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.

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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.

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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