0001564590-21-026067.txt : 20210510 0001564590-21-026067.hdr.sgml : 20210510 20210510161734 ACCESSION NUMBER: 0001564590-21-026067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 58 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210510 DATE AS OF CHANGE: 20210510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Trade Desk, Inc. CENTRAL INDEX KEY: 0001671933 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 271887399 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37879 FILM NUMBER: 21907452 BUSINESS ADDRESS: STREET 1: 42 N. CHESTNUT STREET CITY: VENTURA STATE: CA ZIP: 93001 BUSINESS PHONE: (805) 585-3434 MAIL ADDRESS: STREET 1: 42 N. CHESTNUT STREET CITY: VENTURA STATE: CA ZIP: 93001 10-Q 1 ttd-10q_20210331.htm 10-Q ttd-10q_20210331.htm
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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 March 31, 2021

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 April 30, 2021, the registrant had 43,121,618 shares of Class A common stock and 4,455,645 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 March 31, 2021 and December 31, 2020

 

3

 

  

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

6

 

  

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

20

Item 4.

  

Controls and Procedures

 

21

Part II.

  

OTHER INFORMATION

 

22

Item 1.

  

Legal Proceedings

 

22

Item 1A.

  

Risk Factors

 

22

Item 6.

  

Exhibits

 

44

Signatures

 

45

 


 

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

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

471,637

 

 

$

437,353

 

Short-term investments, net

 

 

208,446

 

 

 

186,685

 

Accounts receivable, net of allowance for credit losses

   of $7,323 and $7,253 as of March 31, 2021 and December 31, 2020, respectively

 

 

1,368,668

 

 

 

1,584,109

 

Prepaid expenses and other current assets

 

 

121,398

 

 

 

102,170

 

TOTAL CURRENT ASSETS

 

 

2,170,149

 

 

 

2,310,317

 

Property and equipment, net

 

 

115,914

 

 

 

115,863

 

Operating lease assets

 

 

237,917

 

 

 

248,143

 

Deferred income taxes

 

 

50,168

 

 

 

50,168

 

Other assets, non-current

 

 

28,551

 

 

 

29,154

 

TOTAL ASSETS

 

$

2,602,699

 

 

$

2,753,645

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,142,258

 

 

$

1,348,480

 

Accrued expenses and other current liabilities

 

 

83,530

 

 

 

88,335

 

Operating lease liabilities

 

 

37,688

 

 

 

37,868

 

TOTAL CURRENT LIABILITIES

 

 

1,263,476

 

 

 

1,474,683

 

Operating lease liabilities, non-current

 

 

245,899

 

 

 

254,562

 

Other liabilities, non-current

 

 

9,011

 

 

 

11,255

 

TOTAL LIABILITIES

 

 

1,518,386

 

 

 

1,740,500

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued

   and outstanding as of March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, par value $0.000001

   Class A, 1,000,000 shares authorized; 43,025 and 42,338 shares issued and outstanding

      as of March 31, 2021 and December 31, 2020, respectively

   Class B, 95,000 shares authorized; 4,506 and 5,002 shares issued and outstanding

      as of March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

587,304

 

 

 

538,778

 

Retained earnings

 

 

497,009

 

 

 

474,367

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

1,084,313

 

 

 

1,013,145

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

2,602,699

 

 

$

2,753,645

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$

219,811

 

 

$

160,660

 

Operating expenses:

 

 

 

 

 

 

 

 

Platform operations

 

 

50,500

 

 

 

40,208

 

Sales and marketing

 

 

55,764

 

 

 

34,294

 

Technology and development

 

 

53,918

 

 

 

36,794

 

General and administrative

 

 

51,845

 

 

 

38,598

 

Total operating expenses

 

 

212,027

 

 

 

149,894

 

Income from operations

 

 

7,784

 

 

 

10,766

 

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense (income), net

 

 

45

 

 

 

(817

)

Foreign currency exchange loss (gain), net

 

 

(353

)

 

 

1,234

 

Total other expense (income), net

 

 

(308

)

 

 

417

 

Income before income taxes

 

 

8,092

 

 

 

10,349

 

Benefit from income taxes

 

 

(14,550

)

 

 

(13,708

)

Net income

 

$

22,642

 

 

$

24,057

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.48

 

 

$

0.53

 

Diluted

 

$

0.45

 

 

$

0.50

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

47,282

 

 

 

45,501

 

Diluted

 

 

49,792

 

 

 

48,313

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance as of December 31, 2019

 

 

45,476

 

 

$

 

 

$

380,079

 

 

$

232,438

 

 

$

612,517

 

Impact upon adoption of ASC 326

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

(388

)

Exercise of common stock options

 

 

539

 

 

 

 

 

 

19,478

 

 

 

 

 

 

19,478

 

Restricted stock, net of forfeitures and shares

    withheld for taxes

 

 

20

 

 

 

 

 

 

(4,893

)

 

 

 

 

 

(4,893

)

Stock-based compensation

 

 

 

 

 

 

 

 

23,263

 

 

 

 

 

 

23,263

 

Net income

 

 

 

 

 

 

 

 

 

 

 

24,057

 

 

 

24,057

 

Balance as of March 31, 2020

 

 

46,035

 

 

$

 

 

$

417,927

 

 

$

256,107

 

 

$

674,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

47,340

 

 

$

 

 

$

538,778

 

 

$

474,367

 

 

$

1,013,145

 

Exercise of common stock options

 

 

180

 

 

 

 

 

 

12,621

 

 

 

 

 

 

12,621

 

Restricted stock, net of forfeitures and shares

    withheld for taxes

 

 

11

 

 

 

 

 

 

(17,080

)

 

 

 

 

 

(17,080

)

Stock-based compensation

 

 

 

 

 

 

 

 

52,985

 

 

 

 

 

 

52,985

 

Net income

 

 

 

 

 

 

 

 

 

 

 

22,642

 

 

 

22,642

 

Balance as of March 31, 2021

 

 

47,531

 

 

$

 

 

$

587,304

 

 

$

497,009

 

 

$

1,084,313

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

22,642

 

 

$

24,057

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,011

 

 

 

6,477

 

Stock-based compensation

 

 

52,354

 

 

 

22,965

 

Allowance for credit losses on accounts receivable

 

 

203

 

 

 

1,310

 

Noncash lease expense

 

 

9,451

 

 

 

7,402

 

Other

 

 

4,905

 

 

 

3,484

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

208,847

 

 

 

210,552

 

Prepaid expenses and other assets

 

 

(16,180

)

 

 

(15,791

)

Accounts payable

 

 

(200,578

)

 

 

(205,967

)

Accrued expenses and other liabilities

 

 

(5,691

)

 

 

960

 

Operating lease liabilities

 

 

(10,894

)

 

 

(2,673

)

Net cash provided by operating activities

 

 

75,070

 

 

 

52,776

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(89,354

)

 

 

(35,931

)

Sales of investments

 

 

4,539

 

 

 

 

Maturities of investments

 

 

62,670

 

 

 

39,180

 

Purchases of property and equipment

 

 

(13,120

)

 

 

(18,310

)

Capitalized software development costs

 

 

(1,062

)

 

 

(965

)

Net cash used in investing activities

 

 

(36,327

)

 

 

(16,026

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

 

 

 

143,000

 

Proceeds from exercise of stock options

 

 

12,621

 

 

 

19,478

 

Taxes paid related to net settlement of restricted stock awards

 

 

(17,080

)

 

 

(4,893

)

Net cash provided by (used in) financing activities

 

 

(4,459

)

 

 

157,585

 

Increase in cash and cash equivalents

 

 

34,284

 

 

 

194,335

 

Cash and cash equivalents—Beginning of period

 

 

437,353

 

 

 

130,876

 

Cash and cash equivalents—End of period

 

$

471,637

 

 

$

325,211

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Capitalized assets financed by accounts payable

 

$

2,421

 

 

$

10,200

 

Cash paid for amounts included in the measurement of lease liabilities included in

   operating cash flows

 

$

15,107

 

 

$

4,902

 

Increase (decrease) in right-of-use assets obtained in exchange for operating lease

   liabilities

 

$

(937

)

 

$

34,155

 

Asset retirement obligation

 

$

625

 

 

$

65

 

Stock-based compensation included in capitalized software development costs

 

$

631

 

 

$

298

 

 

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”) 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 technology company that empowers buyers of advertising by providing a self-service cloud-based platform on which 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.

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, 2020 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, 2020.

There have been no changes to the Company’s accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, 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, 2020, 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 months ended March 31, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.

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.

As of March 31, 2021, the impact of the Coronavirus pandemic (“COVID-19”) on our business continued to evolve. As a result, many of our estimates and assumptions, including the allowance for credit losses, consider macro-economic 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, our estimates may change materially in future periods.

For the three months ended March 31, 2021, the Company’s assessment considered business and market disruptions caused by COVID-19 and estimates of credit defaults by industry. We continue to monitor the financial implications of COVID-19 on expected credit losses. The Company reviews the allowance for credit losses and financial implications of COVID-19 on expected credit losses on a quarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

Recent Accounting Pronouncements 

As of March 31, 2021, the Company has adopted the FASB’s Accounting Standards Update No. 2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes, the impacts of which were immaterial.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022 and can be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the impacts of the provisions of ASU 2020-04 on our financial condition, results of operations, and cash flows.

 

7


 

Note 3—Earnings Per Share

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

22,642

 

 

$

24,057

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding—basic

 

 

47,282

 

 

 

45,501

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Options to purchase common stock

 

 

2,063

 

 

 

2,447

 

Employee stock purchase plan shares

 

 

79

 

 

 

116

 

Restricted stock

 

 

368

 

 

 

249

 

Weighted-average shares outstanding—diluted

 

 

49,792

 

 

 

48,313

 

Basic EPS

 

$

0.48

 

 

$

0.53

 

Diluted EPS

 

$

0.45

 

 

$

0.50

 

Anti-dilutive equity awards under stock-based award plans

   excluded from the determination of diluted EPS

 

 

26

 

 

 

388

 

 

 

 

 

 

 

 

 

 

 

Note 4—Cash, Cash Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):

 

 

 

As of March 31, 2021

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

Cash

 

$

163,241

 

 

$

 

 

$

163,241

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

265,790

 

 

 

 

 

 

265,790

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

36,969

 

 

 

97,698

 

 

 

134,667

 

Corporate debt securities

 

 

5,637

 

 

 

64,333

 

 

 

69,970

 

U.S. government and agency securities

 

 

 

 

 

46,415

 

 

 

46,415

 

Total

 

$

471,637

 

 

$

208,446

 

 

$

680,083

 

 

 

 

As of December 31, 2020

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

Cash

 

$

132,372

 

 

$

 

 

$

132,372

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

259,434

 

 

 

 

 

 

259,434

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

45,547

 

 

 

63,372

 

 

 

108,919

 

Corporate debt securities

 

 

 

 

 

79,342

 

 

 

79,342

 

U.S. government and agency securities

 

 

 

 

 

43,971

 

 

 

43,971

 

Total

 

$

437,353

 

 

$

186,685

 

 

$

624,038

 

 

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three months ended March 31, 2021 and 2020, were immaterial.

8


The contractual maturities of the Company’s short-term investments are as follows (in thousands):

 

 

 

March 31, 2021

 

Due in one year

 

$

184,621

 

Due in one to two years

 

 

23,825

 

Total

 

$

208,446

 

 

 

 

 

 

 

Note 5—Leases

 

The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating lease cost

 

$

13,095

 

 

$

9,538

 

Short-term lease cost

 

 

171

 

 

 

239

 

Variable lease cost

 

 

1,923

 

 

 

811

 

Sublease income

 

 

(650

)

 

 

(990

)

Total lease cost

 

$

14,539

 

 

$

9,598

 

 

 

 

 

 

 

 

 

 

 

Note 6—Debt

Credit Facility

As of March 31, 2021, the Company did not have an outstanding debt balance under the Second Amended and Restated Loan and Security Agreement (the “credit facility”). In March 2020, the Company drew down $143.0 million under the credit facility as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of the worldwide decline in business activity brought about by the COVID-19 pandemic. By October 2020, the Company repaid the balance on the credit facility from available working capital. Availability under the credit facility was $143.6 million as of March 31, 2021. The credit facility matures, and all outstanding amounts become due and payable, on May 9, 2022.

 

Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Platform operations

 

$

5,015

 

 

$

1,462

 

Sales and marketing

 

 

13,684

 

 

 

5,314

 

Technology and development

 

 

16,094

 

 

 

8,590

 

General and administrative

 

 

17,561

 

 

 

7,599

 

Total

 

$

52,354

 

 

$

22,965

 

 

 

 

 

 

 

 

 

 

 

9


 

Stock Options

The following summarizes stock option activity:

 

 

 

Shares

Under Option

(in thousands)

 

 

Weighted-

Average

Exercise Price

 

Outstanding as of December 31, 2020

 

 

2,648

 

 

$

107.26

 

Granted

 

 

3

 

 

 

738.85

 

Exercised

 

 

(179

)

 

 

70.49

 

Cancelled

 

 

(65

)

 

 

154.39

 

Outstanding as of March 31, 2021

 

 

2,407

 

 

$

109.40

 

Exercisable as of March 31, 2021

 

 

1,374

 

 

$

65.09

 

 

On January 1, 2021, the number of shares authorized for grant under the Company’s 2016 Incentive Award Plan was increased by 1.9 million shares in accordance with plan provisions.

Restricted Stock

The following summarizes restricted stock activity:

 

 

 

RSU

(in thousands)

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested as of December 31, 2020

 

 

570

 

 

$

261.03

 

Granted

 

 

22

 

 

 

759.30

 

Vested

 

 

(53

)

 

 

178.88

 

Forfeited

 

 

(27

)

 

 

203.20

 

Unvested as of March 31, 2021

 

 

512

 

 

$

294.24

 

 

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $25.6 million and $7.8 million for the three months ended March 31, 2021 and 2020, respectively.

On January 1, 2021, the number of shares available for issuance under the Company’s ESPP was increased by 0.4 million shares in accordance with plan provisions.

Note 8—Income Taxes

In determining the interim provision for income taxes for the three months ended March 31, 2021, the Company utilized the annual estimated effective tax rate applied to the actual year-to-date income and added the tax effects of any discrete items in the reporting period in which they occur. In determining the interim provision for income taxes for the three months ended March 31, 2020, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting”.

For the three months ended March 31, 2021 and 2020, the benefit from income taxes included $25.9 million and $24.3 million, respectively, of benefits associated with stock-based awards.

For the three months ended March 31, 2021, and 2020, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to state and foreign taxes, the impact of tax benefits associated with employee exercises of stock options and vesting of restricted stock units, nondeductible stock-based compensation, and research and development tax credits.

There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2021, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

10


Note 9—Geographic Information

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 for the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances (“Gross Billings”). 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, set forth as a percentage, based on the billing address of the clients or client affiliates, were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

U.S.

 

 

86

%

 

 

87

%

International

 

 

14

%

 

 

13

%

Total

 

 

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 income or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at March 31, 2021.

Litigation

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.

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.

11


Note 11— Subsequent Event

On May 10, 2021, the Company announced that its Board of Directors approved a ten-for-one stock split (“Stock Split”) by way of declaring a stock dividend on the issued and outstanding shares of the Company’s common stock. As a result of the Stock Split, which is expected to occur during the second quarter, stockholders of record will receive nine (9) additional Common Shares for every one (1) share held. Based on the outstanding shares on March 31, 2021, the number of common shares outstanding upon completion of the Stock Split will be approximately 475 million. The number of shares subject to outstanding equity awards and the exercise prices of the outstanding stock option awards will also be adjusted to equitably reflect the effect of the Stock Split.  

The following table summarizes the basic EPS and diluted EPS calculations on a pro-forma basis after giving retroactive effect to the ten-for-one split:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Pro-forma Basic EPS

 

$

0.05

 

 

$

0.05

 

Pro-forma Diluted EPS

 

$

0.05

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

12


 

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, the impact of COVID-19 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, 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, 2020, 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 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 and channels, 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 inventory, publisher, and data partners provides ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces (“APIs”) enable our clients to develop on top of the platform.

We commercially launched our platform in 2011, targeting the display advertising channel. Since launching, we have added additional advertising channels. In 2020, the gross spend on our platform came from multiple channels including mobile, video (which includes CTV), display, audio, native 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 (“MSAs”). 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.

Executive Summary

Highlights

For the three months ended March 31, 2021 and 2020:

 

revenue was $219.8 million and $160.7 million, respectively, representing an increase of 37%; and

 

net income was $22.6 million and $24.1 million, respectively.

 

13


 

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 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 growing operations.

We believe the markets outside of the United States, and in particular China, offer an opportunity for growth, although such markets also may 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 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.

COVID-19

The worldwide spread of the COVID-19 pandemic has resulted, and is expected to continue to result, in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting sales channels and advertising and marketing activities for an unknown period of time until the COVID-19 pandemic is contained, or economic activity normalizes. With the current decline in economic activity, the impact on our revenue and our results of operations is likely to continue, the size and duration of which we are currently unable to accurately predict. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on a variety of factors, including the duration and spread of the COVID-19 pandemic and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

14


Results of Operations

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Revenue

 

$

219,811

 

 

$

160,660