Trade Desk (TTD) 10-K risk factor changes: FY2018 vs FY2017

While we generally have [removed: master services agreements] [added: MSAs] in place for our clients, such agreements allow our clients to change the amount of spend through our platform or terminate our services with limited notice.

The loss of advertising agencies as clients could significantly harm our business, [removed: operating results and] financial [removed: condition.][added: condition and results of operations.]

The loss of agencies as clients could significantly harm our business, [removed: operating results and] financial [removed: condition.][added: condition and results of operations.]

We had approximately [removed: 657] [added: 742] clients, consisting primarily of advertising agencies, as of December 31, [removed: 2017.][added: 2018.]

If all of our individual client contractual relationships were aggregated at the holding company level, [removed: Omnicom Group Inc., WPP plc and] Publicis Groupe [added: and Omnicom Group Inc.] would each represent more than 10% of our gross billings for [removed: 2017.][added: 2018.]

If so, any loss of relationships with such holding companies and, consequently, of their agencies, local branches or divisions, as clients could significantly harm our business, [removed: operating results and] financial [removed: condition.][added: condition and results of operations.]

If we fail to adapt to our rapidly changing industry or to evolving client needs, demand for our platform could decrease and our business, financial condition and [removed: operating] results [added: of operations] may be adversely affected.

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and [removed: operating results.][added: results of operations.]

We have experienced [added: and continue to experience] significant growth in a short period of time.

New technologies and methods of buying advertising present a dynamic competitive challenge, as market participants offer [removed: multiple] new products and services, such as analytics, automated media buying and exchanges, aimed at capturing advertising [removed: spend.][added: spend or disrupting the digital marketing landscape.]

In addition to existing competitors and intermediaries, we may also face competition from new companies entering the market, which may include large established companies, all of which currently offer, or may in the future offer, products and services that result in additional competition for advertising spend or advertising [removed: inventory.][added: inventory, or other changes to the marketplace that may be detrimental to our business.]

They may also have more extensive advertiser bases and broader publisher relationships than we have, and may be better positioned to execute on advertising conducted over certain [removed: channels] [added: channels,] such as social media, mobile and video.

Some of our competitors may have [added: a] longer operating [removed: histories] [added: history] and greater name recognition.

Economic downturns and market conditions beyond our control could adversely affect our business, financial condition and [removed: operating results.][added: results of operations.]

Economic downturns or unstable market conditions may cause advertisers to decrease their advertising budgets, which could reduce spend though our platform and adversely affect our business, financial condition and [removed: operating results.][added: results of operations.]

| | • | the introduction of new technologies or offerings by our [removed: competitors;] [added: competitors or others in the advertising marketplace;] |

| | • | costs related to acquisitions of businesses or technologies, or employee [removed: recruiting.] [added: recruiting and retention.] |

We are subject to payment-related [removed: risks] [added: risks, including from advertising agencies that do not pay us until they receive payment from the advertiser,] and, if our clients do not pay or dispute their invoices, our [added: ability to collect for non-payment may be limited and our] business, financial condition and [removed: operating] results [added: of operations] may be adversely affected.

Any increase in write-offs for bad debt could harm our business, financial condition and [removed: operating results.][added: results of operations.]

Even if we are not paid by our clients on time or at all, we are still obligated to pay for the advertising [removed: we have purchased for the advertising campaign,] [added: inventory, third-party data,] and [added: other add-on features that clients purchase on our platform, and] as a consequence, our [added: business, financial condition and] results of operations [removed: and financial condition] would be adversely impacted.

A substantial portion of our business is from advertising agencies that do not pay us until they receive payment from the advertiser, resulting in an increased length of time between our payment for media inventory and our receipt of payment for use of our platform, [removed: and our ability to collect for non-payment] [added: which] may [removed: be limited to the advertiser, thereby increasing] [added: adversely affect] our [removed: risk of non-payment.][added: working capital.]

In addition, we typically experience slow payment [added: cycles] by advertising agencies as is common in our industry.

If we are unable to borrow [removed: against these receivables] on commercially acceptable terms, our working capital availability could be reduced, and as a consequence, our [added: financial condition and] results of operations [removed: and financial condition] would be adversely impacted.

Due to this timing imbalance in collections and payments, we [added: may] rely on our credit facility to partially or completely fund our working capital requirements.

In addition, in the absence of sufficient cash flows from operations, we might be unable to meet our obligations under our credit [removed: facility] [added: facility,] and we may therefore be at risk of default thereunder.

If our relationships with [removed: any] [added: certain] of our suppliers were to cease, or if the material terms of these relationships were to change unfavorably, our business would be negatively impacted.

If we are unable to maintain a consistent supply of quality inventory for any reason, client retention and loyalty, and our financial condition and [removed: operating] results [added: of operations] could be harmed.

Moreover, advertising inventory in the fourth quarter may be more expensive due to increased demand for [removed: advertising inventory.][added: it.]

We have [added: previously] identified a material weakness in our internal control over financial reporting [added: in the Annual Report on Form 10-K as of December 31, 2017] and, if our remediation of this material weakness is not effective, or if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations.

Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal control over financial reporting [removed: and, beginning with this annual report on Form 10-K,] [added: and] provide a management report on internal control over financial reporting.

[removed: However, we have not completed remediation measures related to our previously] [added: We] reported [added: in our Annual Report on Form 10-K as of December 31, 2017 a] material weakness resulting from an absence of certain information technology general controls (“ITGCs”) related to our platform system applications.

[removed: As a result, management has concluded] [added: | | • | we are unable to assert] that our internal control over financial reporting [removed: was not effective as of December 31, 2017.][added: is effective; or |]

We allow our clients to utilize application programming interfaces, or APIs, with our platform, which could result in outages or security breaches and negatively impact our business, financial condition and [removed: operating results.][added: results of operations.]

Our failure to prevent outages or security breaches resulting from API use could result in government enforcement actions against us, claims for damages by consumers and other affected individuals, costs associated with investigation and remediation damage to our reputation and loss of goodwill, any of which could harm our business, financial condition and [removed: operating results.][added: results of operations.]

We may experience outages and disruptions on our platform if we fail to maintain adequate security and supporting infrastructure as we scale our platform, which may harm our reputation and negatively impact our business, financial condition and [removed: operating results.][added: results of operations.]

The steps we take to increase the reliability, integrity and security of our platform as it scales are expensive and complex, and our execution could result in operational failures and increased vulnerability to [removed: cyber-attacks.][added: cyberattacks.]

Such [removed: cyber-attacks] [added: cyberattacks] could include denial-of-service attacks impacting service availability (including the ability to deliver ads) and reliability, tricking company employees into releasing control of their systems to a hacker, or the introduction of computer viruses or malware into our systems with a view to steal confidential or proprietary data.

[removed: Cyber-attacks] [added: Cyberattacks] of increasing sophistication may be difficult to detect and could result in the theft of our intellectual property and data from our platform.

Moreover, we could be adversely impacted by outages and disruptions in the online platforms of our [added: inventory and data suppliers, such as real-time advertising exchanges.]

Outages and disruptions of our platform, including due to [removed: cyber-attacks,] [added: cyberattacks,] may harm our reputation and negatively impact our business, financial condition and results of operations.

| | • | maintain a competitive pricing structure; |

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and results of operations.

During 2018, we completed the remediation measures related to our previously reported material weakness in ITGCs, and concluded that our internal control over financial reporting was effective as of December 31, 2018.

However, completion of remediation does not provide assurance that our remediated controls will continue to operate properly or that our financial statements will be free from error.

Our platform system applications are complex and multi-faceted and include applications that are highly customized in order to serve and support our clients and our advertising inventory and data suppliers, as well as, support our financial reporting obligations.

We regularly make improvements to our platform to maintain and enhance our competitive position.

In the future, we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems.

These factors require us to develop and maintain our internal controls, processes and reporting systems, and we expect to

incur ongoing costs in this effort.

However, we may not be successful in developing and maintaining adequate internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results, leading to material weaknesses in internal controls and causing our financial statements to be misstated.

If one or more of the following were to occur, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected:

| | • | we identify new material weaknesses in our internal control over financial reporting; |

| | • | we are unable to comply with the requirements of the Sarbanes-Oxley Act in a timely manner; |

| | • | our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting. |

Such failures could also subject us to investigations by NASDAQ, the stock exchange on which our securities are listed and the Securities and Exchange Commission or other regulatory authorities, and to litigation from stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

information to our financial systems.

Data privacy and security concerns relating to our technology and our practices could damage our reputation and deter current and potential customers from using our products and services.

If our security measures are breached or unauthorized access is obtained to user, customer or inventory and third-party provider data, our services may be perceived as insecure, we may lose existing customers and providers or fail to attract new customers and providers, and we may incur significant reputational harm and legal and financial liabilities.

In the wake of recent high-profile data breaches, consumers, privacy advocates and legislators have expressed concerns regarding digital advertising and whether advertising technology products, services, or processes compromise the privacy of Internet users.

Concerns about industry practices or our practices with regard to the collection, use, disclosure, or security of personal information or other data privacy related matters, even if unfounded, could damage our reputation and adversely affect our results of operations or lead to enhanced regulatory oversight that may burden our management and operations.

Our privacy policies and business operations may have to change to adapt to any such changes in our business environment.

Our products and services involve the storage and transmission of data from users, customers, and inventory and data providers.

We have dedicated and expect to continue to dedicate significant resources to create security protections that shield data against unauthorized access.

However, such measures cannot provide absolute security.

Bugs, defects, security breaches, theft, misuse or vulnerabilities in our products, services and processes may expose us to a risk of loss or corruption of such data, improper use and disclosure of such information, litigation, and other potential liability.

Systems failures, compromises of our security, failure to abide by our privacy policies or contractual obligations, or inadvertent disclosure that results in the release of data from users, customers, or inventory or data providers could result in government investigations, enforcement actions and other legal and financial liability, which may seriously harm our reputation and brand, and impair our ability to attract and retain customers.

From time to time, we experience cyberattacks of varying degrees and other attempts to gain unauthorized access to our systems.

Our security measures may in the future be breached due to negligence or malfeasance by internal or external actors, or errors or vulnerabilities in our systems, products or processes or in those of our customers, providers and vendors, or otherwise.

Such breach or other unauthorized access, or attempts by outside parties to fraudulently induce employees, customers or vendors to disclose sensitive information in order to gain access to our data, user data, or our customers’ or inventory and third-party providers’ data could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services that could potentially have an adverse effect on our business.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, we may be unable to anticipate or detect these techniques or to implement adequate preventative measures.

Cyberattacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business.

If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers.

While we have dedicated significant resources to privacy and security incident response, including dedicated worldwide incident response teams, our response process may not be adequate, may fail to accurately assess the severity of an incident, may not respond quickly enough, or may fail to sufficiently remediate an incident, among other issues.

As a result, we may suffer significant legal, reputational, or financial exposure, which could adversely affect our business and results of operations.

Similarly, political advertising is governed by various federal and state laws in the U.S., and national and provincial laws worldwide.

Online political advertising laws are rapidly evolving, and in certain jurisdictions have varying transparency and disclosure requirements.

The lack of uniformity and the increasing requirements on transparency and disclosure could adversely impact the inventory made available for political advertising and the demand for such inventory on our platform, and otherwise increase our operating and compliance costs.

Adaptation of the digital advertising marketplace in the EU requires significant collaboration between participants in the market.

The ongoing effectiveness with which industry participants can adapt to changes required for operating under the GDPR, and the user response to such changes, could negatively impact inventory, data, and demand in Europe.

We cannot control or predict the pace or effectiveness of such adaptation, and we cannot currently predict the impact such changes may have on our business.

| --- | --- | --- |

As described in “Item 9A.

Controls and Procedures” in this Annual Report on Form 10-K, during the quarter ended December 31, 2017, we completed the remediation measures including the validation, testing of design and concluding on the operating effectiveness of our controls related to certain of our previously reported material weaknesses in internal control over financial reporting.

Certain ITGCs related to our platform system applications were not fully implemented or have not been in place for a sufficient period of time to adequately evaluate whether the related material weakness has been completely remediated as of December 31, 2017.

These internal controls will require further evaluation, including testing the operating effectiveness of these internal controls over a sustained period of financial reporting cycles.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses.

If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal controls over financial reporting.

Accordingly, there could continue to be a reasonable possibility that these deficiencies or others could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.

The process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act is time consuming, costly and complicated.

If during the evaluation and testing process, we identify one or more other material weaknesses in our internal control over financial reporting or determine that the existing material weakness has not been remediated, our management will be unable to assert that our internal control over financial reporting is effective.

Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

inventory and data suppliers, such as real-time advertising exchanges.

On October 19, 2016, the Court of Justice of the European Union ruled that IP addresses in certain circumstances are “personal data” under current EU law, at least when such IP addresses collected by website operators can be combined with information held by ISPs and other companies that have the ability to identify a user’s real-life identity.

These enhancements may bring about significant

Potential “Do Not Track” standards or government regulation could limit our or our clients’ access to the user data that informs the advertising campaigns we run and, as a result, undermine the effectiveness of our platform.

International expansion subjects us to additional costs and risks that can adversely affect our business, financial condition and operating results.

| | • | increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations; |

| | • | long payment cycles; |

| | • | potential complications in enforcing contracts and collections; |

| | • | increased financial accounting and reporting burdens and complexities; |

| | • | increased administrative costs and risks associated with compliance with local laws and regulations, including relating to privacy and data security; |

| | • | regulatory and legal compliance, including with anti-bribery laws, import and export control laws, economic sanctions and other regulatory limitations or obligations on our operations; |

| | • | heightened risks of unfair or corrupt business practices and of improper or fraudulent sales arrangements; |

| | • | difficulties in invoicing and collecting in foreign currencies and associated foreign currency exposure; |

| | • | difficulties in repatriating or transferring funds from or converting currencies; |

| | • | administrative difficulties, costs and expenses related to various local languages, cultures and political nuances; |

| | • | varied labor and employment laws, including those relating to termination of employees; |

| | • | compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes. |

Our credit facility contains restrictions that limit our flexibility in operating our business.

In March 2016, we entered into a loan and security agreement with a syndicate led by Citibank, N.A., which we refer to as our credit facility.

In May 2017, terms of our credit facility were amended and restated, and subject to certain customary conditions, we now have access to borrow up to $200.0 million aggregate principal amount of revolver borrowings.

The amount of borrowing availability under our credit facility is based on our accounts receivable balance, reduced by certain reserves.

As of December 31, 2017, the outstanding principal balance under our credit facility was $27.0 million, and in January 2018, we repaid this balance.

In addition, our credit facility contains a fixed charge coverage ratio which, if our excess availability under the credit facility is less than the greater of (1) $15.0 million and (2) 12.5% of the lesser of (a) the borrowing base then in effect and (b) the commitments under the credit facility then in effect, requires us to maintain a certain ratio of our earnings to principal and interest payable under the credit facility in a given period.

[removed: Our platform allows clients to manage integrated] [added: Through our self-service, cloud-based platform, ad buyers can create, manage, and optimize more expressive data-driven digital] advertising campaigns across [removed: various advertising channels and] [added: ad] formats, including [removed: connected TV (CTV), mobile,] [added: display,] video, audio, [removed: display, social] [added: native] and [removed: native,] [added: social,] on a multitude of devices, [removed: including smart TVs,] [added: such as] computers, [removed: and various] mobile [removed: devices including phones] [added: devices,] and [removed: tablets.][added: CTV.]

We have since extended our platform to address additional advertising formats, and in [removed: 2017,] [added: 2018,] approximately [removed: 62%] [added: 72%] of gross spend on our platform was for mobile, video, audio, [removed: social,] [added: native] and [removed: native.][added: social.]

Our clients are [added: primarily] the advertising agencies and other service providers for advertisers, with whom we enter into ongoing [removed: master services agreements, or] MSAs.

We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on [removed: advertising, data and other features through our platform.][added: advertising.]

For the years ended December 31, [removed: 2016] [added: 2018] and 2017:

| | • | our revenue was [removed: $202.9] [added: $477.3] million and $308.2 million, respectively, representing an increase of [removed: 52%;] [added: 55%;] and |

| | • | our net income was [removed: $20.5] [added: $88.1] million and $50.8 million, respectively. |

We believe that key opportunities include our ongoing global expansion, continuing development of our CTV, [removed: native, audio] [added: video, audio,] and [removed: video] [added: native] ad inventory, and continuing development of [removed: our] data usage and advertising targeting capabilities.

We [removed: plan to] invest for long-term growth.

We anticipate that our operating expenses will [added: 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 [added: growing] operations.

In addition, we believe the markets outside of the U.S. offer an opportunity for growth, and we intend to make additional investments in sales and marketing and product development to expand in these markets, including China, where we are making significant investments in [removed: launching] our platform and growing our team.

[removed: Although display advertising represented 38% of our gross spend in 2017, non-display] [added: Non-display] advertising such as mobile, [removed: video and] [added: video, audio,] social [added: and native] are significant and increasing components of our gross spend.

Our future growth will depend on our ability to maintain and grow the inventory of, and spend on, other [removed: channels.][added: channels in addition to display advertising.]

[removed: In addition, we] [added: We] believe that our ability to integrate and offer CTV and digital radio advertising inventory for purchase through our platform, and in particular our ability to manage the increased costs that will accompany these purchases, will impact the future growth of our business.

Information about geographic gross billings is set forth in Note [removed: 12] [added: 11] to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a [removed: whole, and events such as the U.S. election cycle and the Olympics.][added: whole.]

We have one primary business activity and operate in one [removed: operating and] reportable [added: and operating] segment.

[removed: See] [added: Refer to] “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.

Personnel costs included in platform operations include salaries, bonuses, stock-based compensation, and employee benefit costs, and are primarily attributable to personnel who provide our clients with support using our platform and the [removed: network operations group that supports] [added: personnel who support] our platform.

Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and commission [removed: costs] [added: costs,] for our sales and marketing personnel.

Our technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development and maintenance of our [removed: platform,] [added: platform and integrations with our advertising and data inventory suppliers,] amortization of capitalized third-party software used in the development of our platform and allocated overhead.

We therefore expect technology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and ramp up the volume of advertising [removed: spending] [added: spend] on our platform.

We expect [added: general and administrative expenses] to [added: increase in absolute dollars in future periods, as we] continue to invest in corporate infrastructure to support [added: our] growth.

Change in Fair Value of [removed: Convertible] Preferred Stock Warrant Liabilities.

Prior to our [removed: IPO,] [added: IPO in September 2016,] we had two outstanding warrants to purchase shares of our convertible preferred stock.

These convertible preferred stock warrants were subject to [removed: re-measurement] [added: remeasurement] at each balance sheet date, and any change in fair value was recognized as a component of other expense, net.

As a result, we no longer [removed: re-measure] [added: remeasure] the value of warrants after our IPO.

We have foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies other than the U.S. Dollar, principally the Euro, [removed: the Canadian Dollar,] British Pound, Australian Dollar, [added: Canadian Dollar, Indonesian Rupiah,] Japanese Yen and [removed: Indonesian Rupiah.][added: Thai Baht.]

The provision for income taxes consists primarily of [added: U.S.] federal, state, and foreign income taxes.

We [removed: reevaluate] [added: evaluate] the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

| | | [removed: 2015] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2016] | | |

| Revenue | | $ | [removed: 113,836] [added: 477,294] | | | $ | [removed: 202,926] [added: 308,217] | | | $ | [removed: 308,217] [added: 202,926] | |

| Platform operations | | | [removed: 22,967] [added: 114,098] | | | | [removed: 39,876] [added: 66,230] | | | | [removed: 66,230] [added: 39,876] | |

| Sales and marketing | | | [removed: 26,794] [added: 87,071] | | | | [removed: 46,056] [added: 61,379] | | | | [removed: 61,379] [added: 46,056] | |

| Technology and development | | | [removed: 12,819] [added: 83,892] | | | | [removed: 27,313] [added: 52,806] | | | | [removed: 52,806] [added: 27,313] | |

| General and administrative | | | [removed: 13,276] [added: 84,910] | | | | [removed: 32,163] [added: 58,446] | | | | [removed: 58,446] [added: 32,163] | |

| Total operating expenses | | | [removed: 75,856] [added: 369,971] | | | | [removed: 145,408] [added: 238,861] | | | | [removed: 238,861] [added: 145,408] | |

| Income from operations | | | [removed: 37,980] [added: 107,323] | | | | [removed: 57,518] [added: 69,356] | | | | [removed: 69,356] [added: 57,518] | |

| Total other expense, net | | | [removed: 8,125] [added: 1,586] | | | | [removed: 13,684] [added: 5,731] | | | | [removed: 5,731] [added: 13,684] | |

We are a technology company that empowers buyers of advertising.

Our platform’s integrations with major data, inventory, and publisher partners provides ad buyers reach and decisioning capabilities, and our enterprise APIs enable our customers to develop on top of the platform.

We also generate revenue from providing data and other value added services and platform features.

Interest Income.

Interest income is mainly related to our cash and cash equivalents, which carry variable interest rates.

2018 Compared to 2017

2018 Compared to 2017

| | | 2018 | | | | 2017 | | | | 2016 | | | | $ | | | | % | | | | $ | | | | % | | |

2018 Compared to 2017

| | | Year Ended December 31, | | | | | | | | | | | | 2018 vs 2017 Change | | | | | | | | 2017 vs 2016 Change | | | | | | |

| | | 2018 | | | | 2017 | | | | 2016 | | | | $ | | | | % | | | | $ | | | | % | | |

2018 Compared to 2017

| | | Year Ended December 31, | | | | | | | | | | | | 2018 vs 2017 Change | | | | | | | | 2017 vs 2016 Change | | | | | | |

| | | 2018 | | | | 2017 | | | | 2016 | | | | $ | | | | % | | | | $ | | | | % | | |

2018 Compared to 2017

The increase in allocated facilities costs was primarily driven by an increase in rent expense associated with operating leases to support our growth.

| | | Year Ended December 31, | | | | | | | | | | | | 2018 vs 2017 Change | | | | 2017 vs 2016 Change | | |

| | | 2018 | | | | 2017 | | | | 2016 | | | | $ | | | | $ | | |

2018 Compared to 2017

The decrease in other expense, net was primarily related to a decrease of $2.1 million in foreign currency exchange loss, net, a $1.8 million increase in interest income, and a $0.2 million decrease in interest expense.

The increase in interest income was primarily attributable to an increase in cash and cash equivalents during 2018, including an increase in higher interest-bearing money market funds.

| | | 2018 | | | | 2017 | | | | 2016 | | |

The difference between the effective tax rate in 2018 of 17% and the U.S. federal statutory income tax rate of 21% was primarily due to the impact of tax benefits associated with stock-based awards partially offset by the impact of state taxes.

For 2018, the provision for income taxes included $15.1 million of benefits associated with stock-based awards.

For 2017, the provision for income taxes included $19.9 million of benefits associated with stock-based awards.

| | | 2018 | | | | 2018 | | | | 2018 | | | | 2018 | | | | 2017 | | | | 2017 | | | | 2017 | | | | 2017 | | |

| Revenue | | $ | 160,468 | | | $ | 118,825 | | | $ | 112,333 | | | $ | 85,668 | | | $ | 102,648 | | | $ | 79,413 | | | $ | 72,804 | | | $ | 53,352 | |

| | | Dec 31, | | | | Sept 30, | | | | Jun 30, | | | | Mar 31, | | | | Dec 31, | | | | Sept 30, | | | | Jun 30, | | | | Mar 31, | | |

| | | 2018 | | | | 2018 | | | | 2018 | | | | 2018 | | | | 2017 | | | | 2017 | | | | 2017 | | | | 2017 | | |

Further, in November 2017, we filed a shelf registration statement on Form S-3 with the SEC, or the Shelf Registration, which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations.

The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs.

Credit Facility

As of December 31, 2018, we did not have an outstanding debt balance under the Second A&R Credit Facility, and availability was $143.3 million.

We were in compliance with all covenants as of December 31, 2018.

| | | 2018 | | | | 2017 | | | | 2016 | | |

Expenditures related to our capitalized software development costs also may vary from period-to-period based on development cycles.

Subsequent to December 31, 2018, we used existing cash and cash equivalents to purchase $50.9 million in marketable securities.

In 2018, we used $25.2 million of cash in investing activities, consisting of $19.8 million to purchase property and equipment and $5.4 million of investments in capitalized software.

In 2018, cash used in financing activities of $10.1 million was primarily due to the $27.0 million repayment of our line of credit and taxes paid related to net settlement of restricted stock of $6.7 million, partially offset by proceeds of $13.8 million from our employee stock purchase plan and $10.0 million from stock options exercises.

| Operating lease obligations | | $ | 225,016 | | | $ | 13,419 | | | $ | 47,800 | | | $ | 44,688 | | | $ | 119,109 | |

We are a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables our clients to purchase and manage data-driven digital advertising campaigns.

We expect general and administrative expenses to increase in absolute dollars in future periods.

In 2017, we released all of our valuation allowance previously established against our U.K. net deferred tax assets of $0.3 million.

Our decision to release the valuation allowance on our U.K. deferred tax assets was due to, among other reasons, our three-year cumulative pre-tax income adjusted for permanent items realized in U.K. jurisdictions and significant forecasted U.K. taxable income.

On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law.

The primary impact of H.R.1 on our consolidated results from operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation of deferred taxes by $0.6 million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%.

Given cumulative overseas deficits, no liability for foreign earnings and profits has been established.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- |

2016 Compared to 2015

The increase in contractor and temporary staff costs was primarily related to supplementing our finance headcount in preparation for our IPO.

The increase in the fair value of our convertible preferred stock warrant liabilities was primarily due to an increase in the valuation of our preferred stock.

The increase in interest expense was primarily attributable to an increase in our debt borrowings and the liquidation fee of $0.8 million paid at the closing of our IPO related to our prior debt facility.

The decrease in other expense, net was primarily due to decreases of $9.5 million in expense related to the fair value of our convertible preferred stock warrant liabilities, which were exercised as part of our IPO in September 2016, and $1.3 million in interest expense attributable to a reduction in our debt borrowings and the aforementioned liquidation fee.

The difference between the effective tax rate in 2015 of 46.6% and the federal statutory income tax rate of 35% was mainly due to state taxes, net of federal benefit, and a change in the fair value of our warrant liabilities.

| | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Revenue | | $ | 30,378 | | | $ | 47,182 | | | $ | 52,956 | | | $ | 72,410 | | | $ | 53,352 | | | $ | 72,804 | | | $ | 79,413 | | | $ | 102,648 | |

| Net income (loss) attributable to common stockholders | | $ | (48,249 | ) | | $ | 2,392 | | | $ | 972 | | | $ | 10,280 | | | $ | 4,909 | | | $ | 18,849 | | | $ | 10,229 | | | $ | 16,811 | |

The following table sets forth our unaudited consolidated results of operations for the specified periods as a percentage of our revenue for those periods.

Amended Revolving Credit Agreement

The Amended Revolving Credit Agreement, among other things, provides for an increase of $75.0 million in the aggregate principal amount of commitments available under our senior secured asset-based revolving credit facility, or Revolving Credit Facility, and provides us greater flexibility with respect to working capital, acquisitions and general corporate purposes.

Any borrowings under the Revolving Credit Facility are due in full in May 2022.

We may prepay the borrowings without penalty at any time.

The Revolving Credit Agreement is collateralized by substantially all of our assets, including a pledge of certain of our accounts receivable, deposit accounts, intellectual property, investment property, and equipment, and availability under the Amended Revolving Credit Agreement is based on a percentage of eligible accounts receivable, as reduced by certain reserves.

As of December 31, 2017, our outstanding principal balance under the Revolving Credit Facility was $27.0 million, and in January 2018, we repaid this balance.

| Increase (decrease) in cash and cash equivalents | | $ | (13,268 | ) | | $ | 129,353 | | | $ | 22,550 | |

In 2015, we used $6.4 million of cash in investing activities, consisting of $5.1 million to purchase property and equipment and $1.8 million of investments in capitalized software, partially offset by $0.6 million associated with the proceeds from the redemption of a short-term certificate of deposit.

Net cash provided by financing activities has been and will be used to finance our operations, capital expenditures, platform development and rapid growth.

In 2015, cash provided by financing activities of $29.7 million was primarily due to proceeds from borrowings of $45.0 million, partially offset by repayments of prior borrowings of $15.0 million.

| Debt obligations (1) | | $ | 31,185 | | | $ | 961 | | | $ | 1,925 | | | $ | 28,299 | | | $ | — | |

| Operating lease obligations | | | 31,753 | | | | 7,570 | | | | 15,111 | | | | 8,861 | | | | 211 | |

| Other contractual commitments | | | 36,999 | | | | 27,914 | | | | 9,085 | | | | — | | | | — | |

| Total minimum payments | | $ | 99,937 | | | $ | 36,445 | | | $ | 26,121 | | | $ | 37,160 | | | $ | 211 | |

| (1) | Includes $27.0 million of principal obligations pursuant to our revolving credit facility as of December 31, 2017. Our revolving credit facility matures in May 2022. Interest on the principal balance was estimated from January 1, 2018 to the maturity date using the LIBOR rate as of December 31, 2017 (1.6%) plus the applicable margin (2.0%). In January 2018, we repaid the outstanding principal and accrued interest in the aggregate amount of $27.1 million. |

We generate revenue from buyers of advertising inventory through our platform.

We recognize revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fees are fixed or determinable; and (4) collectability is reasonably assured.

In applying the foregoing criteria, we recognize revenue upon the completion of a transaction, that is, when a bid is won, subject to satisfying these criteria.

We assess collectability based on a number of factors, including the creditworthiness of a client and related payment history.

We generally bill buyers for the gross amount of advertising inventory, data or other add-on features they purchase through our platform plus our platform fees, although some of our clients have payment relationships directly with advertising inventory suppliers, in which case we only bill the clients for data, other services and our platform fees.

We do not have pricing latitude with respect to cost of advertising inventory, third-party data and other add-on features purchased by clients through our platform.

We have foreign currency risks related to our revenue and expenses denominated in currencies other than the U.S. Dollar, principally the Euro, [removed: the Canadian Dollar,] British Pound, Australian Dollar, [added: Canadian Dollar, Indonesian Rupiah,] Japanese Yen and [removed: Indonesian Rupiah.][added: Thai Baht.]

The effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts at December 31, [removed: 2017,] [added: 2018,] would result in a foreign currency loss of approximately [removed: $9.2] [added: $14.7] million.

From time to [removed: time] [added: time,] we may enter into forward contracts or other derivative transactions in an attempt to hedge our foreign currency risk.

No amount was owed on our revolving credit facility as of December 31, 2018.

Based upon the principal balance owed on our revolving credit facility as of December 31, 2017, a hypothetical one percentage point increase or decrease in the interest rate under our revolving credit facility would result in a corresponding increase or decrease in interest expense of approximately $0.3 million annually.

Our platform allows clients to manage integrated advertising campaigns across various advertising channels and formats, including [removed: connected TV (CTV), mobile,] [added: display,] video, audio, [removed: display, social] [added: native] and [removed: native,] [added: social,] on a multitude of devices, including [removed: smart TVs,] computers, [removed: and various] mobile [removed: devices including phones] [added: devices,] and [removed: tablets.][added: CTV.]

We have since extended our platform to address additional advertising formats, and in [removed: 2017,] [added: 2018,] approximately [removed: 62%] [added: 72%] of gross spend on our platform was for mobile, [removed: video,] [added: video (which includes CTV),] audio, [removed: social,] [added: native] and [removed: native.][added: social.]

Our clients are [added: primarily] the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements, or MSAs.

We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on [removed: advertising, data and other features through our platform.][added: advertising.]

A growing “long tail” of [added: mobile applications (apps), media players,] websites and content presents a challenge for advertisers trying to reach a large audience.

[removed: As a result,] advertisers are able to bid and purchase the advertising inventory they value the most, pay less for advertising inventory they do not value as much, and abstain from buying advertising inventory that does not fit their campaign parameters.

[removed: Our platform allows clients to manage integrated] [added: Through our self-service, cloud-based platform, ad buyers can create, manage, and optimize more expressive data-driven digital] advertising campaigns across [removed: various advertising channels and] [added: ad] formats, including [removed: CTV, mobile,] [added: display,] video, audio, [removed: display, social] [added: native] and [removed: native,] [added: social,] on a multitude of devices, [removed: including smart TVs,] [added: such as] computers, [removed: and various] mobile [removed: devices including phones] [added: devices,] and [removed: tablets.][added: connected TV (CTV).]

| | • | We Are an Enabler, Not a Disruptor. With our platform, we enable advertising agencies and [added: other] service providers. We generally do not compete with advertising agencies and refrain from directly serving advertisers who have a relationship with one of our advertising [added: agency] clients. Advertisers can benefit from a comprehensive solution that combines our platform with the services provided by advertising agencies. |

| | • | We Are Data-Driven. Our platform was founded on the principle that data-driven decisions will be the future of advertising. We built a data management platform first, before building our ad buying technology. While data from disparate third-party data providers can improve campaign performance, our clients’ success often relies largely on our ability to ingest proprietary data directly from brands and their agencies to enable intelligent decisioning that optimizes advertising campaigns. Given our independent, buy-side focused approach, and our strict protocol of carefully earmarking all client first-party data we ingest onto our data management platform, our clients trust us with their most granular and expressive data. Our technology platform enables the effective use of this granular data, which allows our clients to run [removed: more effective and] precisely targeted advertising campaigns that maximize their return on advertising investments. Additionally, we are able to better optimize campaigns by using the data streams that we capture across different devices, so that data from one channel can be used to inform another. The breadth of data that we collect from a multitude of data sources across channels gives our clients a holistic view of their target audiences, enabling more effective targeting across different channels. |

| | • | We Are an Open Platform. Clients can customize and build their own features on top of our platform. Clients may use our application programming interfaces, or APIs, to, for example, design their own user interface, bulk manage advertising campaigns, and link other systems including ad servers or reporting tools. [removed: As of December 31, 2017, all of our top 10 clients used our APIs and nearly half of our clients have customized our APIs.] Using our APIs or by working with our engineering team, clients invest their own resources to build their own proprietary tools in areas including reporting, campaign strategy, custom algorithms or proprietary data use cases. Our open platform approach enables our advertising [removed: agency and service provider clients to provide differentiated offerings to their clients, which we believe leads to long-term relationships and increased use of our platform.] |

| | • | [removed: Expressive.] [added: Expressiveness.] Our platform allows clients to easily define and manage advertising campaigns with multiple targeting parameters that may result in quadrillions of permutations, which we refer to as expressiveness. We believe that expressiveness provides clients with the ability to target audiences with an extremely high level of precision and thus obtain higher returns on their advertising spend. |

| | • | Private Marketplace Support. For clients who wish to transact directly with individual publishers, we offer a comprehensive user interface for discovering and transacting via a wide variety of private [removed: pricing] contracts. Additionally, we offer [removed: direct tags that] [added: a solution for] advertisers [removed: can use when they negotiate deals with publishers through advertising agencies.] [added: to access publisher inventory via a direct tag in a publisher’s ad server where there is no other programmatic access to such publisher’s inventory.] |

| | • | Scalable Architecture. Our platform infrastructure is hosted in [removed: 13] data [removed: centers.] [added: centers in 7 countries around the world.] On average, our real-time bidding technology evaluates more than [removed: 580] [added: 600] billion ad opportunities per day, reaching over [removed: 430] [added: 590] million devices per day on a global basis. Our core bidding architecture is easily adaptable to a variety of inventory formats, allowing our platform to communicate with many different inventory sources. |

| | • | Grow Our Client Base. We have extensive relationships with many advertising agencies and [added: other] service providers, and believe that, given the decentralized nature of the advertising industry, we have the opportunity to expand our relationships within these agencies and with additional agencies and service providers. We expect to continue making investments in growing our sales and client service team to support this strategy. |

As of December 31, [removed: 2017,] [added: 2018,] we had approximately [removed: 657] [added: 742] clients, consisting primarily of advertising agencies or groups within advertising agencies that have independent relationships with us, manage budgets independently of one-another, are based in different jurisdictions, and are served by unique Trade Desk teams.

If all of our individual client contractual relationships were aggregated at the holding company level, two clients would have each represented more than 10% of our gross billings in [removed: 2015,] [added: 2018 and] three clients would have each represented more than 10% of our gross billings in [removed: 2016, and three clients would have] each [removed: represented more than 10%] of [removed: our gross billings in 2017.][added: 2017 and 2016.]

Our contractual and billing arrangement with Omnicom Group Inc. is at the holding company level and accounted for [removed: 12%] [added: 10%] of our gross billings in [removed: 2015, 13%] [added: 2018, 11%] in [removed: 2016] [added: 2017] and [removed: 11%] [added: 13%] in [removed: 2017.][added: 2016.]

For [removed: WPP plc and] Publicis [removed: Groupe,] [added: Groupe and WPP plc,] we enter into separate contracts and billing relationships with various of its individual agencies and account for them as separate clients.

We do not have any contractual relationship with [added: Publicis Groupe or] the holding company WPP [removed: plc or Publicis Groupe.][added: plc.]

Mindshare, which is affiliated with WPP plc, accounted for [removed: 12%] [added: 10%] of our gross billings in [removed: 2015, 11% in 2016] [added: 2017] and [removed: 10%] [added: 11%] in [removed: 2017.][added: 2016.]

[added: Publicis Media Inc. (formerly] VivaKi, [removed: Inc.,] [added: Inc.),] which is affiliated with Publicis Groupe, accounted for [removed: 15%] [added: 20%] of our gross billings in [removed: 2016 and] [added: 2018,] 22% in [removed: 2017.][added: 2017 and 15% in 2016.]

Our clients are loyal, as reflected by our client retention rate of over 95% in [removed: 2015, 2016] [added: 2018, 2017] and [removed: 2017.][added: 2016.]

We obtain digital advertising inventory from over [removed: 70] [added: 80] ad exchanges, supply-side platforms, publishers and ad networks, providing us with access to a breadth of programmatic advertising inventory across computers, [removed: smartphones, audio] [added: mobile] devices and CTV.

On average each day, our platform provides our clients with access to over [removed: 580] [added: 600] billion ad impressions per day, reaching over [removed: 430] [added: 590] million devices per day on a global basis.

As of December 31, [removed: 2017,] [added: 2018,] we have integrated our platform with over [removed: 135] [added: 165] third-party data vendors whose products we make available for purchase through our platform.

We prioritize and align our product roadmap with our clients’ needs, and we [removed: generally] [added: aim to] refresh our platform [removed: on a weekly basis.][added: weekly.]

We compete with other demand-side platform [removed: providers] [added: providers, some of] which are [removed: mostly] smaller, privately-held [removed: companies, but we also compete with] [added: companies and others are] divisions of large, well-established companies such as [added: AT&T,] Google and Adobe.

| | • | we are an independent technology company [removed: exclusively] focused on serving advertising agencies and [added: others on] the buy-side of our industry; |

| | • | our client relationships are based on [removed: master service agreements] [added: MSAs] as opposed to campaign-specific insertion orders; |

Our business and our culture [removed: is] [added: are] anchored on four core principles:

As of December 31, [removed: 2017,] [added: 2018,] we had [removed: 713] [added: 944] employees, of whom [removed: 502] [added: 634] are in the U.S. Our team draws from a broad spectrum of backgrounds and experiences, across technology, advertising and securities trading and other areas.

Information about our geographic gross billings is set forth in Note [removed: 12] [added: 11] of “Item 8.

We do not hold any [removed: patents] [added: patents,] because we believe our proprietary technology is best protected by keeping our technology architecture, trade secrets, and engineering roadmap private.

We believe our platform is difficult to replicate and would be expensive [added: and time-consuming] to build.

We and our clients use pseudonymous and anonymous data about Internet users on our platform to manage and execute digital advertising campaigns in a variety of ways, including delivering advertisements to Internet users based on their geographic locations, the type of device they are using, [removed: or] their interests as inferred from their web browsing or app usage activity, or [removed: that clients infer from] their relationships with [removed: users.][added: our clients.]

In the [removed: United States,] [added: U.S.,] both [removed: state and] federal [added: and state] legislation govern activities such as the collection and use of data, and privacy in the advertising technology industry has frequently been subject to review by the Federal Trade Commission, or the FTC, U.S. Congress, and individual states.

Much of the federal oversight on digital advertising in the [removed: United States has come] [added: U.S. currently comes] from the FTC, which has primarily relied upon Section 5 of the Federal Trade Commission Act, which prohibits companies from engaging in “unfair” or “deceptive” trade practices, including alleged violations of representations concerning privacy protections and acts that allegedly violate individuals’ privacy interests.

The General Data Protection Regulation, or GDPR, which was adopted by the EU in 2016 and [removed: becomes] [added: became] effective May 25, 2018, [removed: will] generally [removed: harmonize] [added: harmonizes] data privacy laws across EU countries.

The GDPR [removed: creates] [added: created] new regulations relating to the collection and use of data typically leveraged on our platform and by others in the digital advertising industry, including IP addresses, cookie identifiers, and device identifiers for advertising purposes, and [removed: enhances] [added: enhanced] data protection obligations for controllers of personal data and service providers processing personal data.

These enhancements [removed: will] bring about significant changes in the way the advertising technology industry operates in the EU.

We are a technology company that empowers buyers of advertising.

Our platform’s integrations with major data, inventory, and publisher partners provides ad buyers reach and decisioning capabilities, and our enterprise APIs enable our customers to develop on top of the platform.

We also generate revenue from providing data and other value added services and platform features.

Convergence of TV and the Internet.

While still in its early days, we are witnessing a generational shift from linear TV to CTV with the convergence of the internet and television programming.

New technologies allow more video content to be delivered over the Internet more seamlessly, accelerating consumer demand to watch what they want, when they want and where they want.

The anticipated worldwide rollout of 5G, the fifth generational standard for wireless networks, will bring significantly faster data transfer speeds with less latency, and a better user experience, to consumers of mobile video.

We believe these technologies will continue to feed consumer demand for CTV (including mobile video) and bring about new opportunities for content owners and advertisers to connect with consumers.

As a result,

| | | agency and service provider clients to provide differentiated offerings to their clients, which we believe leads to long-term relationships and increased use of our platform. |

| | • | Koa Artificial Intelligence. A predictive engine that helps platform users make data-driven decisions without sacrificing control or transparency. Koa makes recommendations for campaign optimizations based on its sophisticated analysis of rich data sets. Advertisers can then choose which optimizations make the most sense for their campaigns. |

| | • | Media Planner. An omnichannel solution designed for digital media professionals to generate, analyze, and launch data-driven, programmatic media plans. This tool analyzes the actions of existing core audiences with the data we see across the open internet to deliver a fully transparent, performance-focused, and ready-to-activate campaign. |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

Our ability to continually develop new intellectual property and deliver new functionality quickly serves to protect us against competitors in digital advertising technology.

However, there is increasing consumer concern over data privacy in recent years, which has led to a myriad of proposed legislation and new legislation both on the federal and state level.

For example, in 2018, the State of California adopted the California Consumer Privacy Act of 2018, or the CCPA.

The CCPA establishes a new privacy framework for covered businesses by, among other requirements, creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, creating new notice obligations and new limits on the sale of personal information, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.

As currently enacted, we and partners in our industry will be required to comply with these requirements when the CCPA becomes effective in 2020.

We are a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables our clients to purchase and manage data-driven digital advertising campaigns.

According to International Data Corporation, or IDC, global advertising spend was estimated to be approximately $672 billion in 2017 and is expected to grow to $764 billion in 2021, a compound annual growth rate of 3.3%.

Also, according to IDC, global digital advertising spend was $229 billion in 2017 and is expected to grow to $360 billion in 2021, a compound annual growth rate of 11.9%.

Our technology development expense totaled $12.8 million in 2015, $27.3 million in 2016 and $52.8 million in 2017.

We also believe that a critical protection in digital advertising technology is the ability to execute and deliver new functionality quickly, and are continually developing new intellectual property as we innovate.

We may find it

We are not currently a party to any legal proceedings, litigation or claims, which, if determined adversely to us, would have a material adverse effect on our business, [removed: operating results,] financial [removed: condition] [added: condition, results of operations] or cash flows.

10-K 1 [removed: ttd-10k_20171231.htm] [added: ttd-10k_20181231.htm] 10-K

For the fiscal year ended December 31, [removed: 2017][added: 2018]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] 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 [removed: and post] such files).

| Non-accelerated filer | | ☐ [removed: (Do not check if a small reporting company)] | | Smaller reporting company | | ☐ |

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, [removed: 2017,] [added: 2018,] based on the closing sales price for the Registrant’s Class A common stock, as reported on the NASDAQ Global Market, was approximately [removed: $1,543,997,839.][added: $3,279,011,436.]

As of January 31, [removed: 2018,] [added: 2019,] there were [removed: 32,695,082] [added: 37,544,005] shares of the registrant’s Class A common stock outstanding and [removed: 9,155,054] [added: 6,529,619] shares of the registrant’s Class B common stock outstanding.

Portions of the registrant’s Proxy Statement for the [removed: 2018] [added: 2019] Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, [removed: 2017.][added: 2018.]

| Item 1B. | | [Unresolved Staff Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS) | | [removed: 31] [added: 32] |

| Item 2. | | [Properties](#ITEM_2_PROPERTIES) | | [removed: 32] [added: 33] |

| Item 3. | | [Legal Proceedings](#ITEM_3_LEGAL_PROCEEDINGS) | | [removed: 32] [added: 33] |

| Item 4. | | [Mine Safety Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES) | | [removed: 32] [added: 33] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQU) | | [removed: 33] [added: 34] |

| Item 6. | | [Selected Financial Data](#ITEM_6_SELECTED_FINANCIAL_DATA) | | [removed: 35] [added: 36] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F) | | [removed: 37] [added: 38] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM_9_CHANGES_IN_DISAGREEMENTS_WITH_ACC) | | [removed: 78] [added: 76] |

| Item 9A. | | [Controls and Procedures](#ITEM_9A_CONTROLS_PROCEDURES) | | [removed: 78] [added: 76] |

| Item 9B. | | [Other Information](#ITEM_9B_OR_INFORMATION) | | [removed: 79] [added: 77] |

| Item 10. | | [Directors, Executive Officers and Corporate Governance](#ITEM_10_DIRECTORS_EXECUTIVE_FICERS_CORPO) | | [removed: 80] [added: 78] |

| Item 11. | | [Executive Compensation](#ITEM_11_EXECUTIVE_COMPENSATION) | | [removed: 80] [added: 78] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#ITEM_12_SECURITY_OWNERSHIP_CERTAIN_BENEF) | | [removed: 80] [added: 78] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#ITEM_13_CERTAIN_RELATIONSHIPS_RELATED_TR) | | [removed: 80] [added: 78] |

| Item 14. | | [Principal Accounting Fees and Services](#ITEM_14_PRINCIPAL_ACCOUNTING_FEES_SERVIC) | | [removed: 80] [added: 78] |

| Item 15. | | [Exhibits and Financial Statement Schedules](#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCH) | | [removed: 81] [added: 79] |

| Item 16. | | [Form 10-K Summary](#ITEM_16_FORM_10K_SUMMARY) | | [removed: 82] [added: 80] |

| [Signatures](#SIGNATURES) | | | | [removed: 83] [added: 81] |


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018

As of January 31, [removed: 2018,] [added: 2019,] there were approximately [removed: 14] [added: 19] holders of record of our Class A common stock and [removed: 46] [added: 25] holders of record of our Class B common stock.

The following graph compares the cumulative total stockholder return on an initial investment of $100 in our Class A common stock between September 21, 2016 (our initial trading day) and December 31, [removed: 2017,] [added: 2018,] with the comparative cumulative total returns of the Standard & Poor’s (S&P) 500 Index, Russell 2000 Index and NASDAQ 100 Index over the same period.

[removed: For the fiscal year 2017, we] [added: We] added the NASDAQ 100 Index because the companies which comprise the NASDAQ 100 index align with our growing business.

[removed: ][added: ]

Refer to “Item 7.

The following table sets forth, for the indicated periods, the intraday high and low sales prices per share of our Class A common stock as reported on the NASDAQ Global Market.

| | | High | | | | Low | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Year Ended December 31, 2016 | | | | | | | | |

| Third quarter (commencing September 21, 2016) | | $ | 33.40 | | | $ | 26.84 | |

| Fourth quarter | | $ | 31.43 | | | $ | 22.00 | |

| | | | | | | | | |

| Year Ended December 31, 2017 | | | | | | | | |

| First quarter | | $ | 46.21 | | | $ | 26.40 | |

| Second quarter | | $ | 57.57 | | | $ | 35.04 | |

| Third quarter | | $ | 62.86 | | | $ | 46.49 | |

| Fourth quarter | | $ | 67.30 | | | $ | 43.44 | |

See “Item 7.

We have derived the selected consolidated statements of operations data for [removed: 2015, 2016,] [added: 2018, 2017,] and [removed: 2017] [added: 2016] and the selected consolidated balance sheet data as of December 31, [removed: 2016] [added: 2018] and 2017 from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

The selected consolidated statements of operations data for [added: 2015 and] 2014 and the selected consolidated balance sheet data as of December 31, [removed: 2014 and] [added: 2016,] 2015 [added: and 2014] were derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.

| | | Year Ended December 31, | | | | | | | | | | | | | | | [added: | | | |]

| | | [removed: 2014] [added: 2018] | | | | [removed: 2015] [added: 2017] | | | | 2016 | | | | [removed: 2017] [added: 2015] | | | [added: | 2014 | | |]

| | | (in thousands, except per share data) | | | | | | | | | | | | | | | [added: | | | |]

| Consolidated Statements of Operations Data: | | | | | | | | | | | | | | | | | [added: | | | |]

| Revenue | | $ | [removed: 44,548] [added: 477,294] | | | $ | [removed: 113,836] [added: 308,217] | | | $ | 202,926 | | | $ | [removed: 308,217] [added: 113,836] | | [added: | $ | 44,548 | |]

| Operating expenses (1): | | | | | | | | | | | | | | | | | [added: | | | |]

| Platform operations | | | [removed: 12,559] [added: 114,098] | | | | [removed: 22,967] [added: 66,230] | | | | 39,876 | | | | [removed: 66,230] [added: 22,967] | | [added: | | 12,559 | |]

| Sales and marketing | | | [removed: 14,590] [added: 87,071] | | | | [removed: 26,794] [added: 61,379] | | | | 46,056 | | | | [removed: 61,379] [added: 26,794] | | [added: | | 14,590 | |]

| Technology and development | | | [removed: 7,250] [added: 83,892] | | | | [removed: 12,819] [added: 52,806] | | | | 27,313 | | | | [removed: 52,806] [added: 12,819] | | [added: | | 7,250 | |]

| General and administrative | | | [removed: 9,385] [added: 84,910] | | | | [removed: 13,276] [added: 58,446] | | | | 32,163 | | | | [removed: 58,446] [added: 13,276] | | [added: | | 9,385 | |]

| Total operating expenses | | | [removed: 43,784] [added: 369,971] | | | | [removed: 75,856] [added: 238,861] | | | | 145,408 | | | | [removed: 238,861] [added: 75,856] | | [added: | | 43,784 | |]

| Income from operations | | | [removed: 764] [added: 107,323] | | | | [removed: 37,980] [added: 69,356] | | | | 57,518 | | | | [removed: 69,356] [added: 37,980] | | [added: | | 764 | |]

| Total other expense, net | | | [removed: 1,707] [added: 1,586] | | | | [removed: 8,125] [added: 5,731] | | | | 13,684 | | | | [removed: 5,731] [added: 8,125] | | [added: | | 1,707 | |]

| Income (loss) before income taxes | | | [removed: (943] [added: 105,737] | [removed: )] | | | [removed: 29,855] [added: 63,625] | | | | 43,834 | | | | [removed: 63,625] [added: 29,855] | | [added: | | (943 | ) |]

| Provision for (benefit from) income taxes | | | [removed: (948] [added: 17,597] | [removed: )] | | | [removed: 13,926] [added: 12,827] | | | | 23,352 | | | | [removed: 12,827] [added: 13,926] | | [added: | | (948 | ) |]

| Net income | | $ | [removed: 5] [added: 88,140] | | | $ | [removed: 15,929] [added: 50,798] | | | $ | 20,482 | | | $ | [removed: 50,798] [added: 15,929] | | [added: | $ | 5 | |]

| Net income (loss) attributable to common stockholders (2) | | $ | [removed: —] [added: 88,140] | | | $ | [removed: 8,764] [added: 50,798] | | | $ | (26,727 | ) | | $ | [removed: 50,798] [added: 8,764] | | [added: | $ | — | |]

| Net income (loss) per share attributable to common stockholders–basic (2) | | $ | [removed: —] [added: 2.08] | | | $ | [removed: 0.85] [added: 1.26] | | | $ | (1.46 | ) | | $ | [removed: 1.26] [added: 0.85] | | [added: | $ | — | |]

| Net income (loss) per share attributable to common stockholders–diluted (2) | | $ | [removed: —] [added: 1.92] | | | $ | [removed: 0.39] [added: 1.15] | | | $ | (1.46 | ) | | $ | [removed: 1.15] [added: 0.39] | | [added: | $ | — | |]

| | | (in thousands) | | | | | | | | | | | | | | | [added: | | | |]

| Non-GAAP Financial and Operating Data: | | | | | | | | | | | | | | | | | [added: | | | |]

| Gross spend (3) | | $ | [removed: 211,266] [added: 2,350,877] | | | $ | [removed: 552,325] [added: 1,555,856] | | | $ | 1,027,984 | | | $ | [removed: 1,555,856] [added: 552,325] | | [added: | $ | 211,266 | |]

| Gross billings (4) | | $ | [removed: 201,804] [added: 2,285,013] | | | $ | [removed: 529,975] [added: 1,491,742] | | | $ | 990,561 | | | $ | [removed: 1,491,742] [added: 529,975] | | [added: | $ | 201,804 | |]

| | | As of December 31, | | | | | | | | | | | | | | | | [added: | | |]

| | | [removed: 2014] [added: 2018] | | | | [removed: 2015] [added: 2017] | | | | 2016 | | | | [removed: 2017] [added: 2015] | | | | [added: 2014 | | |]

| | | (in thousands) | | | | | | | | | | | | | | | | [added: | | |]

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | [added: | | |]

| Cash and cash equivalents | | $ | [removed: 17,315] [added: 207,232] | | | $ | [removed: 4,047] [added: 155,950] | | | $ | 133,400 | | | $ | [removed: 155,950] [added: 4,047] | | | [added: $ | 17,315 | |]

| Accounts receivable, net | | | [removed: 78,364] [added: 834,764] | | | | [removed: 191,943] [added: 599,565] | | | | 377,240 | | | | [removed: 599,565] [added: 191,943] | | | [added: | 78,364 | |]

| Total assets | | | [removed: 102,238] [added: 1,117,872] | | | | [removed: 210,231] [added: 797,164] | | | | 537,596 | | | | [removed: 797,164] [added: 210,231] | | | [added: | 102,238 | |]

| Accounts payable | | | [removed: 58,293] [added: 669,147] | | | | [removed: 108,461] [added: 490,377] | | | | 321,163 | | | | [removed: 490,377] [added: 108,461] | | | [added: | 58,293 | |]

| Long-term debt, net of current portion | | | [removed: 16,493] [added: —] | | | | [removed: 45,918] [added: 27,000] | | | | 25,847 | | | | [removed: 27,000] [added: 45,918] | | [removed: (5)] | [added: | 16,493 | |]

| Total liabilities | | | [removed: 80,372] [added: 723,305] | | | | [removed: 171,885] [added: 551,581] | | | | 373,216 | | | | [removed: 551,581] [added: 171,885] | | | [added: | 80,372 | |]

| Convertible preferred stock | | | [removed: 27,997] [added: —] | | | | [removed: 24,204] [added: —] | | | | — | | | | [removed: —] [added: 24,204] | | | [added: | 27,997 | |]

| Total stockholders’ equity (deficit) | | | [removed: (6,131] [added: 394,567] | [removed: )] | | | [removed: 14,142] [added: 245,583] | | | | 164,380 | | | | [removed: 245,583] [added: 14,142] | | | [added: | (6,131 | ) |]

| Platform operations | | $ | [removed: 14] [added: 4,463] | | | $ | [removed: 71] [added: 2,674] | | | $ | 756 | | | $ | [removed: 2,674] [added: 71] | | [added: | $ | 14 | |]

| Sales and marketing | | | [removed: 50] [added: 11,306] | | | | [removed: 127] [added: 6,261] | | | | 1,707 | | | | [removed: 6,261] [added: 127] | | [added: | | 50 | |]

| Technology and development | | | [removed: 909] [added: 13,855] | | | | [removed: 85] [added: 6,661] | | | | 1,513 | | | | [removed: 6,661] [added: 85] | | [added: | | 909 | |]

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |

| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |

| | | (in thousands) | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- |

| (5) | In January 2018, we repaid the outstanding principal and accrued interest. |

| | | Page | | [removed: |]

| [Report of Independent Registered Public Accounting Firm](#REPORT_INDEPENDENT_REGISTERED_PUBLIC_ACC) | | | 53 | [removed: |]

| [Consolidated Balance Sheets](#CONSOLIDATED_BALANCE_SHEETS) | | | [removed: 55 |] [added: 54] |

| [Consolidated Statements of Operations](#CONSOLIDATED_STATEMENTS_OPERATIONS) | | | [removed: 56 |] [added: 55] |

| [Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)](#CONSOLIDATED_STATEMENTS_CONVERTIBLE_PREF) | | | [removed: 57 |] [added: 56] |

| [Consolidated Statements of Cash Flows](#CONSOLIDATED_STATEMENTS_CASH_FLOWS) | | | [removed: 58 |] [added: 57] |

| [Notes to Consolidated Financial Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN) | | | [removed: 59 |] [added: 58] |

We have audited the accompanying consolidated balance sheets of The Trade Desk, Inc. and its subsidiaries [added: (the “Company”)] as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the related consolidated statements of operations, of convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2017] [added: 2018] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company [removed: did not maintain,] [added: maintained,] in all material respects, effective internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the [removed: COSO because a material weakness in internal control over financial reporting related to an absence of information technology general controls over certain financially significant applications existed as of that date.][added: COSO.]

The [removed: material weakness referred to above] [added: Company's management] is [removed: described] [added: responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included] in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) [removed: ("PCAOB")] [added: (PCAOB)] and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

| | | [removed: 2016] [added: 2018] | | | | 2017 | | | [added: | 2016 | | |]

| Cash and cash [removed: equivalents] [added: equivalents—Beginning of year] | | [removed: $] | [added: 155,950 | | | |] 133,400 | | | [removed: $] | [removed: 155,950] [added: 4,047] | |

| Accounts receivable, net | | | [removed: 377,240] [added: 834,764] | | | | 599,565 | |

| Prepaid expenses and other current assets | | | [removed: 5,763] [added: 14,527] | | | | 10,298 | |

| TOTAL CURRENT ASSETS | | | [removed: 516,403] [added: 1,056,523] | | | | 765,813 | |

| Property and equipment, net | | | [removed: 14,779] [added: 33,046] | | | | 17,405 | |

| Deferred income taxes | | | [removed: 1,778] [added: 8,460] | | | | 3,359 | |

| Other assets, non-current | | | [removed: 4,636] [added: 19,843] | | | | 10,587 | |

| TOTAL ASSETS | | $ | [removed: 537,596] [added: 1,117,872] | | | $ | 797,164 | |

| Accounts payable | | $ | [removed: 321,163] [added: 669,147] | | | $ | 490,377 | |

| Accrued expenses and other current liabilities | | | [removed: 22,973] [added: 44,844] | | | | 28,155 | |

| TOTAL CURRENT LIABILITIES | | | [removed: 344,136] [added: 713,991] | | | | 518,532 | |

| Debt, net | | | [removed: 25,847] [added: —] | | | | 27,000 | |

| Other liabilities, non-current | | | [removed: 3,233] [added: 9,314] | | | | 6,049 | |

| TOTAL LIABILITIES | | | [removed: 373,216] [added: 723,305] | | | | 551,581 | |

| Commitments and contingencies (Note [removed: 13)] [added: 12)] | | | | | | | | |

| Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of December 31, [removed: 2016] [added: 2018] and 2017 | | | — | | | | — | |

| Common stock, par value $0.000001; 1,000,000 Class A shares authorized as of December 31, [removed: 2016] [added: 2018] and 2017; [removed: 10,071] [added: 36,822] and 32,486 shares issued and outstanding as of December 31, [removed: 2016] [added: 2018] and 2017, respectively; 95,000 Class B shares authorized as of December 31, [removed: 2016] [added: 2018] and 2017; [removed: 29,060] [added: 7,042] and 9,155 shares issued and outstanding as of December 31, [removed: 2016] [added: 2018] and 2017, respectively | | | — | | | | — | |

| Additional paid-in capital | | | [removed: 179,198] [added: 270,447] | | | | 209,603 | |

| TOTAL STOCKHOLDERS’ EQUITY | | | [removed: 164,380] [added: 394,567] | | | | 245,583 | |

| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | [removed: 537,596] [added: 1,117,872] | | | $ | 797,164 | |

| | | [removed: 2015] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2016] | | |

| Revenue | | $ | [removed: 113,836] [added: 477,294] | | | $ | [removed: 202,926] [added: 308,217] | | | $ | [removed: 308,217] [added: 202,926] | |

| Platform operations | | | [removed: 22,967] [added: 114,098] | | | | [removed: 39,876] [added: 66,230] | | | | [removed: 66,230] [added: 39,876] | |

| Sales and marketing | | | [removed: 26,794] [added: 87,071] | | | | [removed: 46,056] [added: 61,379] | | | | [removed: 61,379] [added: 46,056] | |

| Technology and development | | | [removed: 12,819] [added: 83,892] | | | | [removed: 27,313] [added: 52,806] | | | | [removed: 52,806] [added: 27,313] | |

| General and administrative | | | [removed: 13,276] [added: 84,910] | | | | [removed: 32,163] [added: 58,446] | | | | [removed: 58,446] [added: 32,163] | |

| --- | --- | --- | --- |

February 22, 2019

| | | 2018 | | | | 2017 | | |

| Retained earnings | | | 124,120 | | | | 35,980 | |

| Other expense (income): | | | | | | | | | | | | |

| Interest income | | | (1,883 | ) | | | (93 | ) | | | — | |

| Restricted stock, net of forfeitures and shares withheld for taxes | | | — | | | | — | | | | 78 | | | | — | | | | (6,677 | ) | | | — | | | | (6,677 | ) |

| Balance as of December 31, 2018 | | | — | | | $ | — | | | | 43,864 | | | $ | — | | | $ | 270,447 | | | $ | 124,120 | | | $ | 394,567 | |

| Net income | | $ | 88,140 | | | $ | 50,798 | | | $ | 20,482 | |

| Change in fair value of preferred stock warrant liabilities | | | — | | | | — | | | | 9,458 | |

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 (CTV).

The adoption of ASU 2014-09 did not result in a change in the timing or amount of revenue recognized.

The Company determines revenue recognition through the following steps:

| | • | Identification of a contract with a customer; |

| | • | Identification of the performance obligations in the contract; |

| --- | --- | --- |

| | • | Determination of the transaction price; |

| --- | --- | --- |

| | • | Allocation of the transaction price to the performance obligations in the contract; and |

| --- | --- | --- |

| | • | Recognition of revenue when or as the performance obligations are satisfied. |

| --- | --- | --- |

The Company charges clients a platform fee, based on a percentage of a client’s purchases through the platform, and the transaction price is determined based on the consideration to which it expects to be entitled in exchange for the completion of a transaction, that is, when a bid is won.

The Company recognizes revenue for its platform fee at a point in time when a purchase by the client occurs through its platform, which is when a bid is won.

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 invoices its clients on a monthly basis for the purchases occurring during the month.

Invoice payment terms, negotiated on a client-by-client basis, are typically between 30 to 90 days.

However, for certain agency clients with sequential liability terms, payments are not due to the Company until such agency client has received payment from its customers who are advertisers.

Refer to Note 11 for geographic information related to Gross Billings.

For performance-based restricted stock, expense is recognized on a graded-vesting attribution basis over the requisite service period of the award and is adjusted in subsequent reporting periods if the assessed probability or estimated level of achievement of the performance goals changes.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "Act").

The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election.

Effective the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

Subsequent to December 31, 2018, the Company used existing cash and cash equivalents to purchase $50.9 million in marketable securities classified as short-term investments.

The Company classifies its marketable securities as available-for-sale investments in its current assets because they represent investments of cash available for current operations.

Available-for-sale investments are carried at fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income (loss) in stockholders' equity.

Unrealized losses are charged against other expense when a decline in fair value is determined to be other-than-temporary.

The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as other expense (income).

| | | 2018 | | | | 2017 | | | | 2016 | | |

| --- | --- | --- | --- | --- |

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

February 27, 2018

| | | As of December 31, | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Retained earnings (accumulated deficit) | | | (14,818 | ) | | | 35,980 | |

| Balance as of December 31, 2014 | | | 66,330 | | | $ | 27,997 | | | | 10,166 | | | $ | — | | | $ | 488 | | | $ | (6,619 | ) | | $ | (6,131 | ) |

| Modification to Series B participation rights | | | — | | | | (3,793 | ) | | | — | | | | — | | | | — | | | | 3,793 | | | | 3,793 | |

| Redemption of short-term investment | | | 551 | | | | — | | | | — | |

| Repayment of term debt | | | — | | | | (30,000 | ) | | | — | |

| Deferred initial public offering costs and stock repurchase costs included in accounts payable | | $ | 58 | | | $ | — | | | $ | — | |

The Company is a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables its clients to purchase and manage data-driven digital advertising campaigns across various advertising channels and formats.

Risks

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

Reverse Stock Split

On September 2, 2016, the Company effected a 1-for-3 reverse stock split of its outstanding common stock and a proportional adjustment to the then existing conversion ratios for each series of convertible preferred stock.

Accordingly, all share and per share amounts for all periods presented in these consolidated financial statements and notes thereto, have been adjusted retrospectively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

In addition, the Company invoices clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform less any advertising inventory that clients purchase directly from suppliers through the Company’s platform.

The Company recognizes revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fees are fixed or determinable, and (4) collectability is reasonably assured.

In applying the foregoing criteria, the Company recognizes revenue upon the completion of a transaction, that is, when a bid is won, subject to satisfying these criteria.

The Company assesses collectability based on a number of factors, including the creditworthiness of a client or advertiser and related payment history.

The client has supplier selection for the advertising inventory, third-party data and other add-on features through the platform.

The Company has credit risk on the gross spend through the Company’s platform, which includes the amounts due to suppliers for purchases through the Company’s platform plus the Company’s platform fees, as the Company is required to pay suppliers irrespective of whether the Company collects from clients.

Stock options granted to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model.

The Company believes that the fair value of the stock options is more reliably measured than the fair value of the services received.

The fair value of the non-employee stock options is re-measured each period until a commitment date is reached, which is generally the vesting date.

On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law.

The primary impact of H.R.1 on the Company’s consolidated results from operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation of deferred taxes by $0.6 million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018.

Given cumulative overseas deficits, no liability for foreign earnings and profits has been established.

For 2016, the excess of the repurchase price of preferred stock over its carrying value (Note 9) has been recorded as a reduction to net income to determine net loss attributable to common stockholders.

Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

In August 2015, the FASB approved the deferral of the new standard by one year, which defers the effective date of ASU 2014-09 by one year.

In 2016, the FASB issued additional amendments to the new revenue guidance.

The guidance permits the use of either the retrospective or cumulative effect transition method.

The Company used the modified retrospective approach transition method to adopt this guidance on January 1, 2018 and has determined that adoption of this guidance does not have an impact on its consolidated results of operations, financial position or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.

Early adoption is permitted, including adoption in an interim period.

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, [removed: 2017.][added: 2018.]

Based on this evaluation, our CEO and CFO have concluded [removed: that, due to the material weakness in our internal control over financial reporting as described below,] [added: that] our disclosure controls and procedures were [removed: not] effective at the reasonable assurance level as of December 31, [removed: 2017.][added: 2018.]

Management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2017] [added: 2018] using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013).

Based on its assessment, our management, including our CEO and CFO, has concluded that our internal control over financial reporting was [removed: not] effective as of December 31, [removed: 2017 due to a material weakness in our internal control over financial reporting resulting from an absence of information technology general controls (“ITGCs”) over certain financially significant applications.][added: 2018.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2017] [added: 2018] has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report, which appears in Item 8 of this Annual Report on Form 10-K.

During the quarter ended December 31, [removed: 2017,] [added: 2018,] we completed the remediation measures including the validation, testing of the design and concluding on the operating effectiveness of our controls related to the [removed: following] previously reported material [removed: weaknesses in internal control over financial reporting:][added: weakness.]

During the quarter ended December 31, [removed: 2017, we implemented certain controls over] [added: 2018, there have been no changes in] our [removed: platform system applications related to restricted access and change management] [added: internal control over financial reporting] that have materially affected, or [removed: are] [added: is] reasonably likely to materially affect, our internal control over financial reporting.

However, completion of remediation does not provide assurance that our remediated controls will continue to operate properly or that our financial statements will be free from error.

Our platform system applications are complex and multi-faceted and include applications that are highly customized in order to serve and support our clients and our advertising inventory and data suppliers, as well as support our financial reporting obligations.

We regularly make improvements to our platform to maintain and enhance our competitive position.

In the future we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems.

These factors require us to maintain, develop and implement new controls, which, if not properly designed or operating effectively could negatively affect our internal control over financial reporting and result in material weaknesses.

There also may be undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis.

We continue to develop our internal controls, processes and reporting systems in an effort to maintain the effectiveness of our internal control over financial reporting, and we expect to incur ongoing costs in this effort.

However, we may not be successful in developing and maintaining adequate internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial condition and results of operations.

Our management, including our CEO and CFO, has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

These control deficiencies resulted in an immaterial adjustment which was identified and corrected in the same period.

Additionally, these control deficiencies could impact the effectiveness of information technology dependent controls which could result in material misstatements of the consolidated financial statements and disclosures that would not be prevented or detected.

Accordingly, our management has determined that these control deficiencies constitute a material weakness.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

| | • | our failure to maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements; |

| --- | --- | --- |

| | • | the absence of formalized policies and controls designed to address accounting policies and procedures across multiple processes; and |

\\

| | • | the lack of formal policies and procedures around segregation of duties. |

Remediation In Progress

Regarding the previously reported material weakness resulting from the absence of ITGCs over certain financially significant applications, during the quarter ended December 31, 2017, we completed the remediation measures including validation, testing of the design and concluding on the operating effectiveness of ITGCs over our financially significant applications, with the exception of our platform system applications as discussed below.

We have not completed the remediation measures related to certain ITGCs over our platform system applications as of December 31, 2017.

Certain ITGCs related to our platform system applications were not fully implemented or have not been in place for a sufficient period of time to adequately evaluate whether the related material weakness has been completely remediated as of December 31, 2017.

During the quarter ended December 31, 2017, we implemented certain controls over our platform system applications related to restricted access and change management.

These internal controls will require further evaluation, including testing the operating effectiveness of these internal controls over a sustained period of financial reporting cycles.

The actions that we are taking are subject to ongoing review by our management, including our CEO and CFO, as well as audit committee oversight.

As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weakness, we may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate additional time.

We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate our material weakness expeditiously.

The information required by this item [added: will be included] in our proxy statement relating to our [removed: 2018] [added: 2019] annual meeting of stockholders to be filed by us with the Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended December 31, [removed: 2017] [added: 2018] (the "Proxy Statement") and is incorporated herein by reference.

[removed: See] [added: Refer to] Index to Consolidated Financial Statements in Item 8 herein.

| [removed: 10.2(a)] [added: 10.2] | | [removed: [Loan] [added: [Second Amended] and [added: Restated Loan and] Security Agreement, dated as of [removed: March 30, 2016,] [added: October 26, 2018,] among The Trade Desk, Inc., the lenders party thereto, and Citibank, N.A., as administrative [removed: agent.](http://www.sec.gov/Archives/edgar/data/0001671933/000104746916015272/a2229540zex-10_2.htm)] [added: agent.](http://www.sec.gov/Archives/edgar/data/1671933/000156459018028667/ttd-ex101_448.htm)] | | [removed: S-1/A] [added: 10-Q] | | [removed: 9/6/2016] [added: 11/9/2018] | | [removed: 10.2] [added: 10.1] | | | |

| [removed: 10.2(b)] [added: 10.11+] | | [removed: [Amended and Restated Loan and Security] [added: [Employment] Agreement, dated as of May [removed: 9,] [added: 11,] 2017, [removed: among] [added: between] The Trade Desk, [removed: Inc., the lenders party thereto,] [added: Inc.] and [removed: Citibank, N.A., as administrative agent.](http://www.sec.gov/Archives/edgar/data/0001671933/000119312517167445/d274174dex101.htm)] [added: Brian J. Stempeck.](http://www.sec.gov/Archives/edgar/data/0001671933/000119312517167445/d274174dex106.htm)] | | 10-Q | | [removed: 5/11/2017] [added: 05/11/17] | | [removed: 10.1] [added: 10.6] | | | |

| [removed: 10.3(a)+] [added: 10.6+] | | [The Trade Desk, Inc. [removed: 2010] [added: 2016 Employee] Stock [removed: Plan.](http://www.sec.gov/Archives/edgar/data/0001671933/000104746916015272/a2229540zex-10_5a.htm)] [added: Purchase Plan.](http://www.sec.gov/Archives/edgar/data/0001671933/000110465916146150/a16-18790_1ex99d5.htm)] | | [removed: S-1/A] [added: S-8] | | [removed: 9/6/2016] [added: 9/22/2016] | | [removed: 10.5] [added: 99.5] | [removed: (a)] | | |

| 10.4(b)+ | | [First Amendment to The Trade Desk, Inc. 2015 Equity Incentive [removed: Plan](http://www.sec.gov/Archives/edgar/data/0001671933/000110465916146150/a16-18790_1ex99d2.htm)] [added: Plan.](http://www.sec.gov/Archives/edgar/data/0001671933/000110465916146150/a16-18790_1ex99d2.htm)] | | S-8 | | 9/22/2016 | | 99.2 | | | |

| [removed: 10.11+] [added: 10.12+] | | [removed: [Employment] [added: [Transition] Agreement, dated as of [removed: May 11, 2017,] [added: November 30, 2018,] between The Trade Desk, Inc. and Robert D. [removed: Perdue.](http://www.sec.gov/Archives/edgar/data/0001671933/000119312517167445/d274174dex105.htm)] [added: Perdue.](http://www.sec.gov/Archives/edgar/data/0001671933/000156459018030487/ttd-ex101_19.htm)] | | [removed: 10-Q] [added: 8-K] | | [removed: 05/11/17] [added: 12/04/18] | | [removed: 10.5] [added: 10.1] | | | |

| 21.1 | | [List of Subsidiaries of the [removed: Registrant.](https://www.sec.gov/Archives/edgar/data/1671933/000156459018003611/ttd-ex211_7.htm)] [added: Registrant.](https://www.sec.gov/Archives/edgar/data/1671933/000156459019003906/ttd-ex211_10.htm)] | | | | | | | | | X |

| 23.1 | | [Consent of PricewaterhouseCoopers LLP, independent registered public accounting [removed: firm.](https://www.sec.gov/Archives/edgar/data/1671933/000156459018003611/ttd-ex231_8.htm)] [added: firm.](https://www.sec.gov/Archives/edgar/data/1671933/000156459019003906/ttd-ex231_8.htm)] | | | | | | | | | X |

| 24.1 | | [Power of Attorney (included on signature page to this Annual Report on Form [removed: 10-K)](#SIGNATURES)] [added: 10-K).](#POWER_ATTORNEY)] | | | | | | | | | X |

| 31.1 | | [Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459018003611/ttd-ex311_6.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459019003906/ttd-ex311_9.htm)] | | | | | | | | | X |

| 31.2 | | [Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459018003611/ttd-ex312_9.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459019003906/ttd-ex312_6.htm)] | | | | | | | | | X |

| 32.1 (1) | | [Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459018003611/ttd-ex321_10.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/1671933/000156459019003906/ttd-ex321_7.htm)] | | | | | | | | | X |

| | | | | | | | | | | | |

| 10.3(b)+ | | [Form of Stock Option Agreement under The Trade Desk, Inc. 2010 Stock Plan.](http://www.sec.gov/Archives/edgar/data/0001671933/000104746916015272/a2229540zex-10_5b.htm) | | S-1/A | | 9/6/2016 | | 10.5 | (b) | | |

| 10.6+ | | [The Trade Desk, Inc. 2016 Employee Stock Purchase Plan](http://www.sec.gov/Archives/edgar/data/0001671933/000110465916146150/a16-18790_1ex99d5.htm) | | S-8 | | 9/22/2016 | | 99.5 | | | |

| 10.12+ | | [Employment Agreement, dated as of May 11, 2017, between The Trade Desk, Inc. and Brian J. Stempeck.](http://www.sec.gov/Archives/edgar/data/0001671933/000119312517167445/d274174dex106.htm) | | 10-Q | | 05/11/17 | | 10.6 | | | |

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Ventura, California, on the [removed: 27th] [added: 22nd] day of February, [removed: 2018.][added: 2019.]

[removed: POWER] [added: [](#POWER_ATTORNEY)POWER] OF ATTORNEY

| /s/ JEFF T. GREEN | | Chief Executive Officer, Director (principal | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ PAUL E. ROSS | | Chief Financial Officer (principal financial | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ KATHRYN E. FALBERG | | Director | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ THOMAS FALK | | Director | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ ERIC B. PALEY | | Director | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ DAVID B. WELLS | | Director | | February [removed: 27, 2018] [added: 22, 2019] |

| /s/ BRIAN J. STEMPECK | | Chief Strategy Officer, Director | | February 22, 2019 |

| Brian J. Stempeck | | | | |

| /s/ GOKUL RAJARAM | | Director | | February 22, 2019 |

| Gokul Rajaram | | | | |

| /s/ ROBERT D. PERDUE | | Chief Operating Officer, Director | | February 27, 2018 |

| Robert D. Perdue | | | | |

| /s/ JUAN N. VILLALONGA | | Director | | February 27, 2018 |

| Juan N. Villalonga | | | | |