	0.40		$	1.86		$	1.20
Weighted average shares outstanding:
Basic		46,582			44,771			46,075			44,363
Diluted		49,220			48,037			48,731			47,728

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

4

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020			2019		2020		2019
Net income	$	41,247		$	19,422	$	90,415	$	57,373
Other comprehensive income:
Change in unrealized (loss) gain on available-for-sale investments, net of tax		(129	)		—		145		—
Comprehensive income	$	41,118		$	19,422	$	90,560	$	57,373

5

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Class A and B					Additional			Accumulated Other						Total
	Common Stock					Paid-In			Comprehensive			Retained			Stockholders’
	Shares			Amount		Capital			Income			Earnings			Equity
Balance as of December 31, 2018		43,864		$	—	$	270,447		$	—		$	124,120		$	394,567
Exercise of common stock options		592			—		9,502			—			—			9,502
Restricted stock, net of forfeitures and shares     withheld for taxes		23			—		(1,146	)		—			—			(1,146	)
Stock-based compensation		—			—		16,324			—			—			16,324
Net income		—			—		—			—			10,151			10,151
Balance as of March 31, 2019		44,479		$	—	$	295,127		$	—		$	134,271		$	429,398
Exercise of common stock options		284			—		7,473			—			—			7,473
Restricted stock, net of forfeitures and shares     withheld for taxes		7			—		(2,488	)		—			—			(2,488	)
Stock-based compensation		—			—		21,390			—			—			21,390
Issuance of common stock under employee    stock purchase plan		153			—		8,648			—			—			8,648
Net income		—			—		—			—			27,800			27,800
Balance as of June 30, 2019		44,923		$	—	$	330,150		$	—		$	162,071		$	492,221
Exercise of common stock options		196			—		4,936			—			—			4,936
Restricted stock, net of forfeitures and shares     withheld for taxes		2			—		(1,110	)		—			—			(1,110	)
Stock-based compensation		—			—		19,923			—			—			19,923
Net income		—			—		—			—			19,422			19,422
Balance as of September 30, 2019		45,121		$	—	$	353,899		$	—		$	181,493		$	535,392
Balance as of December 31, 2019		45,476		$	—	$	380,079		$	—		$	232,438		$	612,517
Impact upon adoption of new accounting     standard (Note 2)		—			—		—			—			(388	)		(388	)
Exercise of common stock options		539			—		19,320			—			—			19,320
Restricted stock, net of forfeitures and shares     withheld for taxes		20			—		(4,893	)		—			—			(4,893	)
Stock-based compensation		—			—		23,263			—			—			23,263
Other comprehensive income		—			—		—			158			—			158
Net income		—			—		—			—			24,057			24,057
Balance as of March 31, 2020		46,035		$	—	$	417,769		$	158		$	256,107		$	674,034
Exercise of common stock options		431			—		22,375			—			—			22,375
Restricted stock, net of forfeitures and shares     withheld for taxes		61			—		(2,836	)		—			—			(2,836	)
Stock-based compensation		—			—		24,516			—			—			24,516
Issuance of common stock under employee    stock purchase plan		202			—		15,035			—			—			15,035
Other comprehensive income		—			—		—			116			—			116
Net income		—			—		—			—			25,111			25,111
Balance as of June 30, 2020		46,729		$	—	$	476,859		$	274		$	281,218		$	758,351
Exercise of common stock options		224			—		12,247			—			—			12,247
Restricted stock, net of forfeitures and shares     withheld for taxes		(8	)		—		(6,455	)		—			—			(6,455	)
Stock-based compensation		—			—		27,366			—			—			27,366
Other comprehensive income		—			—					(129	)		—			(129	)
Net income		—			—		—			—			41,247			41,247
Balance as of September 30, 2020		46,945		$	—	$	510,017		$	145		$	322,465		$	832,627

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

6

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
OPERATING ACTIVITIES:
Net income	$	90,415		$	57,373
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,777			15,246
Stock-based compensation		73,751			56,368
Allowance for credit losses on accounts receivable		2,722			1,647
Noncash lease expense		24,052			15,394
Deferred income taxes		(20,978	)		—
Other		1,242			(2,945	)
Changes in operating assets and liabilities:
Accounts receivable		21,063			(2,739	)
Prepaid expenses and other assets		(23,919	)		(19,024	)
Accounts payable		47,728			(21,401	)
Accrued expenses and other liabilities		11,006			(3,178	)
Operating lease liabilities		(10,388	)		(8,468	)
Net cash provided by operating activities		237,471			88,273
INVESTING ACTIVITIES:
Purchases of investments		(127,117	)		(178,179	)
Maturities of investments		128,315			55,819
Purchases of property and equipment		(57,721	)		(21,659	)
Capitalized software development costs