Item 1. Condensed Consolidated Financial Statements

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

		As of				As of
		March 31, 2022				December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	844,223			$	754,154
Short-term investments, net			260,347				204,625
Accounts receivable, net of allowance for credit losses of $8,040 and $7,374 as of March 31, 2022 and December 31, 2021, respectively			1,760,985				2,020,720
Prepaid expenses and other current assets			89,784				112,150
TOTAL CURRENT ASSETS			2,955,339				3,091,649
Property and equipment, net			130,640				135,856
Operating lease assets			228,991				234,091
Deferred income taxes			73,548				68,244
Other assets, non-current			44,203				47,500
TOTAL ASSETS		$	3,432,721			$	3,577,340
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable		$	1,405,673			$	1,655,684
Accrued expenses and other current liabilities			92,903				101,472
Operating lease liabilities			47,226				46,149
TOTAL CURRENT LIABILITIES			1,545,802				1,803,305
Operating lease liabilities, non-current			229,489				238,449
Other liabilities, non-current			8,327				8,280
TOTAL LIABILITIES			1,783,618				2,050,034
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of March 31, 2022 and December 31, 2021			—				—
Common stock, par value $0.000001 Class A, 1,000,000 shares authorized; 441,791 and 439,206 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively Class B, 95,000 shares authorized; 44,235 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively			—				—
Additional paid-in capital			1,051,572				915,177
Retained earnings			597,531				612,129
TOTAL STOCKHOLDERS’ EQUITY			1,649,103				1,527,306
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,432,721			$	3,577,340

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

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

		Three Months Ended
		March 31,
		2022				2021
Revenue		$	315,323			$	219,811
Operating expenses:
Platform operations			63,890				50,500
Sales and marketing			70,688				55,764
Technology and development			71,999				53,918
General and administrative			125,799				51,845
Total operating expenses			332,376				212,027
Income (loss) from operations			(17,053	)			7,784
Other expense (income):
Interest expense, net			1,076				45
Foreign currency exchange loss (gain), net			(795	)			(353	)
Total other expense (income), net			281				(308	)
Income (loss) before income taxes			(17,334	)			8,092
Benefit from income taxes			(2,736	)			(14,550	)
Net income (loss)		$	(14,598	)		$	22,642
Earnings (loss) per share:
Basic		$	(0.03	)		$	0.05
Diluted		$	(0.03	)		$	0.05
Weighted-average shares outstanding:
Basic			484,190				472,816
Diluted			484,190				497,916

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

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

		Class A and B								Additional								Total
		Common Stock								Paid-In				Retained				Stockholders’
		Shares				Amount				Capital				Earnings				Equity
Balance as of December 31, 2020			473,401			$	—			$	538,778			$	474,367			$	1,013,145
Exercise of common stock options			1,794				—				12,621				—				12,621
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			110				—				(17,080	)			—				(17,080	)
Stock-based compensation			—				—				52,985				—				52,985
Net income			—				—				—				22,642				22,642
Balance as of March 31, 2021			475,305			$	—			$	587,304			$	497,009			$	1,084,313
Balance as of December 31, 2021			483,441			$	—			$	915,177			$	612,129			$	1,527,306
Exercise of common stock options			2,395				—				24,408				—				24,408
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			190				—				(13,428	)			—				(13,428	)
Stock-based compensation			—				—				125,415				—				125,415
Net loss			—				—				—				(14,598	)			(14,598	)
Balance as of March 31, 2022			486,026			$	—			$	1,051,572			$	597,531			$	1,649,103

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

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

		Three Months Ended March 31,
		2022				2021
OPERATING ACTIVITIES:
Net income (loss)		$	(14,598	)		$	22,642
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			12,350				10,011
Stock-based compensation			124,895				52,354
Allowance for credit losses on accounts receivable			725				203
Noncash lease expense			10,515				9,451
Deferred income taxes			(5,304	)			—
Other			998				4,905
Changes in operating assets and liabilities:
Accounts receivable			259,483				208,847
Prepaid expenses and other assets			23,743				(16,180	)
Accounts payable			(245,937	)			(200,578	)
Accrued expenses and other liabilities			(8,688	)			(5,691	)
Operating lease liabilities			(11,990	)			(10,894	)
Net cash provided by operating activities			146,192				75,070
INVESTING ACTIVITIES:
Purchases of investments			(121,221	)			(89,354	)
Sales of investments			—				4,539
Maturities of investments			64,133				62,670
Purchases of property and equipment			(8,401	)			(13,120	)
Capitalized software development costs			(1,614	)			(1,062	)
Net cash used in investing activities			(67,103	)			(36,327	)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options			24,408				12,621
Taxes paid related to net settlement of restricted stock awards			(13,428	)			(17,080	)
Net cash provided by (used in) financing activities			10,980				(4,459	)
Increase in cash and cash equivalents			90,069				34,284
Cash and cash equivalents—Beginning of period			754,154				437,353
Cash and cash equivalents—End of period		$	844,223			$	471,637
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for operating lease liabilities		$	14,030			$	15,107
Asset retirement obligation		$	—			$	625
Operating lease assets obtained in exchange for operating lease liabilities		$	4,732			$	(937	)
Capitalized assets financed by accounts payable		$	1,837			$	2,421
Stock-based compensation included in capitalized software development costs		$	520			$	631

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

THE TRADE DESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Nature of Operations

The Trade Desk, Inc. (the “Company”) is a global technology company that empowers buyers of advertising. Through the Company’s self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). The Company’s platform integrations with major inventory, publisher and data partners provides ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to develop on top of the platform.

The Company is a Delaware corporation formed in November 2009 and headquartered in Ventura, California with offices in various cities in North America, Europe, Asia and Australia.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.

On June 16, 2021, the Company effected a ten-for-one stock split (the “Stock Split”) of the Company’s common stock in the form of a stock dividend. Each stockholder of record on June 9, 2021 received nine additional shares of common stock for each then-held share. Trading began on a stock split-adjusted basis on June 17, 2021. The number of shares subject to outstanding equity awards and the exercise prices of the outstanding stock option awards were also adjusted to reflect the effect of the Stock Split. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.

Management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for credit losses accounts, (3) operating lease assets and liabilities, including our incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of stock-based compensation and (7) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

As of March 31, 2022, the impact of the Coronavirus (“COVID-19”) pandemic on the Company’s business continues to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macro-economic factors in the market, which require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

Note 3—Earnings Per Share

The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings (loss) per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2022				2021
Numerator:
Net income (loss)		$	(14,598	)		$	22,642
Denominator:
Weighted-average shares outstanding—basic			484,190				472,816
Effect of dilutive securities			—				25,100
Weighted-average shares outstanding—diluted			484,190				497,916
Basic earnings (loss) per share		$	(0.03	)		$	0.05
Diluted earnings (loss) per share		$	(0.03	)		$	0.05
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings (loss) per share			25,609				263

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

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

		As of March 31, 2022
		Cash and
		Cash				Short-Term
		Equivalents				Investments				Total
Cash		$	268,511			$	—			$	268,511
Level 1:
Money market funds			539,351				—				539,351
Level 2:
Commercial paper			36,361				103,176				139,537
Corporate debt securities			—				86,455				86,455
U.S. government and agency securities			—				70,716				70,716
Total		$	844,223			$	260,347			$	1,104,570

		As of December 31, 2021
		Cash and
		Cash				Short-Term
		Equivalents				Investments				Total
Cash		$	272,058			$	—			$	272,058
Level 1:
Money market funds			431,299				—				431,299
Level 2:
Commercial paper			47,544				70,804				118,348
Corporate debt securities			3,253				85,425				88,678
U.S. government and agency securities			—				48,396				48,396
Total		$	754,154			$	204,625			$	958,779

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three months ended March 31, 2022 and 2021, were immaterial.

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

		March 31, 2022
Due in one year		$	227,934
Due in one to two years			32,413
Total		$	260,347

Note 5—Leases

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

		Three Months Ended
		March 31,
		2022				2021
Operating lease cost		$	12,484			$	13,095
Short-term lease cost			472				171
Variable lease cost			1,943				1,923
Sublease income			(626	)			(650	)
Total lease cost		$	14,273			$	14,539

Note 6—Debt

Credit Facility

On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, the Company has the right to increase the Credit Facility by an amount not to exceed $300 million. The Credit Facility is collateralized by substantially all of the Company’s assets, including a pledge of certain of its accounts receivable, deposit accounts, intellectual property, investment property and equipment.

Loans under the Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a rate per annum for any day equal to the greatest of (1) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (2) the NYFRB Rate in effect on such day plus half of 1%, and (3) the adjusted LIBOR rate for a one-month interest period on such day plus 1%. The applicable margin is between 0.25% to 1.25% for Base Rate Borrowings and between 1.25% and 2.25% for LIBOR Rate Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the Credit Facility ranges, based on the applicable leverage, from 0.200% to 0.350%. The Company is also required to pay customary letter of credit fees, as necessary.

On December 17, 2021, the Company amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.

As of March 31, 2022, the Company did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $444 million as of March 31, 2022, which is net of outstanding letters of credit of $6 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026.

The Credit Facility contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Credit Facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00. As of March 31, 2022, the Company was in compliance with all covenants.

Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

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

		Three Months Ended
		March 31,
		2022				2021
Platform operations		$	5,950			$	5,015
Sales and marketing			16,525				13,684
Technology and development			22,393				16,094
General and administrative			80,027				17,561
Total		$	124,895			$	52,354

Stock Options

The following summarizes stock option activity:

		Shares Under Option (in thousands)				Weighted- Average Exercise Price
Outstanding as of December 31, 2021			18,984			$	15.14
Granted			122				81.37
Exercised			(2,395	)			10.19
Expired/forfeited			(247	)			39.93
Outstanding as of March 31, 2022			16,464			$	15.98
Exercisable as of March 31, 2022			11,803			$	9.29

At March 31, 2022, the Company had unrecognized stock-based compensation relating to stock options of approximately $83 million, which is expected to be recognized over a weighted-average period of 1.7 years.

CEO Performance Option

In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $68.29 per share. At March 31, 2022, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three months ended March 31, 2022. No acceleration of unachieved award traches occurred during the three months ended March 31, 2022. Stock-based compensation of $66 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three months ended March 31, 2022. At March 31, 2022, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $596 million which, assuming no acceleration of vesting, is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock

The following summarizes restricted stock activity:

		RSU (in thousands)				Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2021			5,597			$	51.54
Granted			884				77.10
Vested			(518	)			40.20
Forfeited			(266	)			57.35
Unvested as of March 31, 2022			5,697			$	56.27

At March 31, 2022, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $296 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $26 million for the three months ended March 31, 2022 and 2021. At March 31, 2022, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $17 million, which is expected to be recognized over a weighted-average period of 0.3 years.

Note 8—Income Taxes

In determining the interim provision for income taxes, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. Due to our forecasted level of profitability and significant permanent differences, primarily related to the CEO Performance Option, the Company is unable to utilize the annual effective tax rate method.

For the three months ended March 31, 2022 and 2021, the income tax benefit included benefits associated with stock-based awards of $26 million.

For the three months ended March 31, 2022 and 2021, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to the impact of tax benefits associated with stock-based awards, nondeductible stock-based compensation, state and foreign taxes and research and development tax credits.

There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

Note 9— Segment and Geographic Information

The Company has one primary business activity and operates in one reportable and operating segment.

The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients based on Gross Billings, which is the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances. The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Gross Billings, based on the billing address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:

		Three Months Ended
		March 31,
		2022				2021
U.S.			88	%			86	%
International			12	%			14	%
Total			100	%			100	%

Note 10— Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at March 31, 2022.

Litigation

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

On June 28, 2021, a class action lawsuit was filed against the Company, the members of the Company’s board of directors, and one of the Company’s executive officers (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The complaint alleges generally that the Defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020 (the “Amendments”). The plaintiff is seeking a court order rescinding the Amendments, as well as monetary damages. On November 29, 2021, the plaintiff filed a supplement to the complaint, adding factual allegations related to the CEO Performance Option. On February 1, 2022, the Defendants moved to dismiss the complaint. A hearing on Defendants’ motions was held on April 11, 2022. The Company believes that all of the claims asserted in the complaint are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Defendants’ defense of the action will be successful.

Employment Contracts

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock options in the event of changes in control, as defined, and involuntary terminations.