ttd-20230331

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 March 31, 2023


☐			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

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 April 30, 2023, the registrant had 444,813,611 shares of Class A common stock and 44,035,900 shares of Class B common stock outstanding.

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THE TRADE DESK, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX


		Page
Part I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 3 1 , 202 3 and December 31, 20 2 2	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 3 1 , 202 3 and 20 2 2	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 3 1 , 202 3 and 20 2 2	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1 , 202 3 and 20 2 2	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II.	OTHER INFORMATION	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	50
Signatures		51

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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 March 31, 2023		As of December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	892,702	$	1,030,506
Short-term investments, net	437,730		416,080
Accounts receivable, net of allowance for credit losses of $10,792 and $10,477 as of March 31, 2023 and December 31, 2022, respectively	2,086,332		2,347,195
Prepaid expenses and other current assets	59,101		51,836
TOTAL CURRENT ASSETS	3,475,865		3,845,617
Property and equipment, net	170,454		173,759
Operating lease assets	212,042		220,396
Deferred income taxes	94,028		94,028
Other assets, non-current	47,249		46,879
TOTAL ASSETS	$	3,999,638	$	4,380,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	1,677,154	$	1,871,419
Accrued expenses and other current liabilities	100,146		105,474
Operating lease liabilities	53,054		52,430
TOTAL CURRENT LIABILITIES	1,830,354		2,029,323
Operating lease liabilities, non-current	200,728		208,527
Other liabilities, non-current	27,749		27,490
TOTAL LIABILITIES	2,058,831		2,265,340
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Common stock, par value $0.000001 Class A, 1,000,000 shares authorized; 444,158 and 446,456 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively Class B, 95,000 shares authorized; 44,036 and 44,012 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	1,558,830		1,449,825
Retained earnings	381,977		665,514
TOTAL STOCKHOLDERS’ EQUITY	1,940,807		2,115,339
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,999,638	$	4,380,679

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

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THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Revenue	$	382,803	$	315,323
Operating expenses:
Platform operations	84,867		63,890
Sales and marketing	97,222		70,688
Technology and development	93,710		71,999
General and administrative	130,312		125,799
Total operating expenses	406,111		332,376
Loss from operations	(23,308)		(17,053)
Other expense (income):
Interest expense (income), net	(14,423)		1,076
Foreign currency exchange loss (gain), net	723		(795)
Total other expense (income), net	(13,700)		281
Loss before income taxes	(9,608)		(17,334)
Benefit from income taxes	(18,934)		(2,736)
Net income (loss)	$	9,326	$	(14,598)
Earnings (loss) per share:
Basic	$	0.02	$	(0.03)
Diluted	$	0.02	$	(0.03)
Weighted-average shares outstanding:
Basic	489,712		484,190
Diluted	499,795		484,190

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

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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, 2021	483,441	$	—	$	915,177	$	612,129	$	1,527,306
Exercise of common stock options	2,395	—		24,408		—		24,408
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	190	—		(13,428)		—		(13,428)
Stock-based compensation	—	—		125,415		—		125,415
Net loss	—	—		—		(14,598)		(14,598)
Balance as of March 31, 2022	486,026	$	—	$	1,051,572	$	597,531	$	1,649,103













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

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

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THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income (loss)	$	9,326	$	(14,598)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	19,293		12,350
Stock-based compensation	113,470		124,895
Noncash lease expense	11,917		10,515
Allowance for credit losses on accounts receivable	316		725
Deferred income taxes	—		(5,304)
Other	(1,310)		998
Changes in operating assets and liabilities:
Accounts receivable	258,165		259,483
Prepaid expenses and other current and non-current assets	(5,481)		23,743
Accounts payable	(200,701)		(245,937)
Accrued expenses and other current and non-current liabilities	(4,309)		(8,688)
Operating lease liabilities	(13,113)		(11,990)
Net cash provided by operating activities	187,573		146,192
INVESTING ACTIVITIES:
Purchases of investments	(144,721)		(121,221)

Maturities of investments	126,731		64,133
Purchases of property and equipment	(9,156)		(8,401)
Capitalized software development costs	(1,467)		(1,614)

Net cash used in investing activities	(28,613)		(67,103)
FINANCING ACTIVITIES:

Repurchases of Class A common stock	(291,534)		—
Proceeds from exercise of stock options	10,365		24,408

Taxes paid related to net settlement of restricted stock awards	(15,595)		(13,428)
Net cash provided by (used in) financing activities	(296,764)		10,980
Increase (decrease) in cash and cash equivalents	(137,804)		90,069
Cash and cash equivalents—Beginning of period	1,030,506		754,154
Cash and cash equivalents—End of period	$	892,702	$	844,223
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for operating lease liabilities	$	15,342	$	14,030
Operating lease assets obtained in exchange for operating lease liabilities	$	3,999	$	4,732
Capitalized assets financed by accounts payable	$	5,214	$	1,837
Tenant improvements paid by lessor	$	1,552	$	—

Stock-based compensation included in capitalized software development costs	$	765	$	520

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

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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 TV (“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 develop on top of the platform.

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

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

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2022 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, 2022.

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, 2022, 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, 2022, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.

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 March 31, 2023, the impacts to the Company’s business due to geopolitical developments and macroeconomic factors, such as rising interest rates, inflation, changes in foreign currency exchange rates 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.

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Note 3—Earnings Per Share

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

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


	Three Months Ended March 31,
	2023		2022*
Numerator:
Net income (loss)	$	9,326	$	(14,598)
Denominator:
Weighted-average shares outstanding—basic	489,712		484,190
Effect of dilutive securities	10,083		—
Weighted-average shares outstanding—diluted	499,795		484,190
Basic earnings (loss) per share	$	0.02	$	(0.03)
Diluted earnings (loss) per share	$	0.02	$	(0.03)
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings (loss) per share	9,832		—

_______________

* Diluted loss per share attributable to the Company for the three months ended March 31, 2022 excluded all potentially dilutive securities because there was a net loss for the period and the inclusion of these securities would have been anti-dilutive. Potentially dilutive securities excluded from the calculation of diluted loss per share were 25,609 thousand shares under stock-based award plans for the three months ended March 31, 2022.

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

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


	As of March 31, 2023
	Cash and Cash Equivalents		Short-Term Investments, Net		Total
Cash	$	259,646	$	—	$	259,646
Level 1:
Money market funds	598,788		—		598,788
Level 2:
Commercial paper	33,268		143,428		176,696
Corporate debt securities	—		155,317		155,317
U.S. government and agency securities	1,000		138,985		139,985
Total	$	892,702	$	437,730	$	1,330,432

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	As of December 31, 2022
	Cash and Cash Equivalents		Short-Term Investments, Net		Total
Cash	$	339,717	$	—	$	339,717
Level 1:
Money market funds	640,233		—		640,233
Level 2:
Commercial paper	50,556		126,507		177,063
Corporate debt securities	—		180,502		180,502
U.S. government and agency securities	—		109,071		109,071
Total	$	1,030,506	$	416,080	$	1,446,586

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three months ended March 31, 2023 and 2022, were immaterial.

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


	March 31, 2023
Due in one year	$	399,685
Due in one to two years	38,045
Total	$	437,730

Note 5—Leases

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


	Three Months Ended March 31,
	2023		2022
Operating lease cost	$	11,847	$	12,484
Short-term lease cost	472		472
Variable lease cost	3,103		1,943
Sublease income	(546)		(626)
Total lease cost	$	14,876	$	14,273

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 (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”).

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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 Rate 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 March 31, 2023, the Company did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $445 million as of March 31, 2023, which is net of outstanding letters of credit of $5 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 March 31, 2023, 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, which has no expiration date. The share repurchase program 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 March 31, 2023, the Company repurchased and subsequently retired five million shares of our Class A common stock for an aggregate repurchase amount of $293 million. As of March 31, 2023, $407 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.

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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 March 31,
	2023		2022
Platform operations	$	3,946	$	5,950
Sales and marketing	14,123		16,525
Technology and development	20,867		22,393
General and administrative	74,534		80,027
Total	$	113,470	$	124,895

Stock Options

The following summarizes stock option activity:


	Shares Under Option (in thousands)	Weighted- Average Exercise Price
Outstanding as of December 31, 2022	15,418	$	19.82
Granted	65	53.95
Exercised	(2,451)	4.21
Expired/Forfeited	(55)	45.47
Outstanding as of March 31, 2023	12,977	$	22.84
Exercisable as of March 31, 2023	10,422	$	15.54

At March 31, 2023, the Company had unrecognized stock-based compensation relating to stock options, excluding the CEO Performance Option (as defined below), of approximately $78 million, which is expected to be recognized over a weighted-average period of 2.2 years.

CEO Performance Option

In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $68.29 per share. At December 31, 2022, the CEO Performance Option had 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three months ended March 31, 2023. At March 31, 2023, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. Stock-based compensation of $60 million and $66 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $339 million that is expected to be recognized over a weighted-average period of 2.2 years, assuming no acceleration of vesting.

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Restricted Stock

The following summarizes restricted stock activity:


	Shares (in thousands)	Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2022	8,747	$	57.41
Granted	837	51.94
Vested	(702)	50.05
Forfeited	(196)	58.33
Unvested as of March 31, 2023	8,686	$	57.46

At March 31, 2023, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $455 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 $3 million and $26 million for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $5 million, which is expected to be recognized over a weighted-average period of 0.8 years.

Note 9—Income Taxes

In determining the interim benefit from income taxes for the three months ended March 31, 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. In determining the interim benefit from income taxes for the three months ended March 31, 2022, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis.

For the three months ended March 31, 2023 and 2022, the benefit from income taxes included benefits associated with stock-based awards of $27 million and $26 million, respectively.

For the three months ended March 31, 2023 and 2022, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation, state and foreign taxes, 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 three months ended March 31, 2023, 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 the platform fees (“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.

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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 March 31,
	2023		2022
United States	88	%	88	%
International	12	%	12	%
Total	100	%	100	%

Note 11— Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at March 31, 2023 and 2022.

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 of the Company 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. The Company expects these lawsuits eventually will be consolidated. 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’ replies in support of their motions to dismiss are due on May 19, 2023, and oral argument is scheduled for October 9, 2023.

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 in the event of changes in control, as defined, and involuntary terminations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of the COVID-19 pandemic and other macroeconomic factors on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, share repurchases and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.

Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022, 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 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 enable our clients to customize and expand platform functionality.

Our clients are advertising agencies, brands and other service providers for 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 a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

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Executive Summary

Highlights


	Three Months Ended March 31,
	Dollars				Change
	2023		2022		$		%
	(in thousands)
Revenue	$	382,803	$	315,323	$	67,480	21	%
Net income (loss)	$

SEC Form 10-Q filed by The Trade Desk Inc.