filings.toolsTrade Desk 10-Q 2024-06-30
Filed 2024-08-08. 8 sections, 249K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number: 001-37879
______________________________
THE TRADE DESK, INC.
(Exact name of registrant as specified in its charter)
______________________________
| Delaware | 27-1887399 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
42 N. Chestnut Street
Ventura, California 93001
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (805) 585-3434
N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Class A Common Stock, par value $0.000001 per share | TTD | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | x | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of July 31, 2024, the registrant had 447,658,970 shares of Class A common stock and 43,918,900 shares of Class B common stock outstanding.
THE TRADE DESK, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE TRADE DESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(Unaudited)
| As of June 30, 2024 | As of December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,009,363 | $ | 895,129 | |||||||
| Short-term investments, net | 497,168 | 485,159 | |||||||||
| Accounts receivable, net of allowance for credit losses of $10,576 and $12,826 as of June 30, 2024 and December 31, 2023, respectively | 2,905,533 | 2,870,313 | |||||||||
| Prepaid expenses and other current assets | 110,776 | 63,353 | |||||||||
| TOTAL CURRENT ASSETS | 4,522,840 | 4,313,954 | |||||||||
| Property and equipment, net | 191,912 | 161,422 | |||||||||
| Operating lease assets | 229,411 | 197,732 | |||||||||
| Deferred income taxes | 154,849 | 154,849 | |||||||||
| Other assets, non-current | 60,910 | 60,730 | |||||||||
| TOTAL ASSETS | $ | 5,159,922 | $ | 4,888,687 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 2,336,589 | $ | 2,317,318 | |||||||
| Accrued expenses and other current liabilities | 120,218 | 137,996 | |||||||||
| Operating lease liabilities | 61,579 | 55,524 | |||||||||
| TOTAL CURRENT LIABILITIES | 2,518,386 | 2,510,838 | |||||||||
| Operating lease liabilities, non-current | 202,769 | 180,369 | |||||||||
| Other liabilities, non-current | 33,361 | 33,261 | |||||||||
| TOTAL LIABILITIES | 2,754,516 | 2,724,468 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
| Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of June 30, 2024 and December 31, 2023 | — | — | |||||||||
| Common stock, par value $0.000001 Class A, 1,000,000 shares authorized; 447,681 and 444,997 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively Class B, 95,000 shares authorized; 43,919 and 43,919 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | — | — | |||||||||
| Additional paid-in capital | 2,217,043 | 1,967,265 | |||||||||
| Retained earnings | 188,363 | 196,954 | |||||||||
| TOTAL STOCKHOLDERS’ EQUITY | 2,405,406 | 2,164,219 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 5,159,922 | $ | 4,888,687 |
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue | $ | 584,550 | $ | 464,254 | $ | 1,075,803 | $ | 847,057 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Platform operations | 110,459 | 86,654 | 214,089 | 171,521 | |||||||||||||||||||
| Sales and marketing | 133,867 | 111,489 | 255,592 | 208,711 | |||||||||||||||||||
| Technology and development | 110,035 | 98,308 | 217,721 | 192,018 | |||||||||||||||||||
| General and administrative | 135,469 | 126,130 | 265,024 | 256,442 | |||||||||||||||||||
| Total operating expenses | 489,830 | 422,581 | 952,426 | 828,692 | |||||||||||||||||||
| Income from operations | 94,720 | 41,673 | 123,377 | 18,365 | |||||||||||||||||||
| Other expense (income): | |||||||||||||||||||||||
| Interest income, net | (17,817) | (17,507) | (34,478) | (31,930) | |||||||||||||||||||
| Foreign currency exchange loss (gain), net | 45 | (747) | (670) | (24) | |||||||||||||||||||
| Total other income, net | (17,772) | (18,254) | (35,148) | (31,954) | |||||||||||||||||||
| Income before income taxes | 112,492 | 59,927 | 158,525 | 50,319 | |||||||||||||||||||
| Provision for income taxes | 27,463 | 26,988 | 41,836 | 8,054 | |||||||||||||||||||
| Net income | $ | 85,029 | $ | 32,939 | $ | 116,689 | $ | 42,265 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.17 | $ | 0.07 | $ | 0.24 | $ | 0.09 | |||||||||||||||
| Diluted | $ | 0.17 | $ | 0.07 | $ | 0.23 | $ | 0.08 | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | 489,353 | 488,431 | 488,952 | 489,068 | |||||||||||||||||||
| Diluted | 500,040 | 499,349 | 499,117 | 499,570 |
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 Common Stock | Additional Paid-In Capital | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 490,468 | $ | — | $ | 1,449,825 | $ | 665,514 | $ | 2,115,339 | ||||||||||||||||||||
| Exercise of common stock options | 2,451 | — | 10,365 | — | 10,365 | ||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures and shares withheld for taxes | 414 | — | (15,595) | — | (15,595) | ||||||||||||||||||||||||
| Repurchases of Class A common stock | (5,139) | — | — | (292,863) | (292,863) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 114,235 | — | 114,235 | ||||||||||||||||||||||||
| Net income | — | — | — | 9,326 | 9,326 | ||||||||||||||||||||||||
| Balance as of March 31, 2023 | 488,194 | — | 1,558,830 | 381,977 | 1,940,807 | ||||||||||||||||||||||||
| Exercise of common stock options | 1,074 | — | 17,407 | — | 17,407 | ||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures and shares withheld for taxes | 879 | — | (15,459) | — | (15,459) | ||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | 497 | — | 21,316 | — | 21,316 | ||||||||||||||||||||||||
| Repurchases of Class A common stock | (595) | — | — | (44,004) | (44,004) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 118,404 | — | 118,404 | ||||||||||||||||||||||||
| Net income | — | — | — | 32,939 | 32,939 | ||||||||||||||||||||||||
| Balance as of June 30, 2023 | 490,049 | $ | — | $ | 1,700,498 | $ | 370,912 | $ | 2,071,410 | ||||||||||||||||||||
| Balance as of December 31, 2023 | 488,916 | $ | — | $ | 1,967,265 | $ | 196,954 | $ | 2,164,219 | ||||||||||||||||||||
| Exercise of common stock options | 719 | — | 10,804 | — | 10,804 | ||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures and shares withheld for taxes | 620 | — | (26,806) | — | (26,806) | ||||||||||||||||||||||||
| Repurchases of Class A common stock | (1,527) | — | — | (125,370) | (125,370) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 112,048 | — | 112,048 | ||||||||||||||||||||||||
| Net income | — | — | — | 31,660 | 31,660 | ||||||||||||||||||||||||
| Balance as of March 31, 2024 | 488,728 | — | 2,063,311 | 103,244 | 2,166,555 | ||||||||||||||||||||||||
| Exercise of common stock options | 1,167 | — | 27,360 | — | 27,360 | ||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures and shares withheld for taxes | 1,007 | — | (31,563) | — | (31,563) | ||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | 698 | — | 30,122 | — | 30,122 | ||||||||||||||||||||||||
| Repurchases of Class A common stock | — | — | — | 90 | 90 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 127,813 | — | 127,813 | ||||||||||||||||||||||||
| Net income | — | — | — | 85,029 | 85,029 | ||||||||||||||||||||||||
| Balance as of June 30, 2024 | 491,600 | $ | — | $ | 2,217,043 | $ | 188,363 | $ | 2,405,406 | ||||||||||||||||||||
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)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 116,689 | $ | 42,265 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 42,624 | 39,359 | |||||||||
| Stock-based compensation | 236,960 | 230,553 | |||||||||
| Noncash lease expense | 26,460 | 24,325 | |||||||||
| Provision for expected credit losses on accounts receivable | 133 | 318 | |||||||||
| Other | (4,117) | (8,423) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (49,321) | (35,368) | |||||||||
| Prepaid expenses and other current and non-current assets | (52,064) | (3,659) | |||||||||
| Accounts payable | (13,247) | 50,995 | |||||||||
| Accrued expenses and other current and non-current liabilities | (9,989) | 399 | |||||||||
| Operating lease liabilities | (27,397) | (25,102) | |||||||||
| Net cash provided by operating activities | 266,731 | 315,662 | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments | (317,969) | (316,307) | |||||||||
| Maturities of investments | 314,598 | 274,401 | |||||||||
| Purchases of property and equipment | (29,339) | (16,556) | |||||||||
| Capitalized software development costs | (4,424) | (3,415) | |||||||||
| Net cash used in investing activities | (37,134) | (61,877) | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Repurchases of Class A common stock | (125,280) | (336,494) | |||||||||
| Proceeds from exercise of stock options | 38,164 | 27,772 | |||||||||
| Proceeds from employee stock purchase plan | 30,122 | 21,316 | |||||||||
| Taxes paid related to net settlement of restricted stock awards | (58,369) | (31,054) | |||||||||
| Net cash used in financing activities | (115,363) | (318,460) | |||||||||
| Increase (decrease) in cash and cash equivalents | 114,234 | (64,675) | |||||||||
| Cash and cash equivalents—Beginning of period | 895,129 | 1,030,506 | |||||||||
| Cash and cash equivalents—End of period | $ | 1,009,363 | $ | 965,831 | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Cash paid for operating lease liabilities | $ | 33,272 | $ | 30,870 | |||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | 58,133 | $ | 16,967 | |||||||
| Capitalized assets financed by accounts payable | $ | 37,927 | $ | 3,033 | |||||||
| Stock-based compensation included in capitalized software development costs | $ | 2,901 | $ | 2,086 | |||||||
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 video (which includes connected television (“CTV”)), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. The Company’s platform integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to customize and expand platform functionality.
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, 2023 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, 2023.
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, 2023, 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, 2023, 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 and six months ended June 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024.
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, (3) operating lease assets and liabilities, including the Company’s 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 June 30, 2024, the impacts to the Company’s business due to geopolitical developments and macroeconomic factors such as changes in interest and foreign currency exchange rates, inflation and supply chain disruptions, continue to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macroeconomic 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.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which adds requirements to report significant expenses, requirements for entities with a single reportable segment to provide all disclosures otherwise required under Topic 280 and requirements to report segment information on an interim basis, among other clarifications and requirements. This guidance will be effective on a retrospective basis for annual periods beginning with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and interim periods beginning with the Company’s Quarterly Report Form 10-Q for the fiscal quarter ended March 31, 2025. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and notes.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires greater disaggregation of information and consistent categories in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective on a prospective basis, with an option to apply it retrospectively, for annual periods beginning with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and notes.
Note 3—Earnings Per Share
The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings 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.
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding adjusted for the potentially dilutive impact of stock options, restricted stock and the Employee Stock Purchase Plan (“ESPP”), using the two-class method required for participating securities. Restricted stock awards are considered to be participating securities due to their non-forfeitable dividend rights.
The computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 85,029 | $ | 32,939 | $ | 116,689 | $ | 42,265 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding—basic | 489,353 | 488,431 | 488,952 | 489,068 | |||||||||||||||||||
| Effect of dilutive securities | 10,687 | 10,918 | 10,165 | 10,502 | |||||||||||||||||||
| Weighted-average shares outstanding—diluted | 500,040 | 499,349 | 499,117 | 499,570 | |||||||||||||||||||
| Basic earnings per share | $ | 0.17 | $ | 0.07 | $ | 0.24 | $ | 0.09 | |||||||||||||||
| Diluted earnings per share | $ | 0.17 | $ | 0.07 | $ | 0.23 | $ | 0.08 | |||||||||||||||
| Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings per share | 2,480 | 7,578 | 2,480 | 7,578 |
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 June 30, 2024 | |||||||||||||||||
| Cash and Cash Equivalents | Short-Term Investments, Net | Total | |||||||||||||||
| Cash | $ | 205,707 | $ | — | $ | 205,707 | |||||||||||
| Level 1: | |||||||||||||||||
| Money market funds | 761,789 | — | 761,789 | ||||||||||||||
| Level 2: | |||||||||||||||||
| Commercial paper | 27,903 | 204,389 | 232,292 | ||||||||||||||
| Corporate debt securities | — | 192,131 | 192,131 | ||||||||||||||
| U.S. government and agency securities | 13,964 | 100,648 | 114,612 | ||||||||||||||
| Total | $ | 1,009,363 | $ | 497,168 | $ | 1,506,531 |
| As of December 31, 2023 | |||||||||||||||||
| Cash and Cash Equivalents | Short-Term Investments, Net | Total | |||||||||||||||
| Cash | $ | 289,512 | $ | — | $ | 289,512 | |||||||||||
| Level 1: | |||||||||||||||||
| Money market funds | 560,673 | — | 560,673 | ||||||||||||||
| Level 2: | |||||||||||||||||
| Commercial paper | 36,013 | 168,224 | 204,237 | ||||||||||||||
| Corporate debt securities | — | 185,465 | 185,465 | ||||||||||||||
| U.S. government and agency securities | 8,931 | 131,470 | 140,401 | ||||||||||||||
| Total | $ | 895,129 | $ | 485,159 | $ | 1,380,288 |
The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three and six months ended June 30, 2024 and 2023, were immaterial.
The contractual maturities of the Company’s short-term investments are as follows (in thousands):
| June 30, 2024 | |||||
| Due in one year | $ | 458,730 | |||
| Due in one to two years | 38,438 | ||||
| Total | $ | 497,168 |
Note 5—Leases
The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating lease cost | $ | 13,486 | $ | 12,209 | $ | 26,197 | $ | 24,056 | |||||||||||||||
| Short-term lease cost | 414 | 442 | 888 | 914 | |||||||||||||||||||
| Variable lease cost | 3,792 | 2,851 | 7,608 | 5,954 | |||||||||||||||||||
| Sublease income | — | (604) | (42) | (1,150) | |||||||||||||||||||
| Total lease cost | $ | 17,692 | $ | 14,898 | $ | 34,651 | $ | 29,774 |
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 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.
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. On February 9, 2023, the Company further amended its Credit Facility (as amended, the “Amended Credit Facility”) to transition from a variable interest rate based on the London Interbank Offered Rate to a variable interest rate based on the secured overnight financing rate (“SOFR”).
Loans under the Amended Credit Facility bear interest at a rate equal to, at the Company’s option, an annual rate of either a Base Rate or an adjusted term SOFR rate (defined as SOFR for a specified term plus a credit spread adjustment of 10 basis points, subject to a 0% floor), plus an applicable margin (“Base Rate Borrowings” and “Term SOFR 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 New York Federal Reserve Bank Rate in effect on such day plus half of 1%, and (3) the adjusted term SOFR 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 Term SOFR Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the Amended 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.
As of June 30, 2024, the Company did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $442 million as of June 30, 2024, which is net of outstanding letters of credit of $8 million. The Amended Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026.
The Amended 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 Amended 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 June 30, 2024, the Company was in compliance with all covenants.
Note 7—Capitalization
Share Repurchase Program
In February 2023, the Company’s board of directors approved a share repurchase program with authorization to purchase up to $700 million of its Class A common stock. As of December 31, 2023, $53 million remained available and authorized for repurchases. In February 2024, an additional $647 million was authorized under this program, bringing the total amount available for future repurchases back to $700 million. The share repurchase program, which has no expiration date, is designed to help offset the impact of future share dilution from employee stock issuances. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at the Company’s discretion, depending on market conditions and corporate needs. Open market repurchases are structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. This program does not obligate the Company to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time at the discretion of the Company’s board of directors.
During the three months ended June 30, 2024, the Company did not repurchase any shares of its Class A common stock. During the six months ended June 30, 2024, the Company repurchased and subsequently retired 1.5 million shares of its Class A common stock for an aggregate repurchase amount of $125 million. The repurchase amounts included in the condensed consolidated statements of stockholders’ equity included immaterial amounts related to the 1% excise tax on share repurchases, net of share issuances, as a result of the Inflation Reduction Act of 2022 (“IRA”). As of June 30, 2024, $575 million remained available and authorized for repurchases. Activity under the share repurchase program was recognized in the condensed consolidated financial statements on a trade-date basis.
Note 8—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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Platform operations | $ | 7,272 | $ | 4,967 | $ | 12,827 | $ | 8,913 | |||||||||||||||
| Sales and marketing | 25,068 | 18,800 | 45,360 | 32,923 | |||||||||||||||||||
| Technology and development | 32,509 | 26,689 | 60,483 | 47,556 | |||||||||||||||||||
| General and administrative | 61,491 | 66,627 | 118,290 | 141,161 | |||||||||||||||||||
| Total | $ | 126,340 | $ | 117,083 | $ | 236,960 | $ | 230,553 |
Stock Options
The following summarizes stock option activity:
| Shares Under Options (in thousands) | Weighted- Average Exercise Price | ||||||||||
| Outstanding as of December 31, 2023 | 12,258 | $ | 31.05 | ||||||||
| Granted | 2,353 | 81.50 | |||||||||
| Exercised | (1,886) | 20.45 | |||||||||
| Expired/Forfeited | (168) | 52.99 | |||||||||
| Outstanding as of June 30, 2024 | 12,557 | $ | 41.80 | ||||||||
| Exercisable as of June 30, 2024 | 7,911 | $ | 23.85 |
As of June 30, 2024, the Company had unrecognized stock-based compensation relating to stock options, excluding the CEO Performance Option (as defined below), of approximately $182 million, which is expected to be recognized over a weighted-average period of 3.1 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. As of December 31, 2023, the CEO Performance Option had 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three and six months ended June 30, 2024. As of June 30, 2024, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. Stock-based compensation of $36 million and $48 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation of $71 million and $108 million for the CEO Performance Option was recorded as a component of general and administrative expense during the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $129 million that is expected to be recognized over a weighted-average period of 1.3 years, assuming no acceleration of vesting.
Restricted Stock
The following summarizes restricted stock activity:
| Shares (in thousands) | Weighted- Average Grant Date Fair Value | ||||||||||
| Unvested as of December 31, 2023 | 10,546 | $ | 62.22 | ||||||||
| Granted | 3,979 | 81.84 | |||||||||
| Vested | (2,088) | 57.88 | |||||||||
| Forfeited | (426) | 63.21 | |||||||||
| Unvested as of June 30, 2024 | 12,011 | $ | 69.44 |
As of June 30, 2024, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $777 million, which is expected to be recognized over a weighted-average period of 2.9 years.
Employee Stock Purchase Plan (“ESPP”)
Stock-based compensation expense related to the ESPP totaled $7 million and $5 million for the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation expense related to the ESPP totaled $13 million and $8 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $11 million, which is expected to be recognized over a weighted-average period of 0.6 years.
On May 28, 2024, the Company’s stockholders approved the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), an amendment and restatement of the original 2016 Employee Stock Purchase Plan (the “2016 ESPP”). The changes from the 2016 ESPP to the 2024 ESPP include removing the ten-year plan expiration date, changing the offering period commencement dates on future offering periods from May 16th and November 16th to May 15th and November 15th, respectively, and providing other minor technical and administrative updates. Existing offering periods under the 2016 ESPP continue unchanged under the 2024 ESPP, and the “evergreen” provision for annual increases in issuable ESPP shares will still end on and include January 1, 2026. The Company does not currently expect the new or modified provisions of the 2024 ESPP to materially impact its financial statements.
Note 9—Income Taxes
In determining the interim provision for income taxes for each of the three and six months ended June 30, 2024 and 2023, the Company utilized the annual estimated effective tax rate applied to the actual year-to-date income and added the tax effects of any discrete items in the reporting period in which they occur.
For the three months ended June 30, 2024 and 2023, the provision for income taxes included benefits associated with stock-based awards of $18 million and $9 million, respectively. For the six months ended June 30, 2024 and 2023, the provision for income taxes included benefits associated with stock-based awards of $29 million and $36 million, respectively.
For the six months ended June 30, 2024 and 2023, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation and state and foreign taxes, partially offset by the impact of tax benefits associated with stock-based awards and research and development tax credits.
There were no material changes to the Company’s unrecognized tax benefits during the six months ended June 30, 2024, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.
Note 10—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 the gross amount of Supplier Features they purchase through its platform, and for platform fees, value-added services and platform features (“Gross Billings”), 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 address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| United States | 87 | % | 88 | % | 87 | % | 88 | % | |||||||||||||||
| International | 13 | % | 12 | % | 13 | % | 12 | % | |||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % |
Note 11— Commitments and Contingencies
Guarantees, Indemnification and Other
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 June 30, 2024 and 2023.
The Company is under audit by various domestic and foreign tax authorities. The Company believes that the amount of losses or any estimable range of possible losses with respect to these matters will not, either individually or in the aggregate, have a material adverse effect on its business and condensed consolidated financial statements. Due to the inherent complexity and uncertainty of these matters and judicial process in certain jurisdictions, the final outcome may be materially different from the Company’s expectations.
Litigation
From time to time, the Company is subject to various legal proceedings, litigation and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings, litigation 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. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
On May 27, 2022, a stockholder filed a derivative lawsuit captioned Huizenga v. Green, et al., No. 2022-0461, asserting claims on behalf of the Company against certain members of the Company’s board of directors in the Court of Chancery of the State of Delaware. On June 27, 2022, a second derivative lawsuit captioned Pfeiffer v. Green, et al., No. 2022-0560, was filed in the Court of Chancery of the State of Delaware alleging substantially similar claims. Those lawsuits were consolidated on August 18, 2022, and a lead plaintiff was appointed on October 7, 2022. The two complaints allege generally that the defendants breached their fiduciary duties to the Company and its stockholders in connection with the negotiation and approval of the CEO Performance Option. The plaintiffs seek a court order rescinding the CEO Performance Option and monetary damages. On November 10, 2022, the plaintiffs filed a consolidated complaint, and on January 12, 2023, the defendants moved to dismiss the consolidated complaint. On March 24, 2023, plaintiffs filed an opposition to defendants’ motions to dismiss. Defendants filed their replies in support of their motions to dismiss on May 19, 2023. The court heard oral argument on the motions on April 3, 2024.
Litigation is inherently uncertain and there can be no assurance regarding the likelihood that the motions to dismiss or defense of the various actions 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 and restricted stock in the event of changes in control, as defined, and involuntary terminations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of macroeconomic uncertainty on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, capital expenditures including share repurchases, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2023, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
We offer a self-service, cloud-based ad-buying platform that empowers our clients to plan, manage, optimize and measure more expressive data-driven digital advertising campaigns. Our platform allows clients to execute integrated campaigns across ad formats and channels, including video (which includes connected television (“CTV”)), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our platform’s integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces (“APIs”) enable our clients to customize and expand platform functionality.
Our clients are advertising agencies, advertisers and other service providers for agencies or advertisers, with whom we enter into ongoing master service agreements (“MSAs”). We generate revenue by charging our clients a platform fee based on a percentage of our clients’ total advertising spend on our platform and from providing data, other value-added services and platform features.
Executive Summary
Highlights
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | Change | Dollars | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 584,550 | $ | 464,254 | $ | 120,296 | 26 | % | $ | 1,075,803 | $ | 847,057 | $ | 228,746 | 27 | % | |||||||||||||||||||||||||||||||
| Net income | $ | 85,029 | $ | 32,939 | $ | 52,090 | 158 | % | $ | 116,689 | $ | 42,265 | $ | 74,424 | 176% |
Trends, Opportunities and Challenges
The growing digitization of media and fragmentation of audiences has increased the complexity of advertising and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and expand our advertising inventory and data offerings. We believe that key opportunities include our ongoing global expansion, continuing development of our omnichannel ad inventory (including in channels such as video, including CTV, mobile, audio and others), adoption and utilization of retail media and continuing development and adoption of the data usage, measurement and targeting capabilities provided by our platform.
We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to further expand our relationships with existing clients and gain a larger amount of their advertising spend. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.
Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory we present to our clients. For example, we have expanded our CTV, mobile, native and audio advertising offerings through our integrations with supply-side partners.
We invest for long-term growth. We anticipate that our operating expenses will continue to increase in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.
We believe the markets outside of the United States (“U.S.”), and in particular across Europe and Asia in markets such as the United Kingdom (“U.K.”), Germany, France, China, Japan, India and Australia, offer opportunities for growth. However, such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.
We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.
Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future long-term growth profitably.
Macroeconomic Uncertainty
Changes in interest and foreign currency exchange rates, inflation and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of macroeconomic uncertainty on our business.
Results of Operations for the Three and Six Months Ended June 30, 2024 Compared with the Three and Six Months Ended June 30, 2023
The following tables set forth our condensed consolidated results of operations for the periods presented.
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | (% of Revenue) | (in thousands) | (% of Revenue) | ||||||||||||||||||||
| Revenue | $ | 584,550 | 100 | % | $ | 464,254 | 100 | % | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Platform operations | 110,459 | 19 | % | 86,654 | 19 | % | |||||||||||||||||
| Sales and marketing | 133,867 | 23 | % | 111,489 | 24 | % | |||||||||||||||||
| Technology and development | 110,035 | 19 | % | 98,308 | 21 | % | |||||||||||||||||
| General and administrative | 135,469 | 23 | % | 126,130 | 27 | % | |||||||||||||||||
| Total operating expenses | 489,830 | 84 | % | 422,581 | 91 | % | |||||||||||||||||
| Income from operations | 94,720 | 16 | % | 41,673 | 9 | % | |||||||||||||||||
| Total other income, net | (17,772) | (3) | % | (18,254) | (4) | % | |||||||||||||||||
| Income before income taxes | 112,492 | 19 | % | 59,927 | 13 | % | |||||||||||||||||
| Provision for income taxes | 27,463 | 5 | % | 26,988 | 6 | % | |||||||||||||||||
| Net income | $ | 85,029 | 15 | % | $ | 32,939 | 7 | % |
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | (% of Revenue) | (in thousands) | (% of Revenue) | ||||||||||||||||||||
| Revenue | $ | 1,075,803 | 100 | % | $ | 847,057 | 100 | % | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Platform operations | 214,089 | 20 | % | 171,521 | 20 | % | |||||||||||||||||
| Sales and marketing | 255,592 | 24 | % | 208,711 | 25 | % | |||||||||||||||||
| Technology and development | 217,721 | 20 | % | 192,018 | 23 | % | |||||||||||||||||
| General and administrative | 265,024 | 25 | % | 256,442 | 30 | % | |||||||||||||||||
| Total operating expenses | 952,426 | 89 | % | 828,692 | 98 | % | |||||||||||||||||
| Income from operations | 123,377 | 11 | % | 18,365 | 2 | % | |||||||||||||||||
| Total other income, net | (35,148) | (3) | % | (31,954) | (4) | % | |||||||||||||||||
| Income before income taxes | 158,525 | 15 | % | 50,319 | 6 | % | |||||||||||||||||
| Provision for income taxes | 41,836 | 4 | % | 8,054 | 1 | % | |||||||||||||||||
| Net income | $ | 116,689 | 11 | % | $ | 42,265 | 5 | % |
Note: Percentages may not sum due to rounding.
Revenue
Revenue increased by $120 million, or 26%, and $229 million, or 27%, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, respectively. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by new clients and more campaigns executed by existing clients.
Platform Operations
Platform operations expense increased by $24 million, or 27%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to increases of $17 million in hosting costs and $6 million in personnel costs, which included a $2 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers, headcount growth and an increase in taxes on equity awards.
Platform operations expense increased by $43 million, or 25%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to increases of $31 million in hosting costs and $10 million in personnel costs, which included a $4 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers, headcount growth, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events.
We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our growth.
Sales and Marketing
Sales and marketing expense increased by $22 million, or 20%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to an increase of $18 million in personnel costs, which included a $6 million increase in stock-based compensation, a $2 million increase in marketing costs and a $2 million increase in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel costs. The increase in stock-based compensation was primarily due to new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.
Sales and marketing expense increased by $47 million, or 22%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to an increase of $39 million in personnel costs, which included a $12 million increase in stock-based compensation, a $4 million increase in marketing costs and a $4 million increase in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel and employee engagement costs, including in-person events. The increase in stock-based compensation was primarily due to new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.
We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.
Technology and Development
Technology and development expense increased by $12 million, or 12%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to an increase of $10 million in personnel costs, which included a $6 million increase in stock-based compensation, and a $1 million increase in allocated facilities costs. The increase in personnel costs was primarily attributable to the increase in stock-based compensation driven by new equity awards, headcount growth to maintain and support further development of our platform and an increase in taxes on equity awards. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.
Technology and development expense increased by $26 million, or 13%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to an increase of $23 million in personnel costs, which included a $13 million increase in stock-based compensation, and a $2 million increase in allocated facilities costs. The increase in personnel costs was primarily attributable to the increase in stock-based compensation driven by new equity awards, headcount growth to maintain and support further development of our platform, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.
We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising inventory and data suppliers and support the anticipated increase in volume of advertising spending by our clients on our platform. We also intend to invest in technology to further automate our business processes.
General and Administrative
General and administrative expense increased by $9 million, or 7%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to an increase of $8 million in personnel costs and an increase of $6 million in administrative costs, partially offset by a $5 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in taxes on equity awards and an increase in travel costs. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily driven by a $12 million decrease in expense related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $7 million increase in expense related to new equity awards.
General and administrative expense increased by $9 million, or 3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to increases of $17 million in personnel costs and $14 million in administrative costs, partially offset by a $23 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily driven by a $37 million decrease in expense related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $14 million increase in expense related to new equity awards.
Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth.
Total Other Income, Net
Total other income, net, decreased by $0.5 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease was primarily due to foreign currency transaction losses, driven by changes in foreign currency exchange rates against the U.S. Dollar, offset by higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates as well as gains on foreign currency forwards.
Total other income, net, increased by $3 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates as well as gains on foreign currency forwards, partially offset by foreign currency transaction losses, driven by changes in foreign currency exchange rates against the U.S. Dollar.
Provision for Income Taxes
The U.S. federal statutory tax rate was 21% for the three and six months ended June 30, 2024 and 2023, respectively.
The provision for income taxes increased by $0.5 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to higher pre-tax profitability, offset by a lower impact attributable to nondeductible stock-based compensation and higher tax benefits associated with employee stock-based awards.
The provision for income taxes increased by $34 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to higher pre-tax profitability coupled with a decrease in benefits associated with employee stock-based awards, partially offset by a lower impact attributable to nondeductible stock-based compensation.
Liquidity and Capital Resources
As of June 30, 2024, we had working capital of $2,004 million, which included $1,009 million in cash and cash equivalents, $64 million of which was held by our international subsidiaries, and $497 million in short-term investments in marketable securities. Additionally, we had $442 million available under our Amended Credit Facility (refer to the “Credit Facility” section below). For the six months ended June 30, 2024, we generated $267 million in cash flows from operating activities.
We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our Amended Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. We believe our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to fund our share repurchase program. Further, we have a shelf registration statement on Form S-3 on file with the SEC (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. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in *“*Item 1A. Risk Factors” within this Quarterly Report on Form 10-Q.
In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.
There can be no assurance that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.
Credit Facility
On June 15, 2021, we 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 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, we have the right to increase the Credit Facility by an amount not to exceed $300 million.
On December 17, 2021, we 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. On February 9, 2023, we further amended the Credit Facility (as amended, the “Amended Credit Facility”) to transition from a variable interest rate based on the London Interbank Offered Rate to a variable interest rate based on the secured overnight financing rate (“SOFR”).
As of June 30, 2024, we did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $442 million as of June 30, 2024, which is net of outstanding letters of credit of $8 million. The Amended Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of June 30, 2024, we were in compliance with all covenants.
For additional information regarding the Amended Credit Facility, refer to Note 6—Debt.
Share Repurchase Program
In February 2023, our board of directors approved a share repurchase program with authorization to purchase up to $700 million of our Class A common stock. As of December 31, 2023, $53 million remained available and authorized for repurchases. In February 2024, an additional $647 million was authorized under this program, bringing the total amount available for future repurchases back to $700 million. The share repurchase program, which has no expiration date, is designed to help offset the impact of future share dilution from employee stock issuances. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases determined at our discretion, depending on market conditions and corporate needs. Open market repurchases are structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time at the discretion of our board of directors.
During the three months ended June 30, 2024, we did not repurchase any shares of our Class A common stock. During the six months ended June 30, 2024, we repurchased and subsequently retired 1.5 million shares of our Class A common stock for an aggregate repurchase amount of $125 million. The repurchase amounts included in the condensed consolidated statements of stockholders’ equity included immaterial amounts related to the 1% excise tax on share repurchases, net of share issuances, as a result of the Inflation Reduction Act of 2022 (“IRA”). As of June 30, 2024, $575 million remained available and authorized for repurchases.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 266,731 | $ | 315,662 | |||||||
| Net cash used in investing activities | $ | (37,134) | $ | (61,877) | |||||||
| Net cash used in financing activities | $ | (115,363) | $ | (318,460) |
Operating Activities
Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.
For the six months ended June 30, 2024, cash provided by operating activities of $267 million resulted primarily from net income adjusted for noncash items of $419 million and a net decrease from our operating assets and liabilities of $152 million. The net decrease from our operating assets and liabilities was due to a $52 million increase in prepaid expenses and other assets, a $49 million increase in accounts receivable, a $27 million decrease in operating lease liabilities, a $13 million decrease in accounts payable and a $10 million decrease in accrued expenses and other liabilities. The increase in prepaid expenses and other assets was primarily due to cash paid for income taxes. The increase in accounts receivable was due to the timing and seasonality of cash receipts from clients and the growth of our business. The decrease in operating lease liabilities was due primarily to rent payments. The decrease in accounts payable was due to the
timing and seasonality of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in accrued expenses and other liabilities was primarily due to incentive compensation payments and a reduction of the liability related to the ESPP due to the purchase of shares in accordance with the plan.
For the six months ended June 30, 2023, cash provided by operating activities of $316 million resulted primarily from net income adjusted for noncash items of $328 million, and a net decrease from our operating assets and liabilities of $13 million. The net decrease from our operating assets and liabilities was primarily due to a $35 million increase in accounts receivable and a $25 million decrease in operating lease liabilities, partially offset by a $51 million increase in accounts payable. The increase in accounts receivable was due to seasonality and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to seasonality and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features.
Investing Activities
Our primary investing activities consist of investing in short-term marketable securities, purchases of property and equipment for the expansion of our new facilities in support of our expanding headcount as a result of our growth and capital expenditures to develop our software and hosting capabilities in support of enhancing our technology platform. As our business grows, we expect our capital expenditures to increase, and our other investment activity may increase.
For the six months ended June 30, 2024, we used $37 million of cash in investing activities, consisting of $29 million to purchase property and equipment, $4 million of investments in capitalized software and $3 million of net purchases of short-term investments.
For the six months ended June 30, 2023, we used $62 million of cash in investing activities, consisting of $42 million of net purchases of short-term investments, $17 million to purchase property and equipment and $3 million of investments in capitalized software.
Financing Activities
For the six months ended June 30, 2024, we used $115 million of cash in financing activities, consisting of $125 million of cash paid for repurchases of our Class A common stock and $58 million of taxes paid for restricted stock award settlements, partially offset by $38 million of proceeds from stock option exercises and $30 million of proceeds from our ESPP.
For the six months ended June 30, 2023, we used $318 million of cash in financing activities, consisting of $336 million of cash paid for repurchases of Class A common stock and $31 million of taxes paid for restricted stock award settlements, partially offset by $28 million of proceeds from stock option exercises and $21 million of proceeds from our ESPP.
Off-Balance Sheet Arrangements
We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements at June 30, 2024 other than the indemnification agreements described below.
Contractual Obligations
Our principal commitments consist of non-cancelable operating leases for our various office facilities and other contractual commitments consisting of obligations to our hosting services and hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.
The following table summarizes our non-cancelable contractual obligations as of June 30, 2024 (in thousands):
| Payments Due by Period | ||||||||||||||||||||
| Remainder of 2024 | 2025 and Thereafter | Total | ||||||||||||||||||
| Operating lease commitments | $ | 31,337 | $ | 630,279 | $ | 661,616 | ||||||||||||||
| Other contractual commitments | 64,175 | 267,035 | 331,210 | |||||||||||||||||
| Total | $ | 95,512 | $ | 897,314 | $ | 992,826 |
In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at June 30, 2024.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Refer to Note 8— Stock-Based Compensation for information regarding the amendment and restatement of our Employee Stock Purchase Plan (“ESPP”). We do not currently expect that the new or modified provisions under the amended and restated ESPP will have a material impact on our financial statements.
Recently Issued Accounting Pronouncements
Refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies of our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign currency exchange risks.
Interest Rate Risk
We are exposed to market risk from changes in interest rates under our Amended Credit Facility, which accrues interest at a variable rate. No amount was owed on our Amended Credit Facility as of June 30, 2024. We have not used any derivative financial instruments to manage our interest rate risk exposure. Based upon the short-term investments amount as of June 30, 2024, a hypothetical one percentage point increase or decrease in the interest rate would result in a corresponding increase or decrease in investment income of approximately $5 million annually.
Foreign Currency Exchange Risk
We have foreign currency exchange risk related to transactions denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound, Canadian Dollar, Australian Dollar, Japanese Yen, Indian Rupee, Indonesian Rupiah, Hong Kong Dollar and Singapore Dollar. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. As of June 30, 2024, an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts would result in a foreign currency loss of approximately $34 million. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may be more greatly affected by exchange rate fluctuations.
We enter into forward contracts or other derivative transactions in an attempt to hedge our foreign currency risk. There can be no assurance that such transactions will be effective in hedging some or all of our foreign currency exposures, and under some circumstances they could generate losses for us.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 Exchange Act as of June 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are subject to various legal proceedings, litigation and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings, litigation 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 our business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On May 27, 2022, a stockholder filed a derivative lawsuit captioned Huizenga v. Green, et al., No. 2022-0461, asserting claims on our behalf against certain members of our board of directors in the Court of Chancery of the State of Delaware. On June 27, 2022, a second derivative lawsuit captioned Pfeiffer v. Green, et al., No. 2022-0560, was filed in the Court of Chancery of the State of Delaware alleging substantially similar claims. Those lawsuits were consolidated on August 18, 2022, and a lead plaintiff was appointed on October 7, 2022. The two complaints allege generally that the defendants breached their fiduciary duties to us and our stockholders in connection with the negotiation and approval of the CEO Performance Option. The plaintiffs seek a court order rescinding the CEO Performance Option and monetary damages. On November 10, 2022, the plaintiffs filed a consolidated complaint, and on January 12, 2023, the defendants moved to dismiss the consolidated complaint. On March 24, 2023, plaintiffs filed an opposition to defendants’ motions to dismiss. Defendants filed their replies in support of their motions to dismiss on May 19, 2023. The court heard oral argument on the motions on April 3, 2024.
Litigation is inherently uncertain and there can be no assurance regarding the likelihood that the motions to dismiss or defense of the various actions will be successful.
Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our Class A common stock. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business and Industry
If we fail to maintain and grow our client base and spend through our platform, our revenue and business may be negatively impacted.
To sustain or increase our revenue, we must regularly add new clients and encourage existing clients to maintain or increase the amount of spending through our platform and adopt existing or new features and functionalities that we make available. If competitors introduce lower cost or differentiated offerings that compete with or are perceived to compete with our offerings, our ability to sell our services to new or existing clients could be impaired. We have spent significant effort in cultivating our relationships with advertising agencies, which has resulted in an increase in the budgets allocated to, and the amount of advertising purchased on, our platform. However, it is possible that we may reach a point of saturation at which we cannot continue to grow our revenue from such agencies because of internal limits that advertisers may place on the allocation of their advertising budgets to digital media to a particular provider or otherwise. While we generally have master services agreements (“MSAs”) in place with our clients, such agreements allow our clients to choose the amount they spend through our platform and terminate our services with limited notice. We at times supplement our MSAs with joint business plans and other incentive programs designed to increase spending from existing clients; however, such increased spending may not materialize in the amounts we expect or at all. We do not typically have exclusive relationships with our clients and there is limited cost and difficulty to moving their media spend to our competitors. As a result, we have limited visibility to our future advertising revenue streams. We cannot assure you that our clients will continue to use our platform or related offerings to the extent that we expect or at all, or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenue. If a major client representing a significant portion of our business decides to materially reduce its use of our platform or related offerings or
to cease their use altogether, it is possible that our revenue or revenue growth rate could be significantly reduced, and our business negatively impacted.
The loss of advertising agencies as clients could significantly harm our business, financial condition and results of operations.
Our client base consists primarily of advertising agencies. We do not have exclusive relationships with advertising agencies, and we depend on agencies to work with us to build and maintain advertiser relationships and execute advertising campaigns.
The loss of agencies as clients could significantly harm our business, financial condition and results of operations. If we fail to maintain satisfactory relationships with an advertising agency, we risk losing business from the current and future advertisers represented by that agency.
Advertisers may change advertising agencies. If an advertiser switches from an agency that utilizes our platform to one that does not, we will lose revenue from that advertiser. In addition, some advertising agencies have their own relationships with suppliers of advertising inventory and data and can directly connect advertisers with such suppliers. Our business may suffer to the extent that advertising agencies and such suppliers purchase and sell advertising inventory or data directly from one another or through intermediaries other than us.
We had over 1,100 clients, consisting primarily of advertising agencies, as of December 31, 2023. Many of these agencies are owned by holding companies, where decision making is decentralized such that purchasing decisions are made, and relationships with advertisers are located, at the agency, local branch or division level. If all of our individual client contractual relationships were aggregated at the holding company level, Publicis Groupe would have represented more than 10% of our gross billings for 2023.
In most cases, we enter into separate contracts and billing relationships with the individual agencies and account for them as separate clients. However, some holding companies for these agencies may choose to exert control over the individual agencies in the future. 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, financial condition and results of operations.
If we fail to innovate or make the right investment decisions in our offerings and platform, we may fail to attract and retain advertisers and advertising agencies and our revenue and results of operations may decline.
Our industry is subject to rapid and frequent changes in technology and laws governing our activities, evolving client needs and expectations and the frequent introduction by our competitors of new and enhanced offerings. If new or existing competitors have more attractive offerings, we may lose clients or clients may decrease their use of our platform. New client demands, superior competitive offerings or new industry standards could require us to make unanticipated and costly changes to our platform or business model. We must constantly make investment decisions regarding offerings and technology to meet client demand and evolving industry and legal standards. We may make bad decisions regarding these investments. Furthermore, even if we believe that our investments improve upon our platform and offerings, such as updates to our various platform features and user interface, they may nevertheless fail to meet new or existing client expectations or preferences, which could result in decreased client adoption or use of our platform.
In addition, as we develop and introduce new products and services, including those incorporating or utilizing artificial intelligence and machine learning and new processing of personal information, including identifiable information, they may raise new, or heighten existing, technological, security, legal and other risks and challenges, that may cause unintended consequences and may not function properly or may be misused by our clients. If we fail to adapt to our rapidly changing industry or to evolving client needs or expectations, or we provide new or updated products and services that exacerbate technological, security, legal or other challenges, the reputation of and demand for our platform or related offerings could decrease and our business, financial condition and operations may be adversely affected.
The market for programmatic buying for advertising campaigns is relatively new and evolving. If this market develops slower or differently than we expect, our business, growth prospects and financial condition could be adversely affected.
The substantial majority of our revenue has been derived from clients that programmatically purchase advertising through our platform. We expect that spending on programmatic ad buying will continue to be our primary source of
revenue for the f
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Item 5. Other Information
Rule 10b5-1 Trading Plans
Our Section 16 officers and directors (as defined in Rule 16a-1 under the Securities Exchange Act of 1934, or the “Exchange Act”) may from time to time enter into plans for the purchase or sale of Company stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1(c)”).
During the quarter ended June 30, 2024, none of our Section 16 officers or directors adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K).
Item 6. Exhibits
| Exhibit Number | Exhibit Description | Incorporated by Reference | Filed Herewith | |||||||||||||||||||||||||||||
| Form | Filing Date | Number | ||||||||||||||||||||||||||||||
| 3.1 | Amended and Restated Certificate of Incorporation. | 10-K | 2/19/2021 | 3.1 | ||||||||||||||||||||||||||||
| 3.2 | Amended and Restated Bylaws. | 8-K | 10/31/2023 | 3.1 | ||||||||||||||||||||||||||||
| 4.1 | Reference is made to Exhibits 3.1 and 3.2. | |||||||||||||||||||||||||||||||
| 4.2 | Form of Class A Common Stock Certificate. | S-1/A | 9/6/2016 | 4.2 | ||||||||||||||||||||||||||||
| 4.3 | Form of Class B Common Stock Certificate. | S-8 | 9/22/2016 | 4.4 | ||||||||||||||||||||||||||||
| 10.1+ | The Trade Desk, Inc. 2024 Employee Stock Purchase Plan. | 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 2002. | 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 2002. | 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 2002. | X | ||||||||||||||||||||||||||||||
| 101.ins | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||
| 101.sch | Inline XBRL Taxonomy Schema Document. | X | ||||||||||||||||||||||||||||||
| 101.cal | Inline XBRL Taxonomy Calculation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.def | Inline XBRL Taxonomy Definition Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.lab | Inline XBRL Taxonomy Label Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.pre | Inline XBRL Taxonomy Presentation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | X |
| + | Indicates a management contract or compensatory plan or arrangement. |
(1)The information in this exhibit is furnished and deemed not filed with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is not to be incorporated by reference into any filing of The Trade Desk, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE TRADE DESK, INC. (Registrant) | |||||
| Dated: August 8, 2024 | /s/ Laura Schenkein | ||||
| Laura Schenkein | |||||
| Chief Financial Officer (Principal Financial and Accounting Officer) |