UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
THE
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Emerging growth company |
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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
As of April 30, 2022, the registrant had
THE TRADE DESK, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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Page |
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Part I. |
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3 |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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3 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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13 |
Item 3. |
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19 |
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Item 4. |
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20 |
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Part II. |
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21 |
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Item 1. |
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21 |
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Item 1A. |
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21 |
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Item 6. |
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43 |
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44 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE TRADE DESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(Unaudited)
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As of |
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As of |
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March 31, 2022 |
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December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments, net |
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Accounts receivable, net of allowance for credit losses of $ |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Operating lease assets |
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Deferred income taxes |
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Other assets, non-current |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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TOTAL CURRENT LIABILITIES |
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Operating lease liabilities, non-current |
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Other liabilities, non-current |
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TOTAL LIABILITIES |
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Commitments and contingencies (Note 10) |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, par value $ and outstanding as of March 31, 2022 and December 31, 2021 |
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Common stock, par value $ Class A, issued and outstanding as of March 31, 2022 and December 31, 2021, respectively Class B, issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
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Additional paid-in capital |
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Retained earnings |
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TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3
THE TRADE DESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Revenue |
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$ |
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$ |
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Operating expenses: |
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Platform operations |
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Sales and marketing |
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Technology and development |
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General and administrative |
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Total operating expenses |
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Income (loss) from operations |
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( |
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Other expense (income): |
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Interest expense, net |
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Foreign currency exchange loss (gain), net |
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( |
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( |
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Total other expense (income), net |
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( |
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Income (loss) before income taxes |
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( |
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Benefit from income taxes |
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( |
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( |
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Net income (loss) |
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$ |
( |
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$ |
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Earnings (loss) per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares outstanding: |
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Basic |
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Diluted |
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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)
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Class A and B |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Retained |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Equity |
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Balance as of December 31, 2020 |
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$ |
— |
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$ |
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$ |
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$ |
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Exercise of common stock options |
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— |
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— |
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Issuance of restricted stock, net of forfeitures and shares withheld for taxes |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance as of March 31, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
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Balance as of December 31, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
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Exercise of common stock options |
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— |
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— |
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Issuance of restricted stock, net of forfeitures and shares withheld for taxes |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2022 |
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$ |
— |
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$ |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2022 |
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2021 |
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OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Allowance for credit losses on accounts receivable |
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Noncash lease expense |
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Deferred income taxes |
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( |
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— |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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( |
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( |
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Accrued expenses and other liabilities |
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( |
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( |
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Operating lease liabilities |
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( |
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( |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Purchases of investments |
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( |
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( |
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Sales of investments |
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— |
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Maturities of investments |
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Purchases of property and equipment |
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( |
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( |
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Capitalized software development costs |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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FINANCING ACTIVITIES: |
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Proceeds from exercise of stock options |
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Taxes paid related to net settlement of restricted stock awards |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Increase in cash and cash equivalents |
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Cash and cash equivalents—Beginning of period |
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Cash and cash equivalents—End of period |
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$ |
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$ |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for operating lease liabilities |
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$ |
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$ |
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Asset retirement obligation |
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$ |
— |
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$ |
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Operating lease assets obtained in exchange for operating lease liabilities |
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$ |
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$ |
( |
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Capitalized assets financed by accounts payable |
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$ |
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$ |
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Stock-based compensation included in capitalized software development costs |
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$ |
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$ |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6
THE TRADE DESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Nature of Operations
The Trade Desk, Inc. (the “Company”) is a global technology company that empowers buyers of advertising. Through the Company’s self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). The Company’s platform integrations with major inventory, publisher and data partners provides ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to develop on top of the platform.
The Company is a Delaware corporation formed in November 2009 and headquartered in Ventura, California with offices in various cities in North America, Europe, Asia and Australia.
Note 2—Basis of Presentation and Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.
There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.
On June 16, 2021, the Company effected a
stock split (the “Stock Split”) of the Company’s common stock in the form of a stock dividend. Each stockholder of record on June 9, 2021 received nine additional shares of common stock for each then-held share. Trading began on a stock split-adjusted basis on June 17, 2021. The number of shares subject to outstanding equity awards and the exercise prices of the outstanding stock option awards were also adjusted to reflect the effect of the Stock Split. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.
Management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for credit losses accounts, (3) operating lease assets and liabilities, including our incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of stock-based compensation and (7) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
As of March 31, 2022, the impact of the Coronavirus (“COVID-19”) pandemic on the Company’s business continues to evolve. As a result, many of the Company’s 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, the Company’s estimates may change materially in future periods.
7
Note 3—Earnings Per Share
The Company has
The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Numerator: |
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Net income (loss) |
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$ |
( |
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$ |
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Denominator: |
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Weighted-average shares outstanding—basic |
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Effect of dilutive securities |
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— |
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Weighted-average shares outstanding—diluted |
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Basic earnings (loss) per share |
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$ |
( |
) |
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$ |
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Diluted earnings (loss) per share |
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$ |
( |
) |
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$ |
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Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings (loss) per share |
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Note 4—Cash, Cash Equivalents and Short-Term Investments, Net
Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):
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As of March 31, 2022 |
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Cash and |
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Cash |
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Short-Term |
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Equivalents |
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Investments |
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Total |
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Cash |
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$ |
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$ |
— |
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$ |
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Level 1: |
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Money market funds |
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— |
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Level 2: |
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Commercial paper |
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Corporate debt securities |
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— |
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U.S. government and agency securities |
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— |
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Total |
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$ |
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$ |
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$ |
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As of December 31, 2021 |
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Cash and |
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Cash |
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Short-Term |
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Equivalents |
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Investments |
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Total |
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Cash |
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$ |
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$ |
— |
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$ |
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Level 1: |
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Money market funds |
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— |
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Level 2: |
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Commercial paper |
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|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
|
— |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three months ended March 31, 2022 and 2021, were immaterial.
8
The contractual maturities of the Company’s short-term investments are as follows (in thousands):
|
|
March 31, 2022 |
|
|
Due in one year |
|
$ |
|
|
Due in one to two years |
|
|
|
|
Total |
|
$ |
|
|
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, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
Short-term lease cost |
|
|
|
|
|
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
Sublease income |
|
|
( |
) |
|
|
( |
) |
Total lease cost |
|
$ |
|
|
|
$ |
|
|
Note 6—Debt
Credit Facility
On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $
Loans under the Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”).
On December 17, 2021, the Company amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.
As of March 31, 2022, the Company did
The Credit Facility contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Credit Facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of
9
Note 7—Stock-Based Compensation
Stock-Based Compensation Expense
Stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Platform operations |
|
$ |
|
|
|
$ |
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
Technology and development |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Stock Options
The following summarizes stock option activity:
|
|
Shares Under Option (in thousands) |
|
|
Weighted- Average Exercise Price |
|
||
Outstanding as of December 31, 2021 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
Expired/forfeited |
|
|
( |
) |
|
|
|
|
Outstanding as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
Exercisable as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2022, the Company had unrecognized stock-based compensation relating to stock options of approximately $
CEO Performance Option
In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $
Restricted Stock
The following summarizes restricted stock activity:
|
|
RSU (in thousands) |
|
|
Weighted- Average Grant Date Fair Value |
|
||
Unvested as of December 31, 2021 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
10
At March 31, 2022, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $
Employee Stock Purchase Plan (“ESPP”)
Stock-based compensation expense related to the ESPP totaled $
Note 8—Income Taxes
In determining the interim provision for income taxes, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. Due to our forecasted level of profitability and significant permanent differences, primarily related to the CEO Performance Option, the Company is unable to utilize the annual effective tax rate method.
For the three months ended March 31, 2022 and 2021, the income tax benefit included benefits associated with stock-based awards of $
For the three months ended March 31, 2022 and 2021, the Company’s effective tax rate differed from the United States federal statutory tax rate of
There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.
Note 9— Segment and Geographic Information
The Company has
The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients based on Gross Billings, which is the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances. The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
Gross Billings, based on the billing address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
U.S. |
|
|
|
% |
|
|
|
% |
International |
|
|
|
% |
|
|
|
% |
Total |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
11
Note 10— Commitments and Contingencies
Guarantees and Indemnification
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly,
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.
On June 28, 2021, a class action lawsuit was filed against the Company, the members of the Company’s board of directors, and one of the Company’s executive officers (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The complaint alleges generally that the Defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020 (the “Amendments”). The plaintiff is seeking a court order rescinding the Amendments, as well as monetary damages. On November 29, 2021, the plaintiff filed a supplement to the complaint, adding factual allegations related to the CEO Performance Option. On February 1, 2022, the Defendants moved to dismiss the complaint. A hearing on Defendants’ motions was held on April 11, 2022. The Company believes that all of the claims asserted in the complaint are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Defendants’ defense of the action will be successful.
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.
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 (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a global technology company that empowers buyers of advertising. Through our self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). Our platform’s integrations with major data, inventory and publisher partners provide ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces enable our clients to develop on top of the platform.
We commercially launched our platform in 2011, targeting the display advertising channel and have continued to add additional advertising channels. The gross spend on our platform comes from multiple channels including mobile, video (which includes CTV), display, audio, native, digital-out-of-home and social channels.
Our clients are primarily the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.
Executive Summary
Highlights
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
Revenue |
|
$ |
315 |
|
|
$ |
220 |
|
|
$ |
95 |
|
|
|
43 |
% |
Net Income (Loss) |
|
$ |
(15 |
) |
|
$ |
23 |
|
|
$ |
(38 |
) |
|
|
(165 |
)% |
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 the data, usage, measurement and targeting capabilities provided by our platform.
We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.
Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory that we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our integrations with supply-side partners.
We invest for long-term growth. We anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.
We believe the markets outside of the United States, and in particular across Europe, China and India for example, offer opportunities for growth, although such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.
We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.
Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.
COVID-19
The worldwide spread of COVID-19, including the emergence of variants, has resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until the COVID-19 pandemic is contained, or economic activity normalizes. With the current uncertainty 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 COVID-19 and its variants, and its impact on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of the COVID-19 pandemic on our business.
14
Results of Operations for the Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021
The following tables set forth our consolidated results of operations for the periods presented.
|
|