TTD - NASDAQ

Greetings. Welcome to The Trade Desk Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk Second Quarter 2025 Earnings Conference Call. On the call today are CEO and Co-founder, Jeff Green; and Chief Financial Officer, Laura Schenkein. A copy of our earnings press release is available on our website in the Investor Relations section at thetradedesk.com. Please note that aside from historical information, today's discussion and our responses during the Q&A may include forward-looking statements. These statements are subject to risks and uncertainties and reflect our views and assumptions as of the date such statements are made. Actual results may vary significantly, and we expressly disclaim any obligations to update the forward-looking statements made today. If any of our beliefs or assumptions prove incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. For a detailed discussion of risks, including the most recent economic volatility caused by tariffs, please refer to the risk factors mentioned in our press release and our most recent SEC filings. In addition to our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non- GAAP measures is available in our earnings press release. We believe that presenting these non-GAAP measures alongside our GAAP results offers a more comprehensive view of the company's operational performance. With that, I will now turn the call over to CEO and Co-founder, Jeff Green. Jeff?

Thanks, Chris, and good afternoon, everyone. Thank you for joining us today. As you've seen from our press release, we again posted strong growth in the second quarter. Our revenue grew about 19% compared with Q2 last year, and we continue to outpace the digital advertising market, driven by the innovation and value we deliver to our clients every day. CTV continues to be our fastest-growing channel with no signs of slowing down. Partners like Disney, NBCU, Walmart, Roku, LG, Netflix and many others are deepening their relationships with us around the growing decision programmatic opportunity in CTV, which delivers the most effective and highest return on ad spend compared to insertion order or programmatic guaranteed buying. I could not be more excited about our position in CTV and the size of the growth opportunity for us in the years ahead. With our leadership in CTV as well as other areas such as retail media, digital audio, identity, measurement and data, we are winning more business with both new and existing customers. We are signing more multiyear JBPs, or joint business plans, than ever before with leading agencies and brands. In fact, the number of live JBPs is at an all-time high, and we continue to see spend under JBPs significantly outpace the rest of our business. What's even more encouraging is the strength of our JBP pipeline with nearly 100 JBPs in progress, many of them in the late stages of development. And while many of our JBPs are signed directly with brands, we are working hand in hand with their agencies almost in every case to bring these partnerships to life. It is not an either/or. I want to start by giving you an update on our business, but I also want to take the time to describe our vision and where we're heading. We see clearly what is on the horizon for our space, and we're convinced we're the best-positioned company in adtech to accelerate our growth in 2026. But it is important we share the opportunity we see because we think aligning our vision and efforts with our team, our clients, our partners and our investors will maximize our ability to capture the unprecedented and unique opportunity in front of us. So first, an update on the business. There are several key areas of progress to highlight here. First, we are delivering on Kokai, our most significant platform upgrade to date and one that represents a new frontier in digital advertising trading. Kokai gives advertisers unprecedented power to drive precision and relevance in everything they do, all powered by the industry's most advanced AI technology, Koa. We have injected AI into so many parts of the system that clients that have adopted Kokai have seen tremendous performance improvements. Samsung was able to drive a 43% improvement in reaching its target audience for an omnichannel campaign in Europe. Cashrewards saw a 73% improvement in cost per acquisition for campaigns in Asia using Kokai. In the aggregate, we are seeing more than a 20-point improvement across key KPIs for campaigns running in Kokai. What's even more encouraging is the clients who have transitioned the majority of their spend on Kokai are increasing their overall spend on The Trade Desk by more than 20% faster than those who have not. This is precisely what we believed was possible when we launched Kokai. Advertisers are getting meaningfully better returns on their ad dollars, and they are doubling down on the open Internet and on us as a result. Around 3/4 of all client spend is now running through Kokai, and we expect all of our clients to be using Kokai by the end of this year. Second, we are trying to create the most efficient supply chain possible for digital advertising, and we are seeing great progress with OpenPath. OpenPath allows publishers to directly integrate with The Trade Desk if they choose to, and it enables publishers to see more clearly how much our clients are willing to pay for their ad impressions. And it gives our clients a direct line of sight into what they are buying. And today, a material amount of spend on our platform is now flowing through OpenPath, and it is doing exactly what we expected. OpenPath is both a canary in [ the ] coal mine and a stalking horse. We don't expect 100% of spend to flow through OpenPath, but we do expect it to, one way or another, make the supply chain better and more efficient. And the benefits have been exceptional, not just for our clients, but for the publishers, too. By providing our clients with clearer signal, they have more confidence in what they're buying and they're typically willing to buy more. We have a long-standing partnership with News Corp, for example, and The New York Post has been one of the pioneers of OpenPath, and they've seen a 97% boost in their programmatic display revenue as a result. Also in the journalism field, Hearst Newspapers have adopted OpenPath and has seen a 4x improvement in their fill-rate since deploying it. As Amanda Gomez, SVP of Revenue Operations and Ad Technology at The New York Post said, and I quote, "The New York Post is always driving for ways to simplify our connection to advertisers to help fill our ad spots more efficiently and transparently. We partnered with The Trade Desk to test OpenPath to help achieve this goal with great success over the past year, ultimately helping to fuel programmatic revenue growth." OpenPath is not an attempt by The Trade Desk to get into the supply side of digital advertising. We're not getting into the yield management business. Our clients are exclusively the buyers. OpenPath is simply an effort to improve the quality of the supply chain for everyone in the ecosystem. Key to our supply chain work is our Sincera acquisition earlier this year. We have already made a tremendous amount of supply chain data available to the ecosystem for free via OpenSincera. There, anyone can log in and see the quality of advertising on thousands of publisher sites. Since launching OpenSincera just a few weeks ago, we've already had many publishers contact us to say they didn't realize some of the quality dynamics of the ad experience on their own destinations, and they are improving those ad experiences as a result. But as important as OpenSincera is, I'm even more excited to embed the full scope of Sincera data across our platform as one of the most important metadata sources and signals for the way that we value individual impressions and work on behalf of the buyers. For instance, we might see the same ad impression from hundreds of supply paths. We don't want to burden our clients with figuring out which one is best, and it is not efficient to manage that challenge by defaulting to deals. Instead, Kokai does that work for our clients, leveraging AI and data from sources like Sincera, so advertisers can obsess about buying the right impression rather than the delivery mechanism. But I do want to talk about deals for a second. One additional innovation that will help accelerate our supply chain work is Deal Desk. It is one of the major final pieces of Kokai, and it is in beta now. Deal Desk leverages AI, especially AI forecasting, to reshape how we think about deals between advertisers and publishers and intermediaries such as SSPs. It helps advertisers and publishers understand how deals are performing, how they are pacing, whether the right impressions are being delivered and so on. But perhaps just as important, when deals are underperforming, Deal Desk will help those deals get back on track, and it will showcase open market and premium Internet alternatives. We are seeing very strong appetite for Deal Desk across both advertisers and publishers. Everyone recognize the limitation of deals and wants innovation that can help improve them. Disney is one of the first publishers to lean into Deal Desk. Jamie Power at The Walt Disney Company has said several times over the past couple of years that they intend to shift 75% of their ad revenue to biddable programmatic by 2027. I'm thrilled that our innovation will help them achieve this goal. And she said when talking about Deal Desk, and I quote, "As more buyers shift toward biddable activation, we're focused on ensuring they have the tools, access and flexibility they need to drive results. Our relationship with The Trade Desk reflects our commitment to meeting advertisers where they are and evolving how we transact to deliver greater efficiency and performance." The third area I'd like to focus on is work we've been doing to advance objectivity in everything we do and across the adtech ecosystem. If the Google antitrust trial taught us one thing, it's that big tech walled garden advertising platforms have a vested interest in guiding spend to their owned and operated media. So with Google, it's YouTube; with Amazon, its Prime Video. And of course, they can make it seem really cheap from a platform perspective because they make up that cost and much more on the other side of the transaction because they own the media. But if you want to reach your audience with objectivity and with no thumb on the scale across the best of the Internet, you are more likely to come to The Trade Desk. We are seeing more and more clients understand the importance of objectivity and the power of the premium open Internet to reach their target audience as precisely and cost efficiently as possible. Live sports is a great case study. It's where advertisers get to act with precision and objectivity in reaching their audience where they are most engaged. A few years ago, just after the pandemic, I was on an industry panel in New York City, where many of my peers on stage made the argument that live sports would be the linchpin that keeps viewers on linear TV for years to come. I think many of you may have even been at that event. If you fast-forward through the impact of a global pandemic, now all live sports are available via streaming TV and represent one of the most valuable pillars of the open Internet. And we continue to innovate with our partners to bring the full value of live sports to our clients. One of the promises of live sports in a biddable CTV environment is that advertisers can target key moments like overtime in an NBA game or the PKs at the end of a soccer game when the audience has most leaned in. Well, now we will be offering this capability with new tooling in Kokai and partnerships with companies such as Disney, Sky TV and Omnicom, which we announced at Cannes a few weeks ago. Another major pillar of objectivity on the open Internet is the ability to measure business outcomes of marketing campaigns with precision. Kokai already has the industry's most advanced retail media marketplace. But we've recently launched expanded partnerships with leaders such as Instacart and Ocado to provide even more granular data on actual consumer purchases, so advertisers can measure with even greater precision. Again, objectivity is a major factor here. Unlike others in the market, our goal is to drive the use of retail data across as many advertiser campaigns as possible. We do not compete with retailers and only an independent objective partner like us can truly help advertisers unlock this opportunity. In Q2, a record amount of spend was influenced by retail data both on our platform and on the Walmart DSP as more shopper marketing budgets flow into programmatic. And fourth, I'd just like to reiterate that underpinning all of our success this year is a strong focus on operational rigor. This includes strengthening our leadership team. As you know, Vivek Kundra joined us as our COO in March. I'm also pleased to announce here that Alex Kayyal will be joining as our new CFO. You may know Alex as he's on our Board, but his relationship with this company spans over a decade, initially as an early investor in 2014. He's also been a leader in the digital space for more than 2 decades. I'm thrilled that he's agreed to join our leadership team as I believe there are a few in our industry who have Alex's experience and strategic mindset in finance in a way that incents and drives growth for the organization. This shift has been made possible by Laura working with Alex to facilitate this transition. She will remain in the seat until August 21 and then stay on the team through the end of the year. I have worked with Laura for more than a decade, and I have nothing but tremendous respect and admiration for her work and her expertise. We wouldn't be here without her contribution to this point. Laura's contribution and passion will live in The Trade Desk for the entire future of its existence. I love that we joined the S&P 500 during her last full quarter. What a milestone and what a note to end on. We are also enhancing the Board of Directors, and I couldn't be more excited to announce that Omar Tawakol will also be joining the Board. Over the years, Omar has been one of the real innovators in adtech, whether it was founding BlueKai in 2007 or more recently founding Rembrand, one of the leaders in creative AI in advertising. I look forward to his innovator's vision as a part of our Board work. In addition to strengthening our leadership team, we have improved the structure and clarity of our go-to-market organization, particularly in how our media traders, account management and business development teams work together. This ensures that our clients experience the full power of our platform with clear roles and responsibilities across our teams. Lastly, I think this is a unique and important moment to remind our investors, our clients, our partners and the rest of our industry about our mission, our vision and our collective opportunity. Global advertising is a trillion-dollar industry today, and that TAM is all up for grabs. Additionally, AI is changing everything and creating new opportunities. Quality AI requires quality data, and to trust AI- driven buying long term requires objectivity. A black box that just sells owned and operated media will struggle far beyond what ad networks have struggled with for decades. Our vision is to define clearly the category of a DSP. Access is not at the core of our value proposition, simply getting access to inventory. Database decisioning and measurement is at the core of our offering. Some have mistakenly thought our ambitions are about display. Some have mistakenly thought our ambitions were only about CTV or branding budgets. Our goal is to buy the entire open Internet objectively for buyers, big and small. We've started with the biggest, and we serve them well. We think we've done the best job in the history of adtech of aligning our interest with buyers. This enables them to trust us with their data. On that topic, one of the biggest flaws with walled gardens is that they measure their own performance. We believe it is in the best interest of every retailer, including Amazon, to have the measurement of the open Internet based on something more auditable, more independent and more transparent than what happens today. We partnered already with hundreds of retailers around the world to measure in this more objective way. Our retail partnerships play a very significant role in making it so that the premium open Internet gets the first dollar of budget and not the last dollar. There are a tremendous number of inefficiencies in the open Internet supply chains for both media and data, and we have big plans to change those. AI is currently changing the world. It is also changing the world of advertising and media buying. There are so many specific tasks where AI can massively level up the status quo. What is an impression worth to a specific brand? What is the price that this auction is likely to clear at? What is the best supply chain to maximize transparency and minimize unnecessary costs? These applications of AI are already in our product. Koa is what powers Kokai's forecasting, which is predicting the reach and performance of a campaign before a single dollar is spent. Distributed AI is foundational in Kokai, and this is only the beginning. There are many tasks where agents can improve performance in part because they're always on. As you consider the power of AI in these specific applications, you can see how winning the trust of buyers is so critical. It is a buyer's market. And as a result, premium inventory matters more than ever. Again, our value-add isn't that we merely have access to the best of the Internet, which is what we refer to as the big 5. These big 5 are the best of TV, the best of movies, the best of music, the best of journalism and the best of sports. Currently, consumers spend most of their time on these big 5, but most of the money goes to search and social. It is our aim to make the open Internet the lion's share of spend and the highest efficacy ad spend in digital. As I've said for over a decade, the lines between brand and performance are artificial and will go away over time. Everything is performance, but some performance is optimized for awareness and top of the funnel outcomes and others are pointed at the bottom of the funnel outcomes. Nevertheless, everything that can be quantified will be, and most spend will be pointed at outcomes. Before I wrap up, I want to take a moment to speak to the proposed extension of our dual-class share structure, which was included in our most recent proxy filing. There will be plenty of opportunities to engage in more detail in the weeks ahead. But I think it's important to provide some perspective now on why the Board is making this recommendation. From the day that Trade Desk was founded, we believe that long-term thinking is our greatest advantage. The vision that we described is a long-term North Star that we think about in nearly every major decision we make. Dual class helps maintain that long-term North Star orientation. When we went public in 2016, we chose a dual-class structure because we knew building something transformative, something that could truly redefine the open Internet would require conviction, patience and freedom from the short-term pressures that weigh on public companies or are the one-size-fits-all approach often promoted by some governance analysts and major proxy advisory firms. Our belief has proven correct. Since then, we've grown from below a $1 billion market cap to about $40 billion today and included in the S&P 500. We've helped shape the future of identity with UID2, built leadership in CTV and retail media, expanded globally and invested in innovations like Kokai, Sincera and our TV operating system, all of which require decisions that didn't pay off in a quarter or even a year, but instead positioned us to lead for years to come. We're now at another inflection point. The digital advertising landscape is evolving rapidly with ongoing regulatory scrutiny of walled gardens, the rise of AI and growing demand for transparency and independence. We believe the next decade will be pivotal in determining the winners and losers in our space and that staying true to our long-term vision is more important now than ever. This proposed extension isn't about entrenchment. It's about ensuring that the founder-led strategy that got us here can continue to guide us forward. We deeply value the trust our shareholders have placed in us, and we remain committed to earning it every day and for the long term. Let me wrap up by bringing some of these points together. We continue to earn a growing share of the total advertising pie. That momentum is a direct result of the innovation and execution we're delivering week in and week out and the value our clients consistently realize by working with us. About 3/4 of our spend is using the Kokai platform. It is the best platform we have ever shipped, and we are confident it will buy better than every other platform pointed at the open Internet. We have always prioritized helping brands find their target audience with precision and relevance across the breadth of the open Internet. The Trade Desk empowers brands with the tools to control and own their own future. We do that by prioritizing objectivity in everything we do and with a relentless focus on driving a clean, transparent and competitive marketplace. I believe it's these principles and the performance they ultimately drive that attract major brands to our platform. And it's our dedication to those principles that's keeping them here. All of this positions The Trade Desk to lead through what we believe will be another defining period of growth. We are building right now for this next chapter, not just for this year but for the long-term future of the open Internet. AI is yet another force separating the great platforms from the weak ones. We've proven time and again that our alignment with advertisers, our focus on innovation and our commitment to transparency and objectivity sets us apart. And with the upgrades we've made across our company, our platform and our partnership, I'm more confident than ever that The Trade Desk will continue to capture more than our fair share of this growing market. With that, I'll hand it over to Laura to walk through the financials.

Thank you, Jeff, for the kind words, and good afternoon, everyone. I've been at The Trade Desk since 2014, and I'm proud of what we've accomplished together from our early days as a start-up to going public to joining the S&P 500. It's been an honor to work alongside and as part of the leadership team. There were and are so many talented people across this company. I've also truly valued the relationships and conversations I've had with many of you in the investment community over the years. As I transition to a new challenge, I leave knowing the company is in a strong position for the future. Our finance and accounting teams are as capable and energized as ever, and I'm committed to supporting a smooth transition for Alex as he steps into the CFO role. I met Alex in 2014 when Hermes was one of the company's earliest investors. He is respected and I have confidence in him as he takes on this new role. With that, let's move on to our results. We delivered a strong second quarter with revenue of $694 million, representing 19% year- over-year growth. Excluding political spend related to the U.S. elections last year, revenue increased around 20% year-over-year. During the quarter, we continued to build momentum across our key growth areas as advertisers increasingly value the efficiency and measurable results of their media investments. Growth was particularly strong within CTV and retail media fueled by the continued shift into decision channels for buying TV and the rapid adoption of retail media across verticals and regions. With over 70% of spend now on Kokai, we continue to see strong results from the new platform. We look forward to completing the Kokai transition and continuing to innovate on behalf of the industry and our clients. With the strong top line performance in Q2, we generated approximately $271 million in adjusted EBITDA or about 39% of revenue. From a scale channel perspective, CTV led our growth again during the quarter. In Q2, video, which includes CTV, represented a high 40s percentage share of our business and continues to grow as a percentage of our mix. Mobile represented a mid-30s percentage share of spend during the quarter, while display represented a low double-digit share and audio represented around 5%. Geographically, North America represented about 86% of spend, and international represented about 14% of spend for the quarter. We're pleased that international growth once again outpaced North America as we continue to execute our growth playbook globally, led by CTV. We remain optimistic that our business outside North America will continue to be a strong contributor to our overall growth throughout the remainder of this year and in the years to come. In terms of verticals that represent at least 1% of our spend, we saw double-digit growth in the majority of our verticals with particularly strong growth in technology and computing and medical health. Home and garden and style and fashion were below average. We continue to see significant opportunities for us to gain share in all of the verticals we serve. Turning now to expenses. Q2 operating expenses, excluding stock-based compensation, were $448 million, up 23% from a year ago. During the quarter, we continued to make investments in our team and platform, particularly in areas like platform operations as the AI and machine learning tools embedded in Kokai continue to drive greater campaign performance. Income tax expense was $43 million in the second quarter driven primarily by our profitability and stock-based awards. Adjusted net income for the quarter was $203 million or $0.41 per diluted share. Net cash provided by operating activities was $165 million and free cash flow was $117 million in Q2. DSOs exiting the quarter were 91 days, up 1 day from a year ago. DPOs were 77 days, up 2 days from a year ago. We ended the quarter with a strong cash and liquidity position. Our balance sheet had about $1.7 billion in cash, cash equivalents and short-term investments at the end of the quarter. In Q2, we used $261 million of cash to repurchase our Class A common stock via our share repurchase program. Given our strong balance sheet and consistent cash flow generation, we plan to continue opportunistic share repurchases while also offsetting dilution from employee stock issuances. Turning to our outlook. Assuming the macro environment remains stable and we don't see disruptions from large global brands, which make up a significant portion of our business due to tariff uncertainty, we expect Q3 revenue to be at least $717 million, reflecting 14% year-over-year growth. Excluding the benefit of U.S. political ad spend in Q3 of 2024, our estimated growth rate in Q3 of this year would be approximately 18% on a year-over-year basis. We estimate adjusted EBITDA for Q3 to be approximately $277 million. In closing, we are pleased with our strong performance in Q2 and throughout the first half of the year. The opportunity ahead has never been more compelling. We're operating in a large and expanding market supported by a business model that consistently delivers strong top line growth, solid profitability and healthy cash flow. I remain confident and optimistic as we look to the second half of this year and beyond. That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

[Operator Instructions] The first question comes from Shyam Patil with SIG.

Jeff, congrats on another solid quarter. I just had one question. As we look into the back half of this year and into next year, what gives you the most confidence as you think about how the digital ad environment is evolving and how you're positioned to lead through it?

Thanks for the kind words first, Shyam, and appreciate the question. So honestly, I have never been more excited about the position we're in as we head into the second half of the year, but especially as we look into 2026. From a macro standpoint, some of the world's largest brands are absolutely facing pressure and some amount of uncertainty. Some have to respond more than others to tariffs. Many are managing inflation worries and the related pricing that comes with that. And there are a number of macro issues that I hear about. But to me, all of these things can be brought back to a few themes, the first being that uncertainty is an opportunity for us to grab land. Second, everything in programmatic is measurable. It's agile, it's transparent, and it delivers results. Third, advertisers are more performance-driven and deliberate with their spend than ever before, and that plays directly into our strength. Fourth, and this one goes unsaid way too much in trade press, and I don't believe it's fully acknowledged in all the industry press as well as things that are even peripheral to that, and that is that the supply-demand imbalance is more in our favor than it has ever been before. Fifth, and we have understated this to date, but I believe that we talked about this a lot more in our prepared remarks this time, we sit on top of one of the most underappreciated data assets on the Internet and frankly, in the world. And given that we do in 30 seconds as many transactions as Visa and Mastercard do in a year, if you add them together, and that quality data is now feeding an AI engine that helps the biggest buyers in the world sort out the most complex supply chain they've ever faced in advertising, that means our data plus AI creates an amazing opportunity for us, for the open Internet and for the biggest brands in the world. And then sixth, which is somewhat related to that supply and demand imbalance that I mentioned, consumers spend more of their time in the premium open Internet than they do inside of walled gardens and premium advertising performs better, and yet more ad spend goes to walled gardens. To me, this represents a huge opportunity. As one employee said recently who joined our company something to the effect of, I joined Trade Desk from Facebook because I believe TTD and the open Internet have a bigger TAM than Facebook has and obviously a lot more unrealized upside. And I believe all of that stuff put together is the reason why we continue to take share. You can see that in the CTV upfront this year. Many advertisers -- you could even say most advertisers prioritize flexibility over full year commitments, and that is a benefit to us and to the open Internet. CTV remains our biggest opportunity, and we continue to see amazing momentum in CTV, but we're also seeing great traction in retail media. And our joint business plans have more JBPs under negotiation than we've ever had before. And the spend within those JBPs are actually growing significantly faster than the overall spend on our platform. As you know, internally, we're leveling up, not just in our product, but across the company, people, process, product, systems, and the coordination between product and engineering has been improved dramatically and thus accelerating the innovation and product velocity to unprecedented levels. We expect all clients to be using Kokai by the end of the year and Deal Desk continues to gain traction. With Vivek joining as our COO, we're also doubling down on operational rigor by strengthening senior leadership and improving go-to-market discipline. On the supply chain, we're driving efficiency across the ecosystem with innovations like OpenPath and our integration of Sincera. As Google continues to pull away from the open Internet, that creates a vacuum which we're stepping into. Stepping back, it's more of a buyer's market than it's ever been before. Large publishers need partners like The Trade Desk to win. And as Google and Facebook have largely abandoned the open Internet, The Trade Desk is the largest source of third-party demand for many publishers around the world. So there is some uncertainty out there for some large brands. But when I look at the trend, the product, some of which we've shared publicly but some of which we have not, our partnerships, our pipeline and our leadership team, I could not be more excited about where we're headed as we close out this year and especially as we look ahead to 2026.

The next question comes from Vasily Karasyov. Vasily seems to be having technical difficulties.

Yes. Let's just go to the next caller.

The next question comes from Youssef Squali with Truist Securities.

Laura, thank you for all the help over the years, and best of luck in your future endeavor. Jeff, I have a question for you. So there's been growing investor and media focus lately on Amazon's advertising efforts, particularly with DSP and Prime Video ad inventory. From your vantage point, how are you evaluating the evolving competitive landscape? And I guess more specifically, have there been any meaningful changes in how Amazon has shown up competitively in the market?

Yes. Thanks for the question. Honestly, I was hoping somebody would ask this question because it's perhaps one of them that I'm most excited to talk about. So first and foremost, our strategy has not changed. We give marketers the power and the tools to own and control their own future. And we want them to do that with, of course, the things that have gotten us here, which is full transparency, objectivity and access to the entire Internet. In my opinion, that is the only way to get large clients to come on your platform and stay there for the long term. And that's why it's always been our focus. And it's why we've constantly and consistently won the trust of the world's largest brands. We have long said that walled gardens, whether it's Amazon or Google, are best suited to buy their own inventory with their own data. But their bias makes it hard for them to buy across the open Internet in a truly objective way. So when you look at it from that perspective or from a certain perspective, point of view, Amazon is not a competitor, and Google really isn't much of a competitor anymore either. We're trying to buy the open Internet, leveraging technology that values media objectively. We don't have any media, and we don't grade our own homework. In my opinion, and to me, all the data suggests that we're right on this, despite their mixed messages, they are not trying to buy the open Internet objectively. They can't. They have way too much Prime Video supply to sell to ever honestly pitch large brands to objectively buy the open Internet. They push sponsored listings most and Prime Video after that. Neither of those compete with us, which is why I say that we're not really trying to compete with Amazon. When they argue that their DSP, which is not even their top advertising priority, let alone the core of their business, when they argue that, that's objective to the biggest advertisers in the world, I believe they weaken the rest of their advertising pitch, and they weaken the strength of their AWS pitch. A scaled independent DSP like The Trade Desk becomes essential as we help advertisers buy across everything and that we have to do that without conflict and without compromise. It is my understanding that Amazon nearly doubled the supply of Prime Video inventory in the recent months. That creates a number of conflicts. And in my opinion, it further weakens their already shaky arguments about objectivity. But if that weren't enough, Amazon already competes with many of the world's biggest advertisers in categories like retail, CPG and cloud, which makes it difficult for those brands to fully trust them as a partner. And when you add in concerns around trust, especially data trust with AWS, it becomes even more challenging for Amazon to credibly position itself as a neutral or even a higher bar, objective platform. We're already seeing the shift as major brands have been reallocating spend toward The Trade Desk for years precisely because of our independence and objectivity. So to be clear, if you insist on calling Amazon a competitor, we compete with a tiny division of Amazon. We don't compete with Amazon.com or retail. We certainly don't compete with AWS. We compete with whatever small amount of spend goes to the Amazon DSP that isn't spent on Amazon owned and operated. I think Amazon is more of a potential partner, honestly, than it is a long-term competitor. If Amazon opens Prime Video to external demand, which I believe they should, we believe we'd be an amazing partner to drive demand to them, and it wouldn't surprise us if that were to eventually be the course that they choose to take. But to sum up, while we watch them closely and we know exactly what they're doing, we are playing in a very different sandbox. Ours is focused on decision media, precision, identity and outcomes. They are still primarily focused on prenegotiated deals that lack an open identity solution like UID2, none of their strategic decisions or investments suggest that they're trying to buy the open Internet objectively or even that, that is a priority. I'm very optimistic about where we're headed, especially as the overall TAM continues to grow. I believe the bigger TAM of advertising will always be pointed at the open Internet, and that's why we're focused on that. Thank you so much for the question.

Next question is from Vasily Karasyov with Cannonball Research.

Can you hear me now?

Yes.

I apologize for what happened before. So Jeff, you work with nearly all of the world's biggest advertisers. And Laura, in her prepared remarks, mentioned the uncertainty because of the tariff situation. And we also heard names like P&G, Kimberly-Clark, Ford, Volkswagen, talk about this uncertainty on their earnings calls. So my question is, how do you see that dynamic playing out in terms of ad spend in the remainder of the year? And how are you factoring that into your Q3 guidance? I would appreciate color on this.

First of all, great question. And I also really appreciate just the framing in your question because I think it exemplifies some of the pressures and some of the companies that are facing pressure. If we look at how the last year has progressed, Q4 was relatively stable, though you could see signs of volatility beneath the surface, particularly against the backdrop of what seems like a long time ago, but was a fairly contentious election cycle. That pressure intensified in Q1 with growing concerns among the largest brands and agencies, which of course, make up the vast majority of our business. In Q2, starting right at the beginning of April, some of the biggest brands, particularly in sectors like auto and CPG, which are, of course, meaningful categories for us and for the Fortune 500, they began to experience even greater volatility. But since then, things have stabilized. I think it's important to know things are more business as usual. However, the impact of tariffs and related policies on these businesses are very real. And you've heard that in earnings calls if you listen at all. There is an important point that we haven't made enough, I think, in our prepared remarks, and I don't know that this is fully appreciated about the difference between us and many other businesses in digital advertising. Most others rely heavily on SMBs, and our platform is largely concentrated on the large global advertisers. So we see the effects that are directly impacting them. So I would argue that this is a short-term negative, which by the way, this fact that we concentrate on the large ones is not generally a negative. It is almost always a positive. But just in this moment, it's negative because of how uniquely they're being affected by the tariffs and related policies. But the reason I'm so bullish is that in volatile environments, these things have historically accelerated the move to programmatic precisely because it comes with control, agility and performance. When advertisers become more deliberate and performance-driven, programmatic is at its very best. That's the very best that we can offer to them, and that's when we're doing our best work for them. So because programmatic, which really is just a fancy word for fast-paced and data-driven, is measurable, because it's measurable, it allows us to win share. So we also see some tailwinds that I think are important to point out. The number of joint business plans we have with major advertisers continues to increase. And the spend under those JBPs is growing significantly faster than the overall spend on our platform. Agility and flexibility matter more than ever. Objectivity matters more than ever, and that's been especially evident in the CTV upfront where many advertisers are opting for flexible commitments over the full year deals, and that shift continues to play into our strengths. So while I'm mindful that there are some macro backdrop and there is a lot of pressure on some of the biggest brands in the world, we are confident that our combination of programmatic and our position in the market puts us in the very best spot heading into the second half of this year and, of course, into 2026. So thank you so much for the question.

Up next is Justin Patterson with KeyBanc.

Best of luck to you, Laura, with the next steps. Jeff, could you please elaborate on the progress with Kokai, both from a product perspective and from the engineering changes you made late last year? And then related to that, can you also talk about the ROI you're seeing from some of these AI capabilities embedded across the platform, whether it's algorithms or some of those agentic use cases that might emerge over time?

Thank you so much, Justin. Really appreciate the question. I mentioned that I was excited about the Amazon question because it's one of the things that I was most excited to talk about. The one that I was most hoping for, though, is honestly this question because there is nothing that I'm more excited about in our business, both in the short term and in the long term, than I am all the product that we are shipping now and especially the foundation that we've laid in Kokai for the innovation that can be built on top of it. So -- and that is largely connected to AI. And I am just so excited about what we're seeing already in the results that have come from AI and what that means for our future, again, finally, utilizing what I think has been one of the most underappreciated data assets on the entire Internet. So first of all, the progress in the last few months has been amazing. The iteration on client feedback has been really rapid, and the releases, especially over the last month, have made Kokai truly the best adtech platform ever pointed at the open Internet. Kokai, of course, is the most significant platform upgrade in our company's history, and it really marks what I think is a new frontier in programmatic advertising, in part just because of the advent of AI and what's possible. We've injected AI into so many areas in our platform like in forecasting, in campaign optimization, in supply path optimization, in predictive clearing. And in all of those places, it is already paying off. So to just give you a sense of some of the impact, clients who've adopted Kokai are already seeing dramatic performance improvements. Samsung saw a 43% increase in its ability to reach target audiences for an omnichannel campaign in Europe. Cashrewards in Asia reported a 73% improvement in cost per acquisition. And across the board, Kokai campaigns are outperforming legacy ones by more than 20 points on KPIs. But even more telling are the clients who have shifted the majority of their spend to Kokai because they're increasing their total spend on the platform more than 20% faster than those who haven't. So those that lean in and try it see results and then they accelerate their businesses. Today, about 3/4 of spend is already flowing through Kokai. So the vast majority of our clients are already on it. And we expect full adoption of all of our clients. In other words, all of our clients will use it before the end of the year. And we're just getting started when it comes to AI. We've developed a system of distributed AI that comes with checks and balances, which allows innovation to happen in parallel from a number of different teams all at once, which makes me really excited about our pace of innovation. Honestly, there's not a single topic that I can talk about today that I'm more excited about than our pace of innovation. But as we look ahead, we're building toward an even more AI-driven world, if you will, where there's agentic use cases where intelligent agents can monitor, adjust and optimize campaigns in a more effective and more real-time way. Like one of the great advantages of AI is that it's always on. And of course, we look at doing this in a way that is a little bit different than others in the advertising space where we're trying to do that in conjunction or in cooperation with agencies and those that buy from brands. Right now, I'm also extremely excited about Deal Desk, which we started rolling out this quarter. It's currently in beta and represents one of the final pieces of Kokai. It uses AI, especially in forecasting, to rethink how deals between advertisers, publishers and the intermediaries between them could work or should work. Deal Desk can evaluate pacing, delivery, performance, really everything and rescue underperforming deals by surfacing open market or premium alternatives. We're seeing strong interest, by the way, from both advertisers and publishers, and I'm especially excited that Disney is among the early adopters for this. I think that denotes an amazing vote of confidence, but it's also showing that the strain on deals is actually one of the biggest challenges facing the programmatic ecosystem today. Kokai is driving real performance gains. And the AI underneath it is powering both near-term results and long-term innovation. Our teams are shipping faster and more efficiently than ever. And because of that, I'm really excited about what that unlocks this year and especially as we head into next year and continue to layer and innovate on top of what we've been building all year long. I'm really proud of what our engineering and product teams have done. They have worked very hard this year, and I believe it's laid a foundation for a much brighter future for The Trade Desk. And I, along with all the other shareholders, am super grateful for their work. So thank you so much.

Next question comes from Mark Mahaney with Evercore.

I want to run by you 2 questions. First, you talked about this 20-point improvement across key KPIs for campaigns running in Kokai. Is that -- is there a snowball element to that? Is that something that you just go from 0 to 20? Or is this something that builds over time? Like talk about the cohortization or whatever, how long it takes to get to that 20-point improvement. And do you think it goes higher than that? And then, Laura, the one segment -- the 2 segments you called out as underperforming, home and garden, style and fashion, I think that's 10% to 15% of your revenue or something like that. Any color on why you think that segment may be underperforming?

Yes, absolutely. Mark, first, thanks for the question. And let me just open with the first part, and then I'll hand it off to Laura. So as it relates to the 20% improvement, let me answer the last part of your question first, which is that I believe that, that is merely scratching the surface of what is possible over time. So the unlock that AI can bring to campaign optimization is really just beginning. Whether that is slow or fast largely depends on how campaigns are constrained today. So while there is more supply than there is demand, there is often a bunch of settings on any individual campaign that make it so it really can't select from all the options that are the very best to help that perform. So essentially, what we're creating is a dialogue between man and machine to make it easier for people to see what is constraining their campaign and what would be the unlock. It's not just simply, give it your money and step away from the keyboard. The biggest advertisers in the world would never operate that way. So in order for us to help them own their future, we have to enable that dialogue, which is, of course, more complicated than just saying, give us your money, and we'll take care of everything from there. So with that approach, sometimes the 20%, if you will, can be found immediately. And sometimes, it just takes a little bit of a ramp. It depends on how well they've optimized their campaigns to date in a somewhat manual way that many of them do so. But there are much more unlocks than just what we've seen so far. We just need to continue to engage with them. And it's very quickly becoming -- the tools are not the bottleneck. That's what we've been working so hard to build. It's actually the understanding, the engagement, the feedback, the reporting, the new way of engaging, which takes some time to learn that is increasingly the bottleneck to them realizing that 20% plus. The plus is the part to underline there. So thanks for the question. Laura, your response to the second part?

Yes. Mark, thanks for the question. Of the categories that I mentioned, I believe the first of them was home and garden. And I would just say for home and garden, it's just more seasonal as summer moves on. That's only about around 8-ish percent of the business. If I recall correctly, the second category I mentioned was style and fashion, which is about half of that, 4% of the business. There are just always some categories above the corporate rate and some below and those were the 2 I highlighted in the midst of the call.

Congrats, Laura, on a great track record, 34 out of 35. That's amazing. So congrats. Wishing you all the best.

The next question is from Jessica Reif Ehrlich with Bank of America.

Jeff, while you make a passionate argument for the open Internet, it seems like it's losing share when you look at the growth rate of walled gardens, including Meta, Amazon, Google, these big companies. How do you envision the share shift? The way you described it -- how do you envision the share shift in walled garden versus open Internet over the next few years? I mean is it just that CTV and retail media are just growing slower than walled garden? And for, I guess, Trade Desk specifically, you talk about taking share. Look, who are you taking share from? Is it other DSPs? Or is it from the walled gardens?

Thank you so much for the question. I'm really excited to answer this because I think you represent a lot of people in asking the question. And I think this is one of the most important -- while I was just excited to talk about Amazon and some of the other things, this might be the most important question for us to ask -- or to answer today. So first of all, it is true that consumers spend more of their time on the premium open Internet. And if you think about this from your own perspective -- and I'll just speak for myself rather than everybody else. But I spend a lot of time inside of the premium connected television. I spend a lot of time inside of Spotify and premium audio and same with movies. And I grew up playing sports. I like watching sports a lot. When I think about that and then you add journalism to that, I think about those big 5 that we described and the amount of time that's spent there as well as where all the purchasing power is. And then I think about my interactions with YouTube, for instance, where I'd go there just like nearly everybody else does. But when I'm consuming content and there's ads there, I'm hovering over it to skip it. It's a very different engagement that I have with the rest. The premium open Internet performs way better. It's way better for the biggest brands to be associated with it. So you can look at like the amazing performance that Facebook put up this quarter and say, well, are they gaining share? And I do think they're doing very well. And I do think they fully understand that, of course, AI represents an opportunity to optimize. In some ways, they do have an easier assignment in that they have a nearly unlimited amount of supplies, people continue to spend time on Instagram, and they can optimize their supply chain and interact with SMBs and improve their margins. And I believe that those things together, because they're optimizing an ecosystem that they control, that, that is very good for them and that's why they've done well in the short term. It is a much easier short-term assignment to inject AI into 1 destination or 2 destinations in Facebook and Instagram than it is to create better supply chains for the entire Internet. And because we are doing that among the most premium parts of the open Internet, it naturally takes a little bit longer, but it also comes with way more upside. So -- and if you look at this long term, where do consumers spend most of their time? Where -- what is the content that they love the most? Where do those with purchasing power spend most of their time? And where is it best for the biggest brands in the world to affiliate? You get way more big brands in that big 5, if you will, than you do in your scrolling on Instagram. And so as a result of that just very real phenomenon, I believe it's only a matter of time before the majority of spend is on the open Internet and not inside of walled gardens. It's simply because they have an easier job and also because they've taken the easy path, if you will, as it relates to measurement, which is -- it is easier to grade your own homework and not rely on anybody else to do so. But as we try to make it so that we're ensuring that we're actually selling and that we're in this for the long haul, it takes a lot more work to coordinate among hundreds or even thousands of companies to make the very best supply chain. But as great markets do, they always, over time, work out the inefficiencies, those that navigate a somewhat convoluted supply chain to make it an efficient supply chain. I think of what Amazon has done in the retail business. And in a lot of ways, that's what we're trying to do to the media side of business. So that is a long haul, just like it has been for Amazon to do inside of retail, but they have changed everything by doing what they do well. And we are doing, I believe, the exact same thing to the media side of the open Internet. So I really appreciate the question because I'm not sure that there is a better way to give us a forum for why we believe we win long term. But I think it's really important to understand that we're playing a very different game and a long game and that AI changes everything, and that does create a big advantage for us. But it's not as easy to realize in a quarter or 2 as it would be if we control the whole supply chain.

Your next question comes from Matt Swanson with RBC Capital Markets.

Jeff, we touched on it a lot. You guys obviously have an enviable position in the enterprise in terms of your customer base. But when we think about kind of like the usability of Kokai and then the established space of the SMB for performance dollars and then kind of this emerging SMB market in CTV, does the usability and AI features of Kokai make that a more attractive market for you to go after over time?

Thank you very much for the question. This is one thing that I don't think we were able to talk about enough in the prepared remarks. So especially in light of the question that I just answered, I think it's a very fitting sort of follow-on to that question. So we've been very clear with our strategy. About 10 years ago, when we went public, we made the decision to essentially just be open about some of the key components of our strategy. Honestly, I was a little reluctant to do that at first, which is maybe it would be better if we don't tell the world our strategy. But I actually think it served us very well, and it helped bring along many of our most devoted clients and partners. So for at least the foreseeable future, we'll keep doing that. And I give that as preface to answer your question, which is we uniquely started with the fat head and not the long tail. We started with the biggest advertisers in the world. And we have the belief that if we could win the trust and do well for the biggest brands in the world that it would make it easier for us to do that with midsized and smaller. Incidentally, I think acronym SMB, small and midsized business, is only useful in the sense that it makes it digestible, but midsize are as different, if not more different than small than the large are to the mid or to the small. So there are at least 3 categories. But if you just look at it as there is essentially this like ski slope where you start with the very largest, which are very big and they spend a lot of money and then just go down to those very small, we are working our way down that slope. And we have ambition to service all of it. We recognize that servicing and Ms and Ss are very different than servicing the Ls that we focus on today. But we also know that if you figure out how to serve them well, and they're very tough critics, they have very high demand. If you figure out how to service them well, then you can use those same tools. Of course, you get rid of all the questions and the dials that you give to the large ones and even the visibility and simply just perform for them. But taking out reports and taking out dials is a lot easier than starting with nothing as it relates to control that you can give to large buyers and then trying to add it on afterwards. So -- but it is absolutely in our ambitions. It is where we're heading, but it is not our focus right now because if you look at how much of the TAM is made up of the Ls, it's almost half of it. So because there's so much TAM there, we just want to continue to support them and help them grow and think that's a critical part of the future. And especially if you look at how much of CTV has been made up by those in the past and will likely represent the lion's share for as far as we can see into the future, that becomes a great place for us to continue to grow for as far as we can see in the future. So while this is a part of our ambition, I don't believe that we have to go chase Ms or Ss in order for us to grow for the foreseeable future. We just simply need to execute among the clients that we already have and continue to expand.

Thanks, Matt. And John, can you close out the call? Thank you.