The Trade Desk Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For 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 ofincorporation or organization) (I.R.S. EmployerIdentification No.)42 N. Chestnut StreetVentura, California 93001(Address of principal executive offices, including zip code)(805) 585-3434(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredClass A Common Stock, par value $0.000001 per share NASDAQ Stock Market LLC(NASDAQ Global Market)Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒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 preceding12 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 ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growthcompany. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.(Check one): Large accelerated filer ☒ Accelerated filer ☐Non-accelerated filer ☐ (Do not check if a small reporting company) 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 financialaccounting 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 ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017, based on the closing sales price for theRegistrant’s Class A common stock, as reported on the NASDAQ Global Market, was approximately $1,543,997,839. As of January 31, 2018, there were 32,695,082 shares of theregistrant’s Class A common stock outstanding and 9,155,054 shares of the registrant’s Class B common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K to theextent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2017. Table of Contents THE TRADE DESK, INC.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2017TABLE OF CONTENTS PageSpecial Note About Forward-Looking Statements 3 Part I Item 1. Business 4Item 1A. Risk Factors 12Item 1B. Unresolved Staff Comments 31Item 2. Properties 32Item 3. Legal Proceedings 32Item 4. Mine Safety Disclosures 32 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33Item 6. Selected Financial Data 35Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51Item 8. Financial Statements and Supplementary Data 52Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 78Item 9A. Controls and Procedures 78Item 9B. Other Information 79 Part III Item 10. Directors, Executive Officers and Corporate Governance 80Item 11. Executive Compensation 80Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 80Item 13. Certain Relationships and Related Transactions, and Director Independence 80Item 14. Principal Accounting Fees and Services 80 Part IV Item 15. Exhibits and Financial Statement Schedules 81Item 16. Form 10-K Summary 82 Signatures 83 2Table of Contents SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K 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. Forward-looking statements generally relate to future events or our future financialor operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends anddevelopments in, and management plans for, our business and the markets in which we operate), financial results, operating results, revenues, operatingexpenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements becausethey 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 concernour expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect tofuture 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 Item 1A of this Annual Report on Form 10-K in greater detail under the heading “Risk Factors” and in other filingswe make from time to time with the Securities and Exchange Commission, or SEC. Also, these forward-looking statements represent our estimates andassumptions only as of the date of this Annual Report on Form 10-K, which are inherently subject to change and involve risks and uncertainties. Unlessrequired by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual resultscould 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 Annual Report on Form 10-K and the documents that we reference in this report and have filed with the SEC completelyand with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statementsby these cautionary statements.3Table of Contents PART IItem 1. BusinessOverview We are a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables our clients topurchase and manage data-driven digital advertising campaigns. Our platform allows clients to manage integrated advertising campaigns across variousadvertising channels and formats, including connected TV (CTV), mobile, video, audio, display, social and native, on a multitude of devices, including smartTVs, computers, and various mobile devices including phones and tablets. We commercially launched our platform in 2011 targeting display advertising. We have since extended our platform to address additional advertisingformats, and in 2017, approximately 62% of gross spend on our platform was for mobile, video, audio, social, and native. Our clients are the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements, orMSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising, data and other featuresthrough our platform.The Trade Desk, Inc. is a Delaware corporation established in 2009, headquartered in Ventura, California.Our IndustryWe believe that several trends in the advertising industry, happening in parallel, are driving a shift to programmatic advertising – the selling andbuying of advertising inventory electronically.Some of the key industry trends are:Media is Becoming Digital. Media is increasingly becoming digital as a result of advances in technology and changes in consumer behavior. Thisshift has enabled unprecedented options for advertisers to target and measure their advertising campaigns across nearly every media channel and device. Thedigital advertising market is a significant and growing part of the total advertising market. According to International Data Corporation, or IDC, globaladvertising spend was estimated to be approximately $672 billion in 2017 and is expected to grow to $764 billion in 2021, a compound annual growth rateof 3.3%. Also, according to IDC, global digital advertising spend was $229 billion in 2017 and is expected to grow to $360 billion in 2021, a compoundannual growth rate of 11.9%. We believe that the market is evolving and that advertisers will shift more spend to digital media. Since media is becomingincreasingly digital, decisions based on consumer and behavioral data are more prevalent.Fragmentation of Audience. As digital media grows, audience fragmentation is accelerating. A growing “long tail” of websites and content presents achallenge for advertisers trying to reach a large audience. Audience fragmentation has substantially impacted TV content distribution, perhaps more than anyother channel, which we believe is setting up a significant change in how TV advertising inventory is monetized. Mirroring the fragmentation occurring incontent, the number of devices used by individual consumers has increased. Both of these fragmentation trends are opportunities for technology companiesthat can consolidate and simplify media buying options for advertisers and their agencies.Increased Use of Data. Advances in software and hardware and the growing use of the Internet have made it possible to collect and rapidly processmassive amounts of user data. Data vendors are able to collect user information across a wide range of Internet properties and connected devices, aggregate itand combine it with other data sources. This data is then made non-identifiable and available within seconds based on specific parameters and attributes.Advertisers can integrate this targeting data with their own or an agency’s proprietary data relating to client attributes, the advertisers’ own store locationsand other related characteristics. Through the use of these data sources, together with real-time feedback on consumer reactions to the ads, programmaticadvertising increases the value of impressions for advertisers, inventory owners and viewers who receive more relevant ads.Automation of Ad Buying. The growing complexity of digital advertising has increased the need for automation. Technology that enables fast,accurate and cost-effective decision-making through the application of computer algorithms that use extensive data sets has become critical for the success ofdigital advertising campaigns. Using programmatic inventory buying tools, advertisers are able to automate their campaigns, providing them with betterprice discovery, on an impression-by-impression basis. As a result, advertisers are able to bid and purchase the advertising inventory they value the most, payless for advertising inventory they do not value as much, and abstain from buying advertising inventory that does not fit their campaign parameters. 4Table of Contents Digital Advertising Eco-SystemThe digital advertising eco-system is divided into buyers, sellers and marketplaces, which can be further segmented on the basis of whetherparticipants provide services or technology. We believe that participants on the buy-side or sell-side should be advocates for their buyers or sellers, whilethose in the market business should act as a referee or have market-driven incentives to protect or enhance the integrity of the marketplace. We believe thatthere are inherent conflicts of interest when market participants serve both buyers and sellers.What We DoWe empower ad buyers, by providing a self‑service omnichannel software platform that enables our clients to purchase and manage data‑driven digitaladvertising campaigns. Our platform allows clients to manage integrated advertising campaigns across various advertising channels and formats, includingCTV, mobile, video, audio, display, social and native, on a multitude of devices, including smart TVs, computers, and various mobile devices includingphones and tablets. •We Are Exclusively Focused on the Buy-Side. We focus on buyers since they control the advertising budgets. Also, the supply of digitaladvertising inventory exceeds demand, and accordingly, we believe it is a buyer’s market. We also believe that by aligning our business onlywith buyers, we are able to avoid inherent conflicts of interest that exist when serving both the buy-side and sell-side. This focus allows us tobuild trust with clients, many of whom incorporate their proprietary data into our platform. That trust and ability to use their own data on ourplatform, without worrying about it being used by other participants, enables our clients and their advertisers to achieve better results. Thistrust provides us the benefit of long-term and stable relationships with our clients. •We Are an Enabler, Not a Disruptor. With our platform, we enable advertising agencies and service providers. We generally do not competewith advertising agencies and refrain from directly serving advertisers who have a relationship with one of our advertising clients. Advertiserscan benefit from a comprehensive solution that combines our platform with the services provided by advertising agencies. •We Are Data-Driven. Our platform was founded on the principle that data-driven decisions will be the future of advertising. We built a datamanagement platform first, before building our ad buying technology. While data from disparate third-party data providers can improvecampaign performance, our clients’ success often relies largely on our ability to ingest proprietary data directly from brands and their agenciesto enable intelligent decisioning that optimizes advertising campaigns. Given our independent, buy-side focused approach, and our strictprotocol of carefully earmarking all client first-party data we ingest onto our data management platform, our clients trust us with their mostgranular and expressive data. Our technology platform enables the effective use of this granular data, which allows our clients to run moreeffective and precisely targeted advertising campaigns that maximize their return on advertising investments. Additionally, we are able tobetter optimize campaigns by using the data streams that we capture across different devices, so that data from one channel can be used toinform another. The breadth of data that we collect from a multitude of data sources across channels gives our clients a holistic view of theirtarget audiences, enabling more effective targeting across different channels. •We Do Not Arbitrage Advertising Inventory. To further align our interests with those of our clients, we do not buy advertising inventory inorder to resell it to our clients for a profit. Instead, we provide our clients with a platform that allows them to manage their omnichanneladvertising campaigns, on a self-serve basis with full reporting transparency. With our platform, our clients control their campaign spend andare able to access and choose from many inventory sources. •We Have Ongoing Relationships with Clients. We derive substantially all of our revenue from ongoing MSAs with our clients rather thanepisodic insertion orders. We believe that this approach helps us strengthen our relationships with our clients and grow their use of our platformover the long term, providing us with a highly scalable business model. •We Are a Clear Box, Not a Black Box. Our platform is transparent and shows our clients their costs of advertising inventory, data, our platformfee and detailed performance metrics on their advertising campaigns. Our clients directly access and execute campaigns on our platform,control all facets of inventory purchasing decisions, and receive detailed, real-time reporting on all their advertising campaigns. By providingtransparent information on our platform, our clients are able to continually compare results and target their budgets to the most effectiveadvertising inventory, data providers and channels. •We Are an Open Platform. Clients can customize and build their own features on top of our platform. Clients may use our applicationprogramming interfaces, or APIs, to, for example, design their own user interface, bulk manage advertising campaigns, and link other systemsincluding ad servers or reporting tools. As of December 31, 2017, all of our top 10 clients used our APIs and nearly half of our clients havecustomized our APIs. Using our APIs or by working with our engineering team, clients invest their own resources to build their own proprietarytools in areas including reporting, campaign strategy, custom algorithms or proprietary data use cases. Our open platform approach enables ouradvertising agency and service provider clients to provide differentiated offerings to their clients, which we believe leads to long-termrelationships and increased use of our platform.5Table of Contents Our PlatformOur platform enables a media planner or buyer at an advertising agency to: •purchase digital media programmatically on various media exchanges and sell-side platforms; •acquire and use third-party data to optimize and measure digital advertising campaigns; •integrate and deploy their proprietary first-party data with our platform in order to optimize campaign efficacy; •monitor and manage ongoing digital advertising campaigns on a real-time basis; •link digital campaigns to offline sales results or other business objectives; •access other services such as our data management platform and publisher management platform marketplace; and •use our user interface and APIs to build their own proprietary technology on top of our platform.At the core of our platform is our bid-factor based architecture, which we believe has advantages over line-item based architectures that other buy-sidesystems use. Our bid-factor based system allows users to define desirable factors and the value associated with those factors. Based on these factors, ourplatform can compute in real-time the value of impressions and bid only for optimal impressions. Because of the granularity of the bid factors, users of ourplatform can rapidly create billions of different bid permutations with only a few clicks. This expressiveness enables better targeting, pricing and campaignresults.Our platform is useful and user-friendly based on the following: •Easy to Use, Open and Customizable. Our platform provides multiple, easy-to-use automation tools that help our users focus on managing thekey factors affecting their campaigns. Our platform also enables clients to integrate custom features and interfaces for their own use through ourAPIs. •Expressive. Our platform allows clients to easily define and manage advertising campaigns with multiple targeting parameters that may resultin quadrillions of permutations, which we refer to as expressiveness. We believe that expressiveness provides clients with the ability to targetaudiences with an extremely high level of precision and thus obtain higher returns on their advertising spend. •Integrated, Omnichannel and Cross-device. Our platform provides integrated access to a wide range of omnichannel inventory and datasources, as well as third-party services such as ad servers, ad verification services and survey vendors. Our platform’s integration of thesesources and services enables our clients to deploy their budgets through a wide variety of channels, media screens and formats, targeted in theirdesired manner, through a single platform.Some of the key features of our platform are: •Auto-Optimization. We provide auto-optimization features which allow buyers to automate their campaigns and support them with computergenerated modeling and decision making. In addition, by giving clients full reporting, budgeting, and bidding transparency, clients can takecontrol of targeting variables when desired, and apply algorithmic automation when appropriate. •Advanced Reporting and Analytics Tools. We provide a comprehensive view of consumers’ interactions with the ads purchased through ourplatform with robust reporting of performance insights across multiple variables, such as audience characteristics, ad format, site category,website, device, creative type, and geography. Better reporting results in better learning, often leading to better campaign optimization andoutcomes. •Data Management. Our platform enables clients to license a broad selection of data from third-party vendors in a seamless and easy manner,allowing them to further optimize their campaigns with the most relevant data. •Private Marketplace Support. For clients who wish to transact directly with individual publishers, we offer a comprehensive user interface fordiscovering and transacting via a wide variety of private pricing contracts. Additionally, we offer direct tags that advertisers can use when theynegotiate deals with publishers through advertising agencies.6Table of Contents Our TechnologyThe core elements of our technology are: •Scalable Architecture. Our platform infrastructure is hosted in 13 data centers. On average, our real-time bidding technology evaluates morethan 580 billion ad opportunities per day, reaching over 430 million devices per day on a global basis. Our core bidding architecture is easilyadaptable to a variety of inventory formats, allowing our platform to communicate with many different inventory sources. •Predictive Models. We use the massive data captured by our platform to build predictive models around user characteristics, such asdemographic, purchase intent or interest data. Data from our platform is continually fed back into these models, which enables them to improveover time as the use of our platform increases. •Performance Optimization. During campaign execution, our optimization engine continually scores a variety of attributes of each impression,such as website, industry vertical or geography, for their likelihood to achieve campaign performance goals. Our bidding engine then shiftsbids and budgets in real-time to deliver optimal performance. Additionally, our platform enables clients to set multiple, simultaneousoptimization goals for their advertising. •Real-time Analytics. Our platform continuously collects data regarding inventory availability. Real-time campaign delivery and spend totalsare used to manage campaign budgets and goal caps, as well as campaign reporting. This data is fed back into our optimization engine toimprove campaign performance, and into machine-learning models for user demographic predictive modeling.Our Growth StrategyThe key elements of our long-term growth strategy include: •Increase Our Share of Existing Clients’ Digital Advertising Spend. Many advertisers are moving a greater percentage of their advertisingbudgets to programmatic channels. We believe that this shift will provide us with the opportunity to capture a larger share of the overalladvertising spend by our existing clients. Additionally, we plan to promote additional services and data to our clients, helping us grow ourbusiness. •Grow Our Client Base. We have extensive relationships with many advertising agencies and service providers, and believe that, given thedecentralized nature of the advertising industry, we have the opportunity to expand our relationships within these agencies and with additionalagencies and service providers. We expect to continue making investments in growing our sales and client service team to support this strategy. •Expand Our Omnichannel Capabilities. We believe offering clients capabilities across all media channels and devices enables advertisers tomanage omnichannel campaigns and use data from each channel to inform decisions in other channels. We believe these capabilities willcontinue to further strengthen our relationships with our clients. We intend to continue to invest in innovation across all channels, includingthe integration of new inventory sources within CTV, digital radio, social and native. •Extend Our Reach in CTV. Television is the largest category of advertising spend, and we believe that the future of television is in streamingmedia and video on demand through subscription services and connected devices. We plan to invest significant resources in technology, salesand support staff related to our CTV growth initiatives. •Continue to Innovate in Technology and Data. We intend to continue to innovate in technology to improve our platform and enhance itsfeatures and functionalities. We view data as one of our key competitive advantages. We will continue to invest resources in growing our dataofferings, both from third-party providers as well as our proprietary data. •Expand Our International Presence. Many of our clients serve advertisers on a global basis and we intend to expand our presence outside ofthe United States, or U.S., to serve the needs of those advertisers in additional geographies. As we expand relationships with our existingclients, we are investing in select regions in Europe and Asia. In particular, we believe that China and Indonesia may represent substantialgrowth opportunities, and we are investing in developing our business in those markets.Our ClientsOur clients consist of purchasers of programmatic advertising inventory and data. As of December 31, 2017, we had approximately 657 clients,consisting primarily of advertising agencies or groups within advertising agencies that have independent relationships with us, manage budgetsindependently of one-another, are based in different jurisdictions, and are served by unique Trade Desk teams. Many of these agencies are owned by holdingcompanies, where decision-making is decentralized such that purchasing decisions are made, and relationships with advertisers are located, at the agency,local branch or division level. Our client count includes only those parties which have signed MSAs with us and have spent more than $20,000 on ourplatform.7Table of Contents If all of our individual client contractual relationships were aggregated at the holding company level, two clients would have each represented morethan 10% of our gross billings in 2015, three clients would have each represented more than 10% of our gross billings in 2016, and three clients would haveeach represented more than 10% of our gross billings in 2017. Our contractual and billing arrangement with Omnicom Group Inc. is at the holding companylevel and accounted for 12% of our gross billings in 2015, 13% in 2016 and 11% in 2017. For WPP plc and Publicis Groupe, we enter into separate contractsand billing relationships with various of its individual agencies and account for them as separate clients. We do not have any contractual relationship withthe holding company WPP plc or Publicis Groupe. Mindshare, which is affiliated with WPP plc, accounted for 12% of our gross billings in 2015, 11% in2016 and 10% in 2017. VivaKi, Inc., which is affiliated with Publicis Groupe, accounted for 15% of our gross billings in 2016 and 22% in 2017.Our clients typically enter into MSAs with us that give users constant access to our platform. The MSAs do not contain any material commitments onbehalf of clients to use our platform to purchase ad inventory, data or other features. These MSAs typically have one-year terms that renew automatically foradditional one-year periods, unless earlier terminated. The MSAs are typically terminable at any time upon 60 days’ notice by either party.Our clients are loyal, as reflected by our client retention rate of over 95% in 2015, 2016 and 2017. In addition, our clients typically grow their use ofour platform over time.Our Advertising and Data Inventory SuppliersFor suppliers of programmatic advertising inventory and data, we believe that we are an important business client, as we represent one of the largestsources of buy-side demand within the digital advertising industry.We obtain digital advertising inventory from over 70 ad exchanges, supply-side platforms, publishers and ad networks, providing us with access to abreadth of programmatic advertising inventory across computers, smartphones, audio devices and CTV. On average each day, our platform provides ourclients with access to over 580 billion ad impressions per day, reaching over 430 million devices per day on a global basis.For third-party data vendors, we believe that we represent an important distribution channel. As of December 31, 2017, we have integrated ourplatform with over 135 third-party data vendors whose products we make available for purchase through our platform.Sales and MarketingGiven our self-serve business model, we focus on supporting, advising and training our clients to use our platform independently as soon as they areready to transact.Once a new client has access to our platform, they work closely with our client service teams as they onboard the new client and provide continuoussupport throughout the early campaigns. Typically, once a client has gained some initial experience, it will move to a fully self-serve model and requestsupport as needed.To help train our clients, suppliers and other digital media participants, we have created an e-learning program called The Trading Academy. Webelieve that this initiative is an important component in our strategy of enabling rapid onboarding to our platform.Our marketing efforts are focused on increasing awareness for our brand, executing thought-leadership initiatives, supporting our sales team andgenerating new leads. We seek to accomplish these objectives by presenting at industry conferences, hosting client conferences, publishing white papers andresearch, public relations activities, social media presence and advertising campaigns.Technology and DevelopmentRapid innovation is a core driver of our business success and our corporate culture. We prioritize and align our product roadmap with our clients’needs, and we generally refresh our platform on a weekly basis. Our development teams are intentionally lean and nimble in nature, providing fortransparency and accountability.We expect technology and development expense to increase as we continue to invest in the development of our platform to support additionalfeatures and functions, increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spending on our platform. Wealso intend to invest in technology to further automate our business processes. Our technology development expense totaled $12.8 million in 2015,$27.3 million in 2016 and $52.8 million in 2017.8Table of Contents SeasonalityIn the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largestportion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of theyear reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue tofluctuate based on seasonal factors that affect the advertising industry as a whole.Our CompetitionOur industry is highly competitive and fragmented. We compete with other demand-side platform providers which are mostly smaller, privately-heldcompanies, but we also compete with divisions of large, well-established companies such as Google and Adobe. We believe that we compete primarily basedon the performance, capabilities and transparency of our platform and our focus on the buy-side. We generally do not compete with advertising agencies andrefrain from directly serving advertisers who have a relationship with one of our advertising agency clients. We believe that we are differentiated from ourcompetitors in the following areas: •we are an independent technology company exclusively focused on serving advertising agencies and the buy-side of our industry; •our client relationships are based on master service agreements as opposed to campaign-specific insertion orders; •our platform provides comprehensive access to a wide range of inventory types and third-party data vendors; •our platform allows clients to build proprietary advantages by integrating custom features and interfaces for their own use through our APIs;and •our technology provides highly expressive targeting.In addition, we believe that new entrants would find it difficult to gain direct access to inventory providers, given their limited scale and the costs thatadditional integrations impose on inventory providers.Our Employees and CultureWe have employees and offices around the world to serve advertisers’ desire to communicate with consumers worldwide.Our business and our culture is anchored on four core principles: •No company can effect global change without passionate forward‑thinking people as both employees and clients. •By preserving an honest and transparent culture and avoiding client conflict, we can exert exponentially less effort to grow our business. •We have committed to our clients and employees that we will never stop innovating. •Being profitable and changing the world can co‑exist and is more likely to happen when striving for both simultaneously.We believe we attract talented employees to our company and sophisticated ad buyers to our platform in large part because of our vision andunwavering commitment to empower the buy‑side of advertising.As of December 31, 2017, we had 713 employees, of whom 502 are in the U.S. Our team draws from a broad spectrum of backgrounds and experiences,across technology, advertising and securities trading and other areas. We foster an entrepreneurial culture so that we may remain focused and innovative overtime, as we strive to serve our clients with openness, transparency and humility.Development of International MarketsWe have been increasing our focus on markets outside the U.S. to serve the global needs of our clients. We believe that the global opportunity forprogrammatic advertising is significant, and should continue to expand as publishers and advertisers outside the U.S. seek to adopt the benefits thatprogrammatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presence internationally, and we expect ourgrowth internationally to continue outpacing our domestic growth. Our growth and the success of our initiatives in newer markets will depend on thecontinued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about our geographic gross billings is setforth in Note 12 of “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.9Table of Contents Intellectual PropertyThe protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, includingtrade secret, copyright and trademark laws in the U.S. and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employeedisclosure and invention assignment agreements and other contractual rights to protect our intellectual property. We do not hold any patents because webelieve our proprietary technology is best protected by keeping our technology architecture, trade secrets, and engineering roadmap private. We believe ourplatform is difficult to replicate and would be expensive to build. We also believe that a critical protection in digital advertising technology is the ability toexecute and deliver new functionality quickly, and are continually developing new intellectual property as we innovate.Privacy and Data Protection Legislation and RegulationPrivacy and data protection legislation and regulation play a significant role in our business. We and our clients use pseudonymous and anonymousdata about Internet users on our platform to manage and execute digital advertising campaigns in a variety of ways, including delivering advertisements toInternet users based on their geographic locations, the type of device they are using, or their interests as inferred from their web browsing or app usageactivity, or that clients infer from their relationships with users. We do not use this data to identify specific individuals, and we do not seek to associate thisdata with information that can be used to identify specific individuals. We take steps not to collect or store personally identifiable information – informationthat directly identifies individuals – from any source. The definition of what data is personal or identifiable, however, varies by jurisdiction and continues toevolve. As a result, our platform and business practices must be assessed regularly in each jurisdiction where we do business to avoid violating applicablelegislation and regulation.Our ability, like those of other advertising technology companies, to collect, augment, analyze, use and share data collected through cookies andsimilar technologies is governed by U.S. and foreign laws and regulations which change from time to time, such as those regulating the level of consumernotice and consent required before a company can employ cookies or other electronic tools to collect data about interactions with users online. In the UnitedStates, both state and federal legislation govern activities such as the collection and use of data, and privacy in the advertising technology industry hasfrequently been subject to review by the Federal Trade Commission, or the FTC, U.S. Congress, and individual states. Much of the federal oversight ondigital advertising in the United States has come from the FTC, which has primarily relied upon Section 5 of the Federal Trade Commission Act, whichprohibits companies from engaging in “unfair” or “deceptive” trade practices, including alleged violations of representations concerning privacy protectionsand acts that allegedly violate individuals’ privacy interests.As our business is global, our activities are also subject to foreign legislation and regulation. In the European Union (including the EuropeanEconomic Area, or EEA, countries of Iceland, Liechtenstein and Norway), or EU, separate laws and regulations (and member states’ implementations thereof)govern the protection of consumers and of electronic communications, and these laws and regulations continue to evolve. The General Data ProtectionRegulation, or GDPR, which was adopted by the EU in 2016 and becomes effective May 25, 2018, will generally harmonize data privacy laws across EUcountries. The GDPR creates new regulations relating to the collection and use of data typically leveraged on our platform and by others in the digitaladvertising industry, including IP addresses, cookie identifiers, and device identifiers for advertising purposes, and enhances data protection obligations forcontrollers of personal data and service providers processing personal data. These enhancements will bring about significant changes in the way theadvertising technology industry operates in the EU. Preparing to meet the GDPR’s requirements before it becomes effective, and maintaining compliancewith the GDPR thereafter, will require significant time, resources and expense, and significant changes in our business operations.Additionally in the EU, EU Directive 2002/58/EC (as amended by Directive 2009/136/EC), commonly referred to as the Cookie Directive, directs EUmember states to ensure that accessing information on an Internet user’s computer, such as through a cookie and other similar technologies, is allowed only ifthe Internet user has been informed about such access, and provided consent. A replacement for the Cookie Directive is currently under discussion by EUmember states to complement and bring electronic communication services in line with the GDPR and force a harmonized approach across EU member states.Although it remains under debate, recent drafts of the new ePrivacy Regulation would extend the strict opt-in marketing rules with limited exceptions tobusiness-to-business communications, alter rules on third-party cookies, web beacons and similar technology, and significantly increase penalties for non-compliance. We cannot yet determine the impact such future laws, regulations, and standards may have on our business.For the transfer of personal data from the EU to the U.S., we rely upon, and are currently certified under, the EU-U.S. and Swiss-U.S. Privacy ShieldFrameworks. The Privacy Shield Framework, however, is facing criticism from privacy advocates in the EU and is also subject to pending legal challenges inthe General Court of the Court of Justice of the European Union. Other EU mechanisms for adequate data transfer to the U.S. such as the standard contractualclauses are also being challenged in the EU courts. These challenges to the Privacy Shield and model clauses may lead to changes in the law, governmentalenforcement actions, litigation, fines and penalties or adverse publicity which could have an adverse effect on our reputation and business. We may find it10Table of Contents necessary to establish systems to maintain personal data originating from the EU in the EU, which may involve substantial expense and may cause us to needto divert resources from other aspects of our business.In prior years, some government regulators and privacy advocates advocated vigorously for a “Do Not Track” standard that would allow Internet usersto express a preference, independent of cookie settings in their browser, not to have their online browsing activities tracked. Efforts in this direction havelargely gone dormant. However, in the EU, the Article 29 Working Party, a body made up of EU national data protection authorities, recently recommendedthat the proposed e-Privacy Regulation require browsers to implement technical mechanisms such as the “Do Not Track” standard to give users additionalcontrol over the collection of data about their Internet activity. We do not know whether such requirement will be included in the final e-Privacy Regulationor what effect such requirement may have on our business.We participate in several industry self-regulatory programs, mainly initiated by the Network Advertising Initiative, or NAI, the Digital AdvertisingAlliance, or DAA, and their international counterparts. Under such programs, in addition to other compliance obligations, we provide consumers with noticeabout our use of cookies and similar technologies, and our collection and use of data in connection with the delivery of targeted advertising. We also allowconsumers to opt out from the use of data we collect for the delivery of targeted advertising, and we provide consumers notice regarding how to exercise suchchoice. We believe that this user-centric approach to addressing consumer privacy empowers consumers to make informed decisions on the use of their data.Available InformationWe file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and related amendments andother information with the Securities and Exchange Commission, or the SEC. You may access and read our filings without charge through the SEC’s websiteat www.sec.gov or through our website at http://investors.thetradedesk.com, as soon as reasonably practicable after such materials are electronically filed withor furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.Website addresses referred to in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained on ourwebsite is not incorporated into, and does not form a part of this Annual Report on Form 10-K or any other report or documents we file with or furnish to theSEC.11Table of Contents Item 1A. Risk FactorsInvesting in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below,together with all of the other information contained in this annual report, including the consolidated financial statements and the related notes andManagement’s Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our Class Acommon stock. If any of the following risks is realized, our business, financial condition, results of operations and prospects could be materially andadversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.Risks Related to Our Business and IndustryWe have a limited operating history, which makes it difficult to evaluate our business and prospects and may increase the risks associated with yourinvestment.We were incorporated in 2009 and, as a result, have only a limited operating history upon which our business and prospects may be evaluated.Although we have experienced substantial revenue growth in our limited operating history, we may not be able to sustain this rate of growth or maintain ourcurrent revenue levels. We have encountered and will continue to encounter risks and challenges frequently experienced by growing companies in rapidlydeveloping industries, including risks related to our ability to: •build a reputation for providing a superior platform and client service, and for creating trust and long-term relationships with clients; •distinguish ourselves from competitors; •develop and offer a competitive platform that meets our clients’ needs as they change; •scale our business efficiently to keep pace with demand for our platform; •maintain and expand our relationships with suppliers of quality advertising inventory and data; •respond to evolving industry standards and government regulation that impact our business, particularly in the areas of data collection andconsumer privacy; •prevent or mitigate failures or breaches of security; •expand our business internationally; and •hire and retain qualified and motivated employees.We cannot assure you that we will be successful in addressing these and other challenges we may face in the future. If we are unable to do so, ourbusiness may suffer, our revenue and operating results may decline and we may not be able to achieve further growth or sustain profitability.Our failure to maintain and grow our client base and spend through our platform may negatively impact our revenue and business.To sustain or increase our revenue, we must regularly add new clients and encourage existing clients to maintain or increase the amount of advertisinginventory purchased through our platform and adopt new features and functionalities that we add to our platform. If competitors introduce lower cost ordifferentiated offerings that compete with or are perceived to compete with ours, our ability to sell access to our platform to new or existing clients could beimpaired. We have spent significant effort in cultivating our relationships with advertising agencies, which has resulted in an increase in the budgetsallocated to, and the amount of advertising purchased on, our platform. However, it is possible that we may reach a point of saturation at which we cannotcontinue to grow our revenue from such agencies because of internal limits that advertisers may place on the allocation of their advertising budgets to digitalmedia to a particular provider or otherwise. While we generally have master services agreements in place for our clients, such agreements allow our clients tochange the amount of spend through our platform or terminate our services with limited notice. Our clients typically have relationships with differentproviders and there is limited cost to moving budgets to our competitors. As a result, we may have limited visibility as to our future advertising revenuestreams. We cannot assure you that our clients will continue to use our platform or that we will be able to replace, in a timely or effective manner, departingclients with new clients that generate comparable revenue. If a major client representing a significant portion of our business decides to materially reduce itsuse of our platform or to cease using our platform altogether, it is possible that our revenue or revenue growth rate could be significantly reduced and ourbusiness negatively impacted.12Table of Contents The loss of advertising agencies as clients could significantly harm our business, operating results and financial condition.Our client base consists primarily of advertising agencies. We do not have exclusive relationships with advertising agencies and we depend onagencies to work with us as they embark on advertising campaigns for advertisers.The loss of agencies as clients could significantly harm our business, operating results and financial condition. If we fail to maintain satisfactoryrelationships with an advertising agency, we risk losing business from the advertisers represented by that agency.Advertisers may change advertising agencies. If an advertiser switches from an agency that utilizes our platform to one that does not, we will loserevenue from that advertiser. In addition, some advertising agencies have their own relationships with suppliers of advertising inventory and can directlyconnect advertisers with such suppliers. Our business may suffer to the extent that advertising agencies and inventory suppliers purchase and sell advertisinginventory directly from one another or through intermediaries other than us.We had approximately 657 clients, consisting primarily of advertising agencies, as of December 31, 2017. Many of these agencies are owned byholding companies, where decision making is decentralized such that purchasing decisions are made, and relationships with advertisers, are located, at theagency, local branch or division level. If all of our individual client contractual relationships were aggregated at the holding company level, OmnicomGroup Inc., WPP plc and Publicis Groupe would each represent more than 10% of our gross billings for 2017.In most cases, we enter into separate contracts and billing relationships with the individual agencies and account for them as separate clients.However, some holding companies for these agencies may choose to exert control over the individual agencies in the future. If so, any loss of relationshipswith such holding companies and, consequently, of their agencies, local branches or divisions, as clients could significantly harm our business, operatingresults and financial condition.If we fail to innovate and make the right investment decisions in our offerings and platform, we may not attract and retain advertisers and advertisingagencies and our revenue and results of operations may decline.Our industry is subject to rapid and frequent changes in technology, evolving client needs and the frequent introduction by our competitors of newand enhanced offerings. We must constantly make investment decisions regarding offerings and technology to meet client demand and evolving industrystandards. We may make bad decisions regarding these investments. If new or existing competitors have more attractive offerings, we may lose clients orclients may decrease their use of our platform. New client demands, superior competitive offerings or new industry standards could require us to makeunanticipated and costly changes to our platform or business model. If we fail to adapt to our rapidly changing industry or to evolving client needs, demandfor our platform could decrease and our business, financial condition and operating results may be adversely affected.Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results.We have experienced significant growth in a short period of time. To manage our growth effectively, we must continually evaluate and evolve ourorganization. We must also manage our employees, operations, finances, technology and development and capital investments efficiently. Our efficiency,productivity and the quality of our platform and client service may be adversely impacted if we do not train our new personnel, particularly our sales andsupport personnel, quickly and effectively, or if we fail to appropriately coordinate across our organization. Additionally, our rapid growth may place a strainon our resources, infrastructure and ability to maintain the quality of our platform. You should not consider our revenue growth and levels of profitability inrecent periods as indicative of future performance. In future periods, our revenue or profitability could decline or grow more slowly than we expect. Failure tomanage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results.The market for programmatic buying for advertising campaigns is relatively new and evolving. If this market develops slower or differently than weexpect, our business, growth prospects and financial condition would be adversely affected.The substantial majority of our revenue has been derived from clients that programmatically purchase advertising inventory through our platform. Weexpect that spending on programmatic ad buying will continue to be our primary source of revenue for the foreseeable future, and that our revenue growthwill largely depend on increasing spend through our platform. The market for programmatic ad buying is an emerging market, and our current and potentialclients may not shift as quickly as we expect to programmatic ad buying from other buying methods, reducing our growth potential. If the market forprogrammatic ad buying deteriorates or develops more slowly than we expect, it could reduce demand for our platform, and our business, growth prospectsand financial condition would be adversely affected.13Table of Contents In addition, our revenue may not necessarily grow at the same rate as spend on our platform. Growth in spend may outpace growth in our revenue asthe market for programmatic buying for advertising matures due to a number of factors including quantity discounts and product, media, client and channelmix shifts. A significant change in revenue as a percentage of spend could reflect an adverse change in our business and growth prospects. In addition, anysuch fluctuations, even if they reflect our strategic decisions, could cause our performance to fall below the expectations of securities analysts and investors,and adversely affect the price of our common stock.The market in which we participate is intensely competitive, and we may not be able to compete successfully with our current or future competitors.We operate in a highly competitive and rapidly changing industry. With the introduction of new technologies and the influx of new entrants to themarket, we expect competition to persist and intensify in the future, which could harm our ability to increase revenue and maintain profitability. Newtechnologies and methods of buying advertising present a dynamic competitive challenge, as market participants offer multiple new products and services,such as analytics, automated media buying and exchanges, aimed at capturing advertising spend. In addition to existing competitors and intermediaries, wemay also face competition from new companies entering the market, which may include large established companies, all of which currently offer, or may inthe future offer, products and services that result in additional competition for advertising spend or advertising inventory.We may also face competition from companies that we do not yet know about or do not yet exist. If existing or new companies develop, market orresell competitive high-value marketing products or services, acquire one of our existing competitors or form a strategic alliance with one of our competitors,our ability to compete effectively could be significantly compromised and our results of operations could be harmed.Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, allowing them todevote greater resources to the development, promotion, sale and support of their products and services. They may also have more extensive advertiser basesand broader publisher relationships than we have, and may be better positioned to execute on advertising conducted over certain channels such as socialmedia, mobile and video. Some of our competitors may have longer operating histories and greater name recognition. As a result, these competitors may bebetter able to respond quickly to new technologies, develop deeper advertiser relationships or offer services at lower prices. Any of these developmentswould make it more difficult for us to sell our platform and could result in increased pricing pressure, increased sales and marketing expense or the loss ofmarket share.Economic downturns and market conditions beyond our control could adversely affect our business, financial condition and operating results.Our business depends on the overall demand for advertising and on the economic health of advertisers that benefit from our platform. Economicdownturns or unstable market conditions may cause advertisers to decrease their advertising budgets, which could reduce spend though our platform andadversely affect our business, financial condition and operating results. As we explore new countries to expand our business, economic downturns or unstablemarket conditions in any of those countries could result in our investments not yielding the returns we anticipate.We may experience fluctuations in our operating results, which could make our future operating results difficult to predict or cause our operating resultsto fall below analysts’ and investors’ expectations.Our quarterly and annual operating results have fluctuated in the past and we expect our future operating results to fluctuate due to a variety of factors,many of which are beyond our control. Fluctuations in our operating results could cause our performance to fall below the expectations of analysts andinvestors, and adversely affect the price of our common stock. Because our business is changing and evolving rapidly, our historical operating results maynot be necessarily indicative of our future operating results. Factors that may cause our operating results to fluctuate include the following: •changes in demand for our platform, including related to the seasonal nature of our clients’ spending on digital advertising campaigns; •changes in our pricing policies, the pricing policies of our competitors and the pricing or availability of inventory, data or other third-partyservices; •changes in our client base and platform offerings; •the addition or loss of advertising agencies and advertisers as clients; •changes in advertising budget allocations, agency affiliations or marketing strategies; •changes to our product, media, client or channel mix;14Table of Contents •changes and uncertainty in the regulatory environment for us, advertisers or others in the advertising industry; •changes in the economic prospects of advertisers or the economy generally, which could alter advertisers’ spending priorities, or could increasethe time or costs required to complete advertising inventory sales; •changes in the availability of advertising inventory through real-time advertising exchanges or in the cost of reaching end consumers throughdigital advertising; •disruptions or outages on our platform; •the introduction of new technologies or offerings by our competitors; •changes in our capital expenditures as we acquire the hardware, equipment and other assets required to support our business; •timing differences between our payments for advertising inventory and our collection of related advertising revenue; •the length and unpredictability of our sales cycle; and •costs related to acquisitions of businesses or technologies, or employee recruiting.Based upon the factors above and others beyond our control, we have a limited ability to forecast our future revenue, costs and expenses, and as aresult, our operating results may, from time to time, fall below our estimates or the expectations of analysts and investors.We often have long sales cycles, which can result in significant time between initial contact with a prospect and execution of a client agreement, making itdifficult to project when, if at all, we will obtain new clients and when we will generate revenue from those clients.Our sales cycle, from initial contact to contract execution and implementation can take significant time. Our sales efforts involve educating our clientsabout the use, technical capabilities and benefits of our platform. Some of our clients undertake an evaluation process that frequently involves not only ourplatform but also the offerings of our competitors. As a result, it is difficult to predict when we will obtain new clients and begin generating revenue fromthese new clients. Even if our sales efforts result in obtaining a new client, under our usage-based pricing model, the client controls when and to what extentit uses our platform. As a result, we may not be able to add clients, or generate revenue, as quickly as we may expect, which could harm our revenue growthrates.We are subject to payment-related risks and, if our clients do not pay or dispute their invoices, our business, financial condition and operating results maybe adversely affected.Many of our contracts with advertising agencies provide that if the advertiser does not pay the agency, the agency is not liable to us, and we must seekpayment solely from the advertiser, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or maydevelop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with advertisers. This credit risk may varydepending on the nature of an advertising agency’s aggregated advertiser base. We may also be involved in disputes with agencies and their advertisers overthe operation of our platform, the terms of our agreements or our billings for purchases made by them through our platform. If we are unable to resolvedisputes with our clients, we may lose clients or clients may decrease their use of our platform and our financial performance and growth may be adverselyaffected. If we are unable to collect or make adjustments to bills to clients, we could incur write-offs for bad debt, which could harm our results of operations.In the future, bad debt may exceed reserves for such contingencies and our bad debt exposure may increase over time. Any increase in write-offs for bad debtcould harm our business, financial condition and operating results. Even if we are not paid by our clients on time or at all, we are still obligated to pay for theadvertising we have purchased for the advertising campaign, and as a consequence, our results of operations and financial condition would be adverselyimpacted.A substantial portion of our business is from advertising agencies that do not pay us until they receive payment from the advertiser, resulting in anincreased length of time between our payment for media inventory and our receipt of payment for use of our platform, and our ability to collect for non-payment may be limited to the advertiser, thereby increasing our risk of non-payment.Substantially all of the spend on our platform is from advertising agencies. Generally, we are contractually required to pay advertising inventory anddata suppliers within a negotiated period of time, regardless of whether our clients pay us on time, or at all. Additionally, while we attempt to negotiate longpayment periods with our suppliers and shorter periods from our clients, we are not always successful. As a result, we often face a timing issue with ouraccounts payable on shorter cycles than our accounts receivables, requiring us to remit payments from our own funds, and accept the risk of bad debt.15Table of Contents This collections and payments cycle will increasingly consume working capital if we continue to be successful in growing our business. In addition,we typically experience slow payment by advertising agencies as is common in our industry. If we are unable to borrow against these receivables oncommercially acceptable terms, our working capital availability could be reduced, and as a consequence, our results of operations and financial conditionwould be adversely impacted.Due to this timing imbalance in collections and payments, we rely on our credit facility to partially or completely fund our working capitalrequirements. We cannot assure you that as we continue to grow, our business will generate sufficient cash flow from operations or that future borrowings willbe available to us under the credit facility in an amount sufficient to fund our working capital needs. If our cash flows and credit facility borrowings areinsufficient to fund our working capital requirements, we may not be able to grow at the rate we currently expect or at all. In addition, in the absence ofsufficient cash flows from operations, we might be unable to meet our obligations under our credit facility and we may therefore be at risk of defaultthereunder. We cannot assure you that we would be able to locate additional financing or increase amounts borrowed under our existing credit facility oncommercially reasonable terms or at all.Our business is primarily dependent on advertisers buying mobile, display and video advertising. A decrease in the use of these advertising channels wouldharm our business, growth prospects, financial condition and results of operations.Historically, our clients have predominantly used our platform to purchase mobile, display and video advertising inventory. We expect that these willcontinue to be significant channels used by our clients for digital advertising. Should our clients lose confidence in the value or effectiveness of mobile,display and video advertising, the demand for our platform could decline.We have been, and are continuing to, enhance our social, native, audio and CTV offerings. We refer to the ability to provide offerings across multipleadvertising channels as omnichannel. We may not be able to maintain or grow advertising inventory for some of our omnichannels and some of ouromnichannel offerings may not gain market acceptance. A decrease in the use of mobile, display and video advertising, or our inability to further penetratethese and other advertising channels, would harm our growth prospects, financial condition and results of operations.If our access to quality advertising inventory is diminished, our revenue could decline and our growth could be impeded.We must maintain a consistent supply of attractive ad inventory. Our success depends on our ability to secure quality inventory on reasonable termsacross a broad range of advertising networks and exchanges, video, CTV, audio and mobile inventory, and social media platforms. The amount, quality andcost of inventory available to us can change at any time. A few inventory suppliers hold a significant portion of the programmatic inventory either generallyor concentrated in a particular channel, such as audio and social media. In addition, we compete with companies with which we have business relationships.For example, Google is one of our largest advertising inventory suppliers in addition to being one of our competitors. If Google or any other company withattractive advertising inventory limits our access to its advertising inventory, our business could be adversely affected. If our relationships with any of oursuppliers were to cease, or if the material terms of these relationships were to change unfavorably, our business would be negatively impacted. Our suppliersare generally not bound by long-term contracts. As a result, there is no guarantee that we will have access to a consistent supply of quality inventory onfavorable terms. If we are unable to compete favorably for advertising inventory available on real-time advertising exchanges, or if real-time advertisingexchanges decide not to make their advertising inventory available to us, we may not be able to place advertisements or find alternative sources of inventorywith comparable traffic patterns and consumer demographics in a timely manner. Furthermore, the inventory that we access through real-time advertisingexchanges may be of low quality or misrepresented to us, despite attempts by us and our suppliers to prevent fraud and conduct quality assurance checks.Inventory suppliers control the bidding process for the inventory they supply, and their processes may not always work in our favor. For example,suppliers may place restrictions on the use of their inventory, including prohibiting the placement of advertisements on behalf of specific advertisers.Through the bidding process, we may not win the right to deliver advertising to the inventory that is selected through our platform and may not be able toreplace inventory that is no longer made available to us.As new types of inventory, such as CTV, become available, we will need to expend significant resources to ensure we have access to such newinventory. Although television advertising is a large market, only a very small percentage of it is currently purchased through digital advertising exchanges.We are investing heavily in our programmatic television offering, including by increasing our workforce and by adding new features, functions andintegrations to our platform. If the CTV market does not grow as we anticipate or we fail to successfully serve such market, our growth prospects could beharmed.Our success depends on consistently adding valued inventory in a cost-effective manner. If we are unable to maintain a consistent supply of qualityinventory for any reason, client retention and loyalty, and our financial condition and operating results could be harmed.16Table of Contents Seasonal fluctuations in advertising activity could have a negative impact on our revenue, cash flow and operating results.Our revenue, cash flow, operating results and other key operating and performance metrics may vary from quarter to quarter due to the seasonal natureof our clients’ spending on advertising campaigns. For example, clients tend to devote more of their advertising budgets to the fourth calendar quarter tocoincide with consumer holiday spending. Moreover, advertising inventory in the fourth quarter may be more expensive due to increased demand foradvertising inventory. Political advertising could also cause our revenue to increase during election cycles and decrease during other periods. Our historicalrevenue growth has masked the impact of seasonality, but if our growth rate declines or seasonal spending becomes more pronounced, seasonality could havea more significant impact on our revenue, cash flow and operating results from period to period.As our costs increase, we may not be able to generate sufficient revenue to sustain profitability.We have expended significant resources to grow our business in recent years by increasing the offerings of our platform, growing our number ofemployees and expanding internationally. We anticipate continued growth that could require substantial financial and other resources to, among otherthings: •develop our platform, including by investing in our engineering team, creating, acquiring or licensing new products or features, and improvingthe availability and security of our platform; •continue to expand internationally by growing our sales force and client services team in an effort to increase our client base and spendthrough our platform, and by adding inventory and data from countries our clients are seeking; •improve our technology infrastructure, including investing in internal technology development and acquiring outside technologies; •expand our platform’s reach in new and growing channels such as CTV, including expanding the supply of CTV inventory; •cover general and administrative expenses, including legal, accounting and other expenses necessary to support a larger organization; •cover sales and marketing expenses, including a significant expansion of our direct sales organization; •cover expenses relating to data collection and consumer privacy compliance, including additional infrastructure, automation and personnel;and •explore strategic acquisitions.Investing in the foregoing, however, may not yield anticipated returns. Consequently, as our costs increase, we may not be able to generate sufficientrevenue to sustain profitability.We have identified a material weakness in our internal control over financial reporting and, if our remediation of this material weakness is not effective,or if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report ourfinancial condition or results of operations. If our internal control over financial reporting is not effective, it may adversely affect investor confidence in usand the price of our common stock.As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internalcontrol. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internalcontrol over financial reporting and, beginning with this annual report on Form 10-K, provide a management report on internal control over financialreporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.As described in “Item 9A. Controls and Procedures” in this Annual Report on Form 10-K, during the quarter ended December 31, 2017, we completedthe remediation measures including the validation, testing of design and concluding on the operating effectiveness of our controls related to certain of ourpreviously reported material weaknesses in internal control over financial reporting. However, we have not completed remediation measures related to ourpreviously reported material weakness resulting from an absence of certain information technology general controls (“ITGCs”) related to our platform systemapplications. As a result, management has concluded that our internal control over financial reporting was not effective as of December 31, 2017.17Table of Contents Certain ITGCs related to our platform system applications were not fully implemented or have not been in place for a sufficient period of time toadequately evaluate whether the related material weakness has been completely remediated as of December 31, 2017. These internal controls will requirefurther evaluation, including testing the operating effectiveness of these internal controls over a sustained period of financial reporting cycles.While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing andwill require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Wecannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we haveidentified or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely manner, we will be unable toconclude that we maintain effective internal controls over financial reporting. Accordingly, there could continue to be a reasonable possibility that thesedeficiencies or others could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements thatwould not be prevented or detected on a timely basis.The process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act istime consuming, costly and complicated. If during the evaluation and testing process, we identify one or more other material weaknesses in our internalcontrol over financial reporting or determine that the existing material weakness has not been remediated, our management will be unable to assert that ourinternal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, ourindependent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which ourinternal controls are documented, designed, implemented or reviewed. If we are unable to assert that our internal control over financial reporting is effective,or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting,investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affectedand we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities,which could require additional financial and management resources.We allow our clients to utilize application programming interfaces, or APIs, with our platform, which could result in outages or security breaches andnegatively impact our business, financial condition and operating results.The use of APIs by our clients has significantly increased in recent years. Our APIs allow clients to build their own media buying and datamanagement interface by using our APIs to develop custom integration of their business with our platform. The increased use of APIs increases security andoperational risks to our systems, including the risk for intrusion attacks, data theft, or denial of service attacks. Furthermore, while APIs allow clients greaterease and power in accessing our platform, they also increase the risk of overusing our systems, potentially causing outages. We have experienced systemslowdowns due to client overuse of our systems through our APIs. While we have taken measures intended to decrease security and outage risks associatedwith the use of APIs, we cannot guarantee that such measures will be successful. Our failure to prevent outages or security breaches resulting from API usecould result in government enforcement actions against us, claims for damages by consumers and other affected individuals, costs associated withinvestigation and remediation damage to our reputation and loss of goodwill, any of which could harm our business, financial condition and operatingresults.We may experience outages and disruptions on our platform if we fail to maintain adequate security and supporting infrastructure as we scale ourplatform, which may harm our reputation and negatively impact our business, financial condition and operating results.As we grow our business, we expect to continue to invest in technology services and equipment, including data centers, network services and databasetechnologies, as well as potentially increase our reliance on open source software. Without these improvements, our operations might suffer fromunanticipated system disruptions, slow transaction processing, unreliable service levels, impaired quality or delays in reporting accurate informationregarding transactions in our platform, any of which could negatively affect our reputation and ability to attract and retain clients. In addition, the expansionand improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance ourbusiness will increase. If we fail to respond to technological change or to adequately maintain, expand, upgrade and develop our systems and infrastructure ina timely fashion, our growth prospects and results of operations could be adversely affected. The steps we take to increase the reliability, integrity andsecurity of our platform as it scales are expensive and complex, and our execution could result in operational failures and increased vulnerability to cyber-attacks. Such cyber-attacks could include denial-of-service attacks impacting service availability (including the ability to deliver ads) and reliability,tricking company employees into releasing control of their systems to a hacker, or the introduction of computer viruses or malware into our systems with aview to steal confidential or proprietary data. Cyber-attacks of increasing sophistication may be difficult to detect and could result in the theft of ourintellectual property and data from our platform. We are also vulnerable to unintentional errors or malicious actions by persons with authorized access to oursystems that exceed the scope of their access rights, distribute data erroneously, or, unintentionally or intentionally, interfere with the intended operations ofour platform. Moreover, we could be adversely impacted by outages and disruptions in the online platforms of our18Table of Contents inventory and data suppliers, such as real-time advertising exchanges. Outages and disruptions of our platform, including due to cyber-attacks, may harm ourreputation and negatively impact our business, financial condition and results of operations.Operational and performance issues with our platform, whether real or perceived, including a failure to respond to technological changes or to upgradeour technology systems, may adversely affect our business, financial condition and operating results.We depend upon the sustained and uninterrupted performance of our platform to manage our inventory supply; bid on inventory for each campaign;collect, process and interpret data; and optimize campaign performance in real time and provide billing information to our financial systems. If our platformcannot scale to meet demand, if there are errors in our execution of any of these functions on our platform, or if we experience outages, then our business maybe harmed. We may also face material delays in introducing new services, products and enhancements. If competitors introduce new products and servicesusing new technologies or if new industry standards and practices emerge, our existing proprietary technology and systems may become obsolete.Our platform is complex and multifaceted, and operational and performance issues could arise both from the platform itself and from outside factors.Errors, failures, vulnerabilities or bugs have been found in the past, and may in the future, be found. Our platform also relies on third-party technology andsystems to perform properly, and our platform is often used in connection with computing environments utilizing different operating systems, systemmanagement software, equipment and networking configurations, which may cause errors in, or failures of, our platform or such other computingenvironments. Operational and performance issues with our platform could include the failure of our user interface, outages, errors during upgrades orpatches, discrepancies in costs billed versus costs paid, unanticipated volume overwhelming our databases, server failure, or catastrophic events affecting oneor more server farms. While we have built redundancies in our systems, full redundancies do not exist. Some failures will shut our platform down completely,others only partially. Partial failures, which we have experienced in the past, could result in unauthorized bidding, cessation of our ability to bid or deliverimpressions or deletion of our reporting, in each case resulting in unanticipated financial obligations or impact.Operational and performance issues with our platform could also result in negative publicity, damage to our brand and reputation, loss of or delay inmarket acceptance of our platform, increased costs or loss of revenue, loss of the ability to access our platform, loss of competitive position or claims byclients for losses sustained by them. Alleviating problems resulting from such issues could require significant expenditures of capital and other resources andcould cause interruptions, delays or the cessation of our business, any of which may adversely affect our business, financial condition and operating results.Legislation and regulation of online businesses, including privacy and data protection regimes, could create unexpected costs, subject us to enforcementactions for compliance failures, or cause us to change our platform or business model, which may have a material adverse effect on our business.U.S. and foreign governments have enacted or are considering enacting legislation related to digital advertising and we expect to see an increase in, orchanges to, legislation and regulation related to our industry, including the use of geo-location data to inform advertising, the collection and use of non-identifiable or identifiable Internet user data and unique device identifiers, such as IP address or mobile unique device identifiers, and other data protectionand privacy-related regulation.Additionally, industry groups in the U.S., such as the Digital Advertising Alliance, or DAA, and the Network Advertising Initiative, or NAI, and theirinternational counterparts have self-regulatory guidelines that are subject to periodic updates to which we have agreed to adhere. Such legislation andregulation could cause us to incur unexpected compliance costs and adversely affect demand for our platform, or otherwise harm our business, results ofoperation and financial condition.For instance, a wide variety of local, state, national and international laws and regulations apply to the collection, use, retention, protection,disclosure, transfer (including transfer across national boundaries) and other processing of data collected from or about consumers and devices. While wehave not collected data that is traditionally considered personal data, such as an individual’s name, email address, address, phone numbers, social securitynumbers, or credit card numbers, we typically do collect and store IP addresses and other device identifiers (such as unique cookie identifiers and mobile appidentifiers), which are or may be considered personal data in some jurisdictions or otherwise may be the subject of legislation or regulation.Additionally, evolving definitions of what is considered personal data within the European Union (including the European Economic Area, or EEA,countries of Iceland, Liechtenstein and Norway), or EU, and elsewhere may also impact us. On October 19, 2016, the Court of Justice of the European Unionruled that IP addresses in certain circumstances are “personal data” under current EU law, at least when such IP addresses collected by website operators canbe combined with information held by ISPs and other companies that have the ability to identify a user’s real-life identity. In addition, the General DataProtection Regulation, which applies to any company inside or outside the EU that collects and uses personal data in connection with the offering of goodsor services to individuals in the EU or the monitoring of the behavior of individuals in the EU, will come into effect on May 25, 2018. The GDPR clarifiesthat the definition of “personal data” under the current EU data protection framework includes online identifiers provided by individuals’ devices, apps, andprotocols (such as IP addresses, mobile device IDs, cookie strings) and individuals’ location data, if there is potential that individuals can be identified bysuch data. The GDPR also enhances data protection obligations for controllers of personal data and for service providers processing personal data. Theseenhancements may bring about significant19Table of Contents changes in the way the advertising technology industry operates in the EU, and some companies may have difficulty adapting their businesses andtechnology. Non-compliance with the GDPR can trigger steep fines of up to the greater of €20 million or 4% of total worldwide annual turnover. Preparing tomeet the GDPR’s requirements before it becomes effective, and maintaining compliance with the GDPR thereafter, requires significant time, resources andexpense to change our business practices and our backend configuration, and may increase operating costs, or limit our ability to operate or expand ourbusiness.For the transfer of personal data from the EU to the U.S., we rely upon, and are currently certified under, the EU-U.S. and Swiss-U.S. Privacy ShieldFrameworks. The Privacy Shield Framework, however, continue to face criticism from privacy advocates in the EU, and is also subject to pending legalchallenges in the General Court of the Court of Justice of the European Union. Other EU mechanisms for adequate data transfer such as the standardcontractual clauses are also being challenged in the EU courts. These challenges to the legal means used to transfer data may lead to governmentalenforcement actions, litigation, fines and penalties or adverse publicity, which could have an adverse effect on our reputation and business. We may find itnecessary to establish systems to maintain personal data originating from the EU in the EU, which may involve substantial expense and may cause us todivert resources from other aspects of our business, all of which may adversely affect our business.We take commercially reasonable measures to protect the security of information that we collect, use and disclose in the operation of our business, andto offer privacy protections with respect to such information, including conducting third-party audits of our privacy practices and review our privacy policy.Such measures, however, may not always be effective and may not identify data security or privacy related risks or inadequate or inappropriate practices wehave used or adopted.Additionally, as the advertising industry evolves, and new ways of collecting, combining and using data are created, governments may enactlegislation that could result in our having to re-design features or functions of our platform, therefore incurring unexpected compliance costs. For example,the Federal Trade Commission, or the FTC, has examined, and likely will continue to examine, the privacy issues that arise as marketers track consumersacross several devices, otherwise known as cross-device tracking. The FTC may promulgate guidance regarding cross-device tracking, may encouragelegislation governing these practices, and may use its enforcement powers under Section 5 of the Federal Trade Commission Act (which prohibits “unfair”and “deceptive” trade practices) to investigate companies engaging in cross-device tracking. Similarly, evolving privacy regulation and self-regulation couldaffect our growth in omnichannel products.While we contractually prohibit our clients and inventory and data suppliers from supplying personally identifiable information or other sensitiveinformation to our system, we may inadvertently receive such information, which may result in us breaching privacy-related legislation or regulations.Additionally, we have contractual obligations to indemnify and hold harmless some of our clients and suppliers for the costs or consequences of our failure tocomply with privacy-related legislation and regulations, which may be triggered by such inadvertent ingestion of personally identifiable information in ourplatform.In addition to government regulation, the DAA, NAI, and other privacy advocates and industry groups, may propose new and different self-regulatorystandards that either legally or contractually apply to us. We also expect that there will continue to be new proposed laws and regulations concerningprivacy, data protection and information security, and we cannot yet determine the impact such future laws, regulations and standards may have on ourbusiness. Future laws, regulations, standards and other obligations, and changes in the interpretation and enforcement of existing laws, regulations, standardsand other obligations, as well as increased enforcement by industry groups or data protection authorities, could require changes to our practices or impair ouror our clients’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our platform, increase our costs andimpair our ability to maintain and grow our client base and increase our revenue. New laws, amendments to or re-interpretations of existing laws andregulations, industry standards, contractual obligations and other obligations may require us to incur additional costs and restrict our business operations.Because the interpretation and application of laws, contractual obligations and other obligations relating to privacy and data protection are still uncertain, itis possible that these laws and other obligations may be interpreted and applied in a manner that is inconsistent with our existing data management practicesor the features of our platform. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change ourbusiness activities and practices or modify our products, which could have an adverse effect on our business. We may be unable to make such changes andmodifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited.Data protection and privacy concerns are an important part of the programmatic advertising buying industry. Even the perception of privacy concerns,whether or not valid, may harm our reputation and inhibit use of our platform by current and future clients. For example, claims or adverse publicity couldresult from the perception of pharmaceuticals or medical advertisements targeting conditions. Our failure or perceived failure to comply with applicable lawsand regulations could result in enforcement actions against us, including fines, imprisonment of our officers and public censure, claims for damages byconsumers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse impact on our business,financial condition and operating results.20Table of Contents If the use of “third-party cookies” or other tracking technology is rejected by Internet users, restricted or otherwise subject to unfavorable regulation, orthe ability to use data on our platform is otherwise restricted, our performance may decline and we may lose advertisers and revenue.Digital advertising mostly relies on the use of cookies, pixels and other similar technology, which we refer to collectively as cookies, to collect dataabout interactions with users and devices. To provide our platform, we utilize third-party cookies, which are cookies owned and used by parties other than theowners of the website or app visited by the Internet user. Our cookies are used to record information tied to a random unique identifier, including suchinformation as when an Internet user views an ad, clicks on an ad or visits one of our advertiser’s websites through a browser while the cookie is active. Weuse cookies to help us achieve our advertisers’ campaign goals on the web, to limit the instances that an Internet user sees the same advertisement, to reportinformation to our advertisers regarding the performance of their advertising campaigns and to detect and prevent malicious behavior and invalid trafficthroughout our network of inventory. We also use data from cookies to help our clients decide whether to bid on, and how to price, an opportunity to placean advertisement in a specific location, at a given time, in front of a particular Internet user. Additionally, our clients use cookies and other technologies toadd information they have collected or acquired about users into our platform. Without such data, our clients may not have sufficient insight into an Internetuser’s activity, which may compromise their and our ability to determine which inventory to purchase for a specific campaign, and undermine theeffectiveness of our platform.Cookies may be deleted or blocked by Internet users who do not want information to be collected about them. The most commonly used Internetbrowsers—Chrome, Firefox, Internet Explorer and Safari—allow Internet users to modify their browser settings to prevent cookies from being accepted bytheir browsers. Additionally, the Safari browser currently blocks some third-party cookies by default and has recently added controls that algorithmicallyblock or limit some cookies. Other browsers could add similar controls. In addition, Internet users can delete cookies from their computers at any time. SomeInternet users also download free or paid ad blocking software that not only prevents third-party cookies from being stored on a user’s computer, but alsoblocks all interaction with a third-party ad server. Google has introduced ad blocking software in its Chrome web browser that will block certain ads based onquality standards established under a multi-stakeholder coalition. Additionally, the DAA, NAI and our company have certain opt-out mechanisms for users toopt out of the collection of their information via cookies. If more Internet users adopt these settings or delete their cookies more frequently than theycurrently do, or restrictions are imposed by advertisers and publishers, there are changes in technology or new developments in laws, regulations or industrystandards around cookies, our business could be harmed.For in-app advertising, data regarding interactions between users and devices are tracked mostly through stable, pseudonymous identifiers that arebuilt into the device operating system with privacy controls that allow users to express a preference with respect to data collection for advertising, includingto disable the identifier. These identifiers and privacy controls are defined by the developers of the mobile platforms and could be changed by the mobileplatforms in a way that may negatively impact our business. Privacy aspects of other channels for programmatic advertising, such as CTVs or over-the-topvideo, are still developing. Technical or policy changes, including regulation or industry self-regulation, could harm our growth in those channels.In addition, in the EU, Directive 2002/58/EC (as amended by Directive 2009/136/EC), commonly referred to as the Cookie Directive, directs EUmember states to ensure that accessing information on an Internet user’s computer, such as through a cookie and other similar technologies, is allowed only ifthe Internet user has been informed about such access and given his or her consent. A replacement for the Cookie Directive is currently under discussion byEU member states to complement and bring electronic communication services in line with the GDPR and force a harmonized approach across EU memberstates. Like the GDPR, the proposed ePrivacy Regulation has extra-territorial application as it applies to businesses established outside the EU who providepublicly-available electronic communications services to, or gather data from the devices of, users in the EU. Though still subject to debate, the proposedePrivacy Regulation is expected to do away with implied consent pop ups and banners used to meet the current requirements of the Cookie Directive andinstead required explicit user consent. The fines and penalties for breach of the proposed ePrivacy Regulation may be significant. Limitations on the use oreffectiveness of cookies, or other limitations on our, or our clients’, ability to collect and use data for advertising, whether imposed by EU member stateimplementations of the Cookie Directive, by the new ePrivacy Regulation, or otherwise, may impact the performance of our platform. We may be required to,or otherwise may determine that it is advisable to, make significant changes in our business operations and product and services to obtain user opt-in forcookies and use of cookie data, or develop or obtain additional tools and technologies to compensate for a lack of cookie data. We may not be able to makethe necessary changes in our business operations and products and services to obtain user opt-in for cookies and use of cookie data, or develop, implement oracquire additional tools that compensate for a lack of cookie data. Moreover, even if we are able to do so, such additional products and tools may be subjectto further regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies.21Table of Contents Potential “Do Not Track” standards or government regulation could limit our or our clients’ access to the user data that informs the advertisingcampaigns we run and, as a result, undermine the effectiveness of our platform.As the use of cookies has received ongoing media attention over the past several years, some government regulators, such as the FTC, and privacyadvocates have suggested creating a “Do Not Track” standard that would allow Internet users to express a preference, independent of cookie settings in theirbrowser, not to have their online browsing activities tracked. Similar standards have been set at device-level so that activities on mobile devices, includingbrowsing and app uses, are not tracked. The major Internet browsers have implemented some version of a “Do Not Track” setting. The potential regulatoryand self-regulatory landscape is inherently uncertain, as there is no definition of tracking, no consensus regarding what message is conveyed by a “Do NotTrack” setting and no industry standards regarding how to respond to a “Do Not Track” preference. The World Wide Web Consortium, or W3C, chartered a“Tracking Protection Working Group” in 2011 to convene a multi-stakeholder group of academics, thought leaders, companies, industry groups andconsumer advocacy organizations, to create a voluntary “Do Not Track” standard for the World Wide Web. The group has yet to agree upon a standard andhas considered disbanding due to uncertainty regarding the implementation of a “Do Not Track” standard. Work in the group has significantly slowed, andparticipation has declined to only a few participants. Despite the lack of consensus in this arena, the FTC, as it has suggested in the past, or other US federalor state government regulators, may pursue legislation if the industry cannot agree upon a standard. In the EU, the Article 29 Working Party recommended inan Opinion issued on April 4, 2017 that the proposed ePrivacy Regulation require terminal equipment and software to offer privacy protective settings bydefault with the ability for users to adjust these settings during setup, browser settings that enable users to signal specific consent, and mandatory adherenceto “Do Not Track” to give users additional control over the collection of their Internet activity data. If a “Do Not Track” browser setting is adopted by manyInternet users or if a “Do Not Track” standard imposed by state or federal or foreign legislation (such as the proposed ePrivacy Regulation), or agreed upon bystandard setting groups, which prohibits us from using data as we currently do, we may have to change our business practices, our clients may reduce their useof our platform, and our business, financial condition and operating results could be adversely affected.Failure to comply with industry self-regulation could harm our brand, reputation and business.We have committed to comply with the NAI’s Code of Conduct and the DAA’s Self-Regulatory Principles for Online Behavioral Advertising in theU.S., as well as similar self-regulatory principles in Europe and Canada adopted by the local Digital Advertising Alliance. Our efforts to comply with theseself-regulatory principles include offering Internet users notice and transparency when advertising is served to them based, in part, on browsing data recordedby cookies. We also offer Internet users the ability to opt out of receiving interest-based advertisements. If we make mistakes in our implementation of theseprinciples, or if self-regulatory bodies expand these guidelines or government authorities issue different guidelines regarding Internet-based advertising, orour opt out mechanisms fail to work as designed, or if Internet users misunderstand our technology or our commitments with respect to these principles, wemay, as a result, be subject to negative publicity, government investigation, government or private litigation, or investigation by self-regulatory bodies orother accountability groups. Any such action against us, or investigations, even if meritless, could be costly and time consuming, require us to change ourbusiness practices, cause us to divert management’s attention and our resources and be damaging to our brand, reputation and business.Our failure to meet content and inventory standards and provide services that our advertisers and inventory suppliers trust, could harm our brand andreputation and negatively impact our business, financial condition and operating results.We do not provide or control either the content of the advertisements we serve or that of the websites providing the inventory. Advertisers provide theadvertising content and inventory suppliers provide the inventory. Both advertisers and inventory suppliers are concerned about being associated withcontent they consider inappropriate, competitive or inconsistent with their brands, or illegal and they are hesitant to spend money without guaranteed brandsecurity. Additionally, advertisers may seek to display advertising campaigns in jurisdictions that do not permit such advertising (for example,pharmaceutical advertising is not permitted in many countries). Consequently, our reputation depends in part on providing services that our advertisers andinventory suppliers trust, and we have contractual obligations to meet content and inventory standards. We contractually prohibit the misuse of our platformby agencies (and their advertiser clients) and inventory suppliers. Additionally, we use our proprietary technology and third-party services to, and weparticipate in industry co-ops that work to, detect malware and other content issues as well as click fraud (whether by humans or software known as “bots”)and to block fraudulent inventory, including “tool bar” inventory, which is inventory that appears within an application and displaces any advertising thatwould otherwise be displayed on the website. Despite such efforts, our clients may inadvertently purchase inventory that proves to be unacceptable for theircampaigns, in which case, we may not be able to recoup the amounts paid to inventory suppliers. Preventing and combating fraud is an industry-wide issuethat requires constant vigilance, and we cannot guarantee that we will be fully successful in doing so. There are other means we could use, such as humanreview of content we serve, that some of our competitors undertake, but because our platform is self-service, and because such means are cost-intensive, we donot utilize all means available to decrease this risk. We may provide access to inventory that is objectionable to our advertisers or we may serve advertisingthat contains malware or objectionable content to our inventory suppliers, which could harm our or our clients’ brand and reputation, and negatively impactour business, financial condition and operating results.22Table of Contents If we fail to offer sufficient client training and support, our business and reputation would suffer.Because we offer a self-serve platform, client training and support is important for the successful marketing and continued use of our platform and formaintaining and increasing spend through our platform from existing and new clients. Providing this training and support requires that our platformoperations personnel have specific domain knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our supportoperations due to the extensive training required. The importance of high-quality client service will increase as we expand our business and pursue newclients. If we are not responsive and proactive regarding our clients’ advertising needs, or do not provide effective support for our clients’ advertisingcampaigns, our ability to retain our existing clients would suffer and our reputation with existing or potential clients would be harmed, which wouldnegatively impact our business.If the non-proprietary technology, software, products and services that we use are unavailable, have future terms we cannot agree to, or do not perform aswe expect, our business, financial condition and operating results could be harmed.We depend on various technology, software, products and services from third parties or available as open source, including for critical features andfunctionality of our platform, data centers and API technology, payment processing, payroll and other professional services. For example, in order for clientsto target ads in ways they desire and otherwise optimize and verify campaigns, our platform must have access to data regarding Internet user behavior andreports with demographic information regarding Internet users. Identifying, negotiating, complying with and integrating with third-party terms andtechnology are complex, costly and time-consuming matters. Failure by third-party providers to maintain, support or secure their technology either generallyor for our accounts specifically, or downtime, errors or defects in their products or services, could adversely impact our platform, our administrativeobligations or other areas of our business. Having to replace any third-party providers or their technology, products or services could result in outages ordifficulties in our ability to provide our services. For example, we rely upon third-party co-location providers for our data centers, and we are dependent onthese third parties to provide continuous power, cooling, Internet connectivity and physical and technological security for our servers. In the event that thesethird-party providers experience any interruption in operations or cease business for any reason, or if we are unable to agree on satisfactory terms forcontinued hosting relationships, we would be forced to enter into a relationship with other service providers or assume some hosting responsibilitiesourselves. In addition, even a disruption as brief as a few minutes could have a negative impact on marketplace activities and could result in a loss ofrevenue. If we are unsuccessful in establishing or maintaining our relationships with our third-party providers or otherwise need to replace them, internalresources may need to be diverted and our business, financial condition and operating results could be harmed.We face potential liability and harm to our business based on the human factor of inputting information into our platform.Campaigns are set up using several variables available to our clients on our platform. While our platform includes several checks and balances, it ispossible for human error to result in significant over-spending. The system requires a daily cap at the ad group level. We also provide for the client to inputdaily and overall caps at the advertising inventory campaign level at their discretion. Additionally, we set a credit limit for each user so that they cannotspend beyond the level of credit risk we are willing to accept. Despite these protections, the ability for overspend exists. For example, campaigns which lastfor a period of time can be set to pace evenly or as quickly as possible. If a client with a high credit limit enters the wrong daily cap with a campaign set to arapid pace, it is possible for a campaign to accidently go significantly over budget. While our client contracts state that clients are responsible for mediapurchased through our platform, we are ultimately responsible for paying the inventory providers and we may be unable to collect for such issues.International expansion subjects us to additional costs and risks that can adversely affect our business, financial condition and operating results.International expansion subjects us to many challenges associated with supporting a rapidly growing business across a multitude of cultures, customs,monetary, legal and regulatory systems and commercial infrastructures. We have a limited operating history outside of the U.S., and our ability to manage ourbusiness and conduct our operations internationally requires considerable attention and resources.We currently have sales, account management, inventory, and other personnel in countries within Europe, Asia, and Australia, and we anticipateexpanding our international operations in the future. Some of the countries into which we are, or potentially may, expand score unfavorably on theCorruption Perceptions Index, or CPI, of the Transparency International. Our teams outside the U.S. are substantially smaller than our teams in the U.S. To theextent we are unable to effectively engage with non-U.S. advertising agencies or international divisions of U.S. agencies due to our limited sales forcecapacity, or we are unable to secure quality non-U.S. ad inventory and data on reasonable terms due to our limited inventory and data team capacity, we maybe unable to effectively grow in international markets.23Table of Contents Our international operations subject us to a variety of additional risks, including: •increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations; •long payment cycles; •potential complications in enforcing contracts and collections; •increased financial accounting and reporting burdens and complexities; •concerns regarding negative, unstable or changing economic conditions in the countries and regions where we operate; •increased administrative costs and risks associated with compliance with local laws and regulations, including relating to privacy and datasecurity; •regulatory and legal compliance, including with anti-bribery laws, import and export control laws, economic sanctions and other regulatorylimitations or obligations on our operations; •heightened risks of unfair or corrupt business practices and of improper or fraudulent sales arrangements; •difficulties in invoicing and collecting in foreign currencies and associated foreign currency exposure; •difficulties in repatriating or transferring funds from or converting currencies; •administrative difficulties, costs and expenses related to various local languages, cultures and political nuances; •varied labor and employment laws, including those relating to termination of employees; •reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and •compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different taxregimes.We may incur significant operating expenses as a result of our international expansion, and it may not be successful. Our international business alsosubjects us to the impact of global and regional recessions and economic and political instability, differing regulatory requirements, costs and difficulties inmanaging a distributed workforce, potentially adverse tax consequences in the U.S. and abroad and restrictions on the repatriation of funds to the U.S. Inaddition, advertising markets outside of the U.S. are not as developed as those within the U.S., and we may be unable to grow our business sufficiently. Ourfailure to manage these risks and challenges successfully could adversely affect our business, financial condition and operating results.Exposure to foreign currency exchange rate fluctuations could negatively impact our operating results.While the majority of the transactions through our platform are denominated in U.S. dollars, we have transacted in foreign currencies for bothinventory and for payments by clients from use of our platform, including principally the Euro, the Canadian Dollar, British Pound, Australian Dollar,Japanese Yen and Indonesian Rupiah. Given our anticipated international growth, we expect the number of transactions in foreign currencies to continue togrow in the future. While we do require a fee from our clients that pay in non-U.S. currency, this fee may not always cover foreign currency exchange ratefluctuations. We currently have a program to hedge exposure to foreign currency fluctuations. However, the use of hedging instruments may not be availablefor all currencies, or may not always offset losses resulting from foreign currency exchange rate fluctuations. Moreover, the use of hedging instruments canitself result in losses if we are unable to structure effective hedges with such instruments.Future acquisitions, strategic investments or alliances could disrupt our business and harm our business, financial condition and operating results.We may in the future explore potential acquisitions of companies or technologies, strategic investments, or alliances to strengthen our business.However, we have limited experience in acquiring and integrating businesses, products and technologies. Even if we identify an appropriate acquisitioncandidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may fail to identify all of the problems,liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, productquality or architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or client issues. Acquisitions involvenumerous risks, any of which could harm our business, including: •regulatory hurdles; •anticipated benefits may not materialize;24Table of Contents •diversion of management time and focus from operating our business to addressing acquisition integration challenges; •retention of employees from the acquired company; •cultural challenges associated with integrating employees from the acquired company into our organization; •integration of the acquired company’s products and technology; •integration of the acquired company’s accounting, management information, human resources and other administrative systems; •the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effectivecontrols, procedures and policies; •coordination of product development and sales and marketing functions; •liability for activities of the acquired company before the acquisition, including relating to privacy and data security, patent and trademarkinfringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and •litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders orother third parties.Failure to appropriately mitigate these risks or other issues related to such acquisitions and strategic investments could result in reducing orcompletely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuancesof our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could harm ourbusiness, financial condition and operating results.We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs, which may in turn impair our growth.We intend to continue to grow our business, which will require additional capital to develop new features or enhance our platform, improve ouroperating infrastructure, finance working capital requirements or acquire complementary businesses and technologies. Accordingly, we may need to engagein additional equity or debt financings to secure additional capital. If we raise additional funds through future issuances of equity or convertible debtsecurities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privilegessuperior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capitalraising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue businessopportunities. If we are unable to secure additional funding on favorable terms, or at all, when we require it, our ability to continue to grow our business toreact to market conditions could be impaired and our business may be harmed.Our credit facility contains operating and financial covenants that restrict our business and financing activities.Our credit facility contains restrictions that limit our flexibility in operating our business. In March 2016, we entered into a loan and securityagreement with a syndicate led by Citibank, N.A., which we refer to as our credit facility. In May 2017, terms of our credit facility were amended and restated,and subject to certain customary conditions, we now have access to borrow up to $200.0 million aggregate principal amount of revolver borrowings. Theamount of borrowing availability under our credit facility is based on our accounts receivable balance, reduced by certain reserves. As of December 31, 2017,the outstanding principal balance under our credit facility was $27.0 million, and in January 2018, we repaid this balance. Our credit facility also containsvarious covenants that limit our ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability to, amongother things: •sell assets or make changes to the nature of our business; •engage in mergers or acquisitions; •incur, assume or permit additional indebtedness and guarantees; •make restricted payments, including paying dividends on, repurchasing, redeeming or making distributions with respect to our capital stock; •make specified investments; •engage in transactions with our affiliates; and •make payments in respect of subordinated debt.25Table of Contents In addition, our credit facility contains a fixed charge coverage ratio which, if our excess availability under the credit facility is less than the greater of(1) $15.0 million and (2) 12.5% of the lesser of (a) the borrowing base then in effect and (b) the commitments under the credit facility then in effect, requiresus to maintain a certain ratio of our earnings to principal and interest payable under the credit facility in a given period. Our obligations under the creditfacility are collateralized by a pledge of substantially all of our assets, including accounts receivable, deposit accounts, intellectual property, investmentproperty and equipment. The covenants in our credit facility may limit our ability to take actions and, in the event that we breach one or more covenants, ourlenders may choose to declare an event of default and require that we immediately repay all amounts outstanding, terminate the commitment to extendfurther credit and foreclose on the collateral granted to them to collateralize such indebtedness, which includes our intellectual property. In addition, if wefail to meet the required covenants, we will not have access to further draw-downs under the credit facility.Our future success depends on the continuing efforts of our key employees, including Jeff T. Green and David R. Pickles, and our ability to attract, hire,retain and motivate highly skilled employees in the future.Our future success depends on the continuing efforts of our executive officers and other key employees, including our two founders, Jeff T. Green, ourChief Executive Officer, and David R. Pickles, our Chief Technology Officer. We rely on the leadership, knowledge and experience that our executiveofficers provide. They foster our corporate culture, which has been instrumental to our ability to attract and retain new talent. We also rely on employees inour product development, support and sales teams to attract and keep key clients.The market for talent in our key areas of operations, including California and New York, is intensely competitive, which could increase our costs toattract and retain talented employees. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related tosalaries and benefits and compensation expenses related to equity awards, and we may lose new employees to our competitors or other companies before werealize the benefit of our investment in recruiting and training them. New employees often require significant training and, in many cases, take significanttime before they achieve full productivity. Our account managers, for instance, need to be trained quickly on the features of our platform since failure to offerhigh-quality support may adversely affect our relationships with our clients. Technology companies like ours compete to attract the best talent. Additionally,we have little experience with recruiting in geographies outside of the U.S., and may face additional challenges in attracting and retaining internationalemployees.Employee turnover, including changes in our management team, could disrupt our business. None of our founders or other key employees has anemployment agreement for a specific term, and any of our employees may terminate his or her employment with us at any time. The loss of one or more of ourexecutive officers, especially our two founders, or our inability to attract and retain highly skilled employees could have an adverse effect on our business,financial condition and operating results.Our management team has limited experience managing a public company.We became a public company in September 2016. Most members of our management team have limited or no experience managing a publicly-tradedcompany, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern publiccompanies. As a public company, we are now subject to significant obligations relating to reporting, procedures and internal controls, and our managementteam may not successfully or efficiently manage such obligations. These new obligations and scrutiny will require significant attention from our managementand could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition andoperating results.If we do not effectively grow and train our sales and support teams, we may be unable to add new clients or increase sales to our existing clients and ourbusiness will be adversely affected.We are substantially dependent on our sales and support teams to obtain new clients and to increase spend by our existing clients. We believe thatthere is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve revenue growth willdepend, in large part, on our success in recruiting, training, integrating and retaining sufficient numbers of sales personnel to support our growth. Due to thecomplexity of our platform, new hires require significant training and it may take significant time before they achieve full productivity. Our recent andplanned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in themarkets where we do business or plan to do business. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnelare not successful in obtaining new clients or increasing our existing clients’ spend with us, our business will be adversely affected.26Table of Contents Our corporate culture has contributed to our success and, if we are unable to maintain it as we grow, our business, operating results and financialcondition could be harmed.We have experienced and may continue to experience rapid expansion of our employee ranks. We believe our corporate culture has been a keyelement of our success. However, as our organization grows, it may be difficult to maintain our culture, which could reduce our ability to innovate andoperate effectively. The failure to maintain the key aspects of our culture as our organization grows could result in decreased employee satisfaction, increaseddifficulty in attracting top talent, increased turnover and could compromise the quality of our client service, all of which are important to our success and tothe effective execution of our business strategy. In the event we are unable to maintain our corporate culture as we grow to scale, our business, operatingresults and financial condition could be harmed.Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our technology without compensating us, therebyeroding our competitive advantages and harming our business.We rely upon a combination of trade secrets, third-party confidentiality and non-disclosure agreements, additional contractual restrictions ondisclosure and use, and trademark, copyright and other intellectual property laws to establish and protect our proprietary rights. These laws, procedures andrestrictions provide only limited protection. We currently have “theTradeDesk” and variants registered as a trademark or pending registration in the U.S. andcertain foreign countries. We also rely on copyright laws to protect computer programs related to our platform and our proprietary technologies, although todate we have not registered for statutory copyright protection. We have registered numerous Internet domain names in the U.S. and certain foreign countriesrelated to our business in order to protect our proprietary interests. We endeavor to enter into agreements with our employees and contractors in order to limitaccess to and disclosure of our proprietary information, as well as to clarify rights to intellectual property associated with our business. Protecting ourintellectual property is a challenge, especially after our employees or our contractors end their relationship with us, and, in some cases, decide to work for ourcompetitors. Our contracts with our employees and contractors that relate to intellectual property issues generally restrict the use of our confidentialinformation solely in connection with our services, and strictly prohibit reverse-engineering. However, reverse engineering our software or the theft or misuseof our proprietary information could occur by employees or other third parties who have access to our technology. Enforceability of the non-competeagreements that we have in place is not guaranteed, and contractual restrictions could be breached without discovery or adequate remedies. Further, becausewe believe our proprietary technology is better protected by keeping our technology architecture, trade secrets, and engineering roadmap private, we havenot patented our proprietary technology and cannot look to patent enforcement rights to protect our proprietary technology.Policing unauthorized use of our technology is difficult. In addition, the laws of some foreign countries may not be as protective of intellectualproperty rights as those of the U.S., and mechanisms for enforcement of our proprietary rights in such countries may be inadequate. If we are unable to protectour proprietary rights (including in particular, the proprietary aspects of our platform) we may find ourselves at a competitive disadvantage to others whohave not incurred the same level of expense, time and effort to create and protect their intellectual property.We may be sued by third parties for alleged infringement of their proprietary rights, which would result in additional expense and potential damages.There is significant patent and other intellectual property development activity in the digital advertising industry. Third-party intellectual propertyrights may cover significant aspects of our technologies or business methods or block us from expanding our offerings. Our success depends on the continualdevelopment of our platform. From time to time, we may receive claims from third parties that our platform and underlying technology infringe or violatesuch third parties’ intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectualproperty claims. The cost of defending against such claims, whether or not the claims have merit, is significant, regardless of whether we are successful in ourdefense, and could divert the attention of management, technical personnel and other employees from our business operations. Litigation regardingintellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters.Additionally, we may be obligated to indemnify our clients or inventory and data suppliers in connection with any such litigation. If we are found to infringethese rights, we could potentially be required to cease utilizing portions of our platform. We may also be required to develop alternative non-infringingtechnology, which could require significant time and expense. Alternatively, we could be required to pay royalty payments, either as a one-time fee orongoing, as well as damages for past use that was deemed to be infringing. If we cannot license or develop technology for any allegedly infringing aspect ofour business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could harm our business.27Table of Contents We face potential liability and harm to our business based on the nature of our business and the content on our platform.Advertising often results in litigation relating to copyright or trademark infringement, public performance royalties or other claims based on the natureand content of advertising that is distributed through our platform. Though we contractually require agencies to represent to us that they have the rightsnecessary to serve advertisements through our platform, we do not independently verify whether we are permitted to deliver, or review the content of, suchadvertisements. If any of these representations are untrue, we may be exposed to potential liability and our reputation may be damaged. While our clients aretypically obligated to indemnify us, such indemnification may not fully cover us, or we may not be able to collect. In addition to settlement costs, we may beresponsible for our own litigations costs, which can be extensive.We are subject to anti-bribery, anti-corruption and similar laws and non-compliance with such laws can subject us to criminal penalties or significantfines and harm our business and reputation.We are subject to anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domesticbribery statute contained in 18 U.S.C. § 201, the USA PATRIOT Act, U.S. Travel Act, the U.K. Bribery Act 2010 and Proceeds of Crime Act 2002, andpossibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws have beenenforced with great rigor in recent years and are interpreted broadly and prohibit companies and their employees and their agents from making or offeringimproper payments or other benefits to government officials and others in the private sector. As we increase our international sales and business, particularlyin countries with a low score on the CPI by Transparency International, and increase our use of third parties such as sales agents, distributors, resellers orconsultants, our risks under these laws will increase. We adopt appropriate policies and procedures and conduct training, but cannot guarantee thatimproprieties will not occur. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcementactions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contractingwith specified persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. Any investigations,actions and/or sanctions could have a material negative impact on our business, operating results and financial condition.We are subject to governmental economic sanctions requirements and export and import controls that could impair our ability to compete in internationalmarkets or subject us to liability if we are not in compliance with applicable laws.As a U.S. company, we are subject to U.S. export control and economic sanctions laws and regulations, and we are required to export our technologyand services in compliance with those laws and regulations, including the U.S. Export Administration Regulations and economic embargo and trade sanctionprograms administered by the Treasury Department’s Office of Foreign Assets Control. U.S. economic sanctions and export control laws and regulationsprohibit the shipment of specified products and services to countries, governments and persons targeted by U.S. sanctions. While we are currently takingprecautions to prevent doing any business, directly or indirectly, with countries, governments and persons targeted by U.S. sanctions and to ensure that ourtechnology and services are not exported or used by countries, governments and persons targeted by U.S. sanctions, such measures may be circumvented.There can be no assurance that we will be in compliance with U.S. export control or economic sanctions laws and regulations in the future. Any suchviolation could result in significant criminal or civil fines, penalties or other sanctions and repercussions, including reputational harm that could materiallyadversely impact our business.Furthermore, if we export our technology, the exports may require authorizations, including a license, a license exception or other appropriategovernment authorization. Complying with export control and sanctions regulations may be time-consuming and may result in the delay or loss ofopportunities.In addition, various countries regulate the import of encryption technology, including the imposition of import permitting and licensing requirements,and have enacted laws that could limit our ability to offer our platform or could limit our clients’ ability to use our platform in those countries. Changes inour platform or future changes in export and import regulations may create delays in the introduction of our platform in international markets or prevent ourclients with international operations from deploying our platform globally. Any change in export or import regulations, economic sanctions or relatedlegislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by,or in our decreased ability to export our technology and services to, existing or potential clients with international operations. Any decreased use of ourplatform or limitation on our ability to export our platform would likely adversely affect our business operating results and financial condition.28Table of Contents Our tax liabilities may be greater than anticipated.The U.S. and non-U.S. tax laws applicable to our business activities are subject to interpretation and are changing. We are subject to audit by theInternal Revenue Service and by taxing authorities of the state, local and foreign jurisdictions in which we operate. Our tax obligations are based in part onour corporate operating structure, including the manner in which we develop, value, and use our intellectual property, the jurisdictions in which we operate,how tax authorities assess revenue-based taxes such as sales and use taxes, the scope of our international operations and the value we ascribe to ourintercompany transactions. Taxing authorities may challenge, and have challenged, our tax positions and methodologies for valuing developed technologyor intercompany arrangements, as well as our positions regarding the collection of sales and use taxes and the jurisdictions in which we are subject to taxes,which could expose us to additional taxes. Any adverse outcomes of such challenges to our tax positions could result in additional taxes for prior periods,interest and penalties, as well as higher future taxes. In addition, our future tax expense could increase as a result of changes in tax laws, regulations oraccounting principles, or as a result of earning income in jurisdictions that have higher tax rates. An increase in our tax expense could have a negative effecton our financial position and results of operations. Moreover, the determination of our provision for income taxes and other tax liabilities requires significantestimates and judgment by management, and the tax treatment of certain transactions is uncertain. Although we believe we will make reasonable estimatesand judgments, the ultimate outcome of any particular issue may differ from the amounts previously recorded in our financial statements and any suchoccurrence could materially affect our financial position and results of operations.Risks Related to Ownership of Our Class A Common StockThe market price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resellyour shares at or above your purchase price.The market price of our stock and of equity securities of technology companies has historically experienced high levels of volatility. If you purchaseshares of our Class A common stock, you may not be able to resell those shares at or above your purchase price. The market price of our Class A commonstock has fluctuated and may fluctuate significantly in response to numerous factors, some of which are beyond our control and may not be related to ouroperating performance, including: •announcements of new offerings, products, services or technologies, commercial relationships, acquisitions or other events by us or ourcompetitors; •price and volume fluctuations in the overall stock market from time to time; •significant volatility in the market price and trading volume of technology companies in general and of companies in the digital advertisingindustry in particular; •fluctuations in the trading volume of our shares or the size of our public float; •actual or anticipated changes or fluctuations in our operating results; •whether our operating results meet the expectations of securities analysts or investors; •actual or anticipated changes in the expectations of investors or securities analysts; •litigation involving us, our industry, or both; •regulatory developments in the U.S., foreign countries, or both; •general economic conditions and trends; •major catastrophic events; •sales of large blocks of our common stock; •departures of key employees; or •an adverse impact on the company from any of the other risks cited herein.In addition, if the stock market for technology companies, or the stock market generally, experiences a loss of investor confidence, the trading price ofour Class A common stock could decline for reasons unrelated to our business, operating results or financial condition. Stock prices of many technologycompanies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The trading price of our Class Acommon stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past,stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it couldsubject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.29Table of Contents Substantial future sales of shares of our common stock could cause the market price of our Class A common stock to decline.The market price of our Class A common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors,executive officers, and significant stockholders or the perception in the market that holders of a large number of shares intend to sell their shares.Additionally, the shares of common stock subject to outstanding options, restricted stock awards and restricted stock units under our equity incentiveplans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject tocertain legal and contractual limitations.Certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or toinclude their shares in registration statements that we may file for ourselves or our stockholders.Insiders have substantial control over our company, including as a result of the dual class structure of our common stock, which could limit your ability toinfluence the outcome of key decisions, including a change of control.Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we offered in our initial public offering, or IPO,has one vote per share. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stockcollectively continue to control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to ourstockholders for approval so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A and Class B commonstock. Stockholders who hold shares of Class B common stock, including our executive officers, employees, and directors and their affiliates, together holdapproximately 74% of the voting power of our outstanding capital stock as of December 31, 2017. This concentrated control limits or precludes your abilityto influence corporate matters for the foreseeable future. These stockholders are able to influence or control matters requiring approval by our stockholders,including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. Their interests may differ from yours and theymay vote in a manner that is adverse to your interests. This ownership concentration may deter, delay or prevent a change of control of our company, depriveour stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may ultimately affect the market price ofour common stock.Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limitedexceptions, such as transfers effected for estate planning or charitable purposes. The conversion of Class B common stock to Class A common stock will havethe effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retainqualified board members.As a public company, we are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirementsof the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ, and other applicablesecurities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, make some activities moredifficult, time-consuming or costly and increase demand on our systems and resources. Among other things, the Exchange Act requires that we file annual,quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal controlsover financial reporting. Significant resources and management oversight are required to maintain and, if required, improve our disclosure controls andprocedures and internal controls over financial reporting to meet this standard. As a result, management’s attention may be diverted from other businessconcerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, wemay need to hire even more employees in the future, which will increase our costs and expenses.Being a public company may make it more expensive for us to obtain director and officer liability insurance, and we may be required to acceptreduced coverage or incur substantially higher costs to obtain coverage. The heightened risks faced by directors and officers of a public company could alsomake it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensationcommittee, and qualified executive officers.30Table of Contents Our charter documents and Delaware law could discourage takeover attempts and other corporate governance changes.Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions couldalso make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporateactions, including effecting changes in our management. These provisions include the following provisions: •permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; •provide that our board of directors will be classified into three classes with staggered, three year terms and that directors may only be removedfor cause; •require super-majority voting to amend certain provisions in our certificate of incorporation and bylaws; •authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; •eliminate the ability of our stockholders to call special meetings of stockholders; •specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors, or ourchief executive officer; •prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; •provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; •provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; •prohibit cumulative voting in the election of directors; •restrict the forum for certain litigation against us to Delaware; •permit our board of directors to alter our bylaws without obtaining stockholder approval; •reflect the dual class structure of our common stock, as discussed above; and •establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon bystockholders at annual stockholder meetings.In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit largestockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time.Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes betweenus and our stockholders, which limits our stockholders’ ability to choose other forums for disputes with us or our directors, officers or employees.Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for: (1) any derivativeaction or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty by any of our directors, officers, employees or ourstockholders owed to us or our stockholders; (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, ourcertificate of incorporation or our bylaws, or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State ofDelaware; or (4) any action asserting a claim governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability tobring a claim in other judicial forums for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and ourdirectors, officers and other employees in jurisdictions other than Delaware. Alternatively, if a court were to find the choice of forum provision contained inour certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in otherjurisdictions, which could have a material adverse effect our business, financial condition or results of operations.Item 1B. Unresolved Staff CommentsNone.31Table of Contents Item 2. PropertiesWe maintain our principal offices in Ventura, California, totaling approximately 25,000 square feet, under two leases that expire in September 2020and February 2022. We also lease offices in various cities within the U.S., Europe, Asia and Australia. We believe that our facilities are adequate to meet ourneeds for the immediate future and that, should it be needed, we will be able to secure additional space to accommodate expansion of our operations.Item 3. Legal ProceedingsWe are not currently a party to any legal proceedings, litigation or claims, which, if determined adversely to us, would have a material adverse effecton our business, operating results, financial condition or cash flows. We may from time to time, be party to litigation and subject to claims incident to theordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion ofmanagement resources and other factors.Item 4. Mine Safety DisclosuresNot applicable.32Table of Contents PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur Class A common stock began trading on the NASDAQ Global Market on September 21, 2016 under the symbol “TTD”. Prior to this date, therewas no public trading market for our Class A common stock. There is no public trading market for our Class B common stock. The following table sets forth,for the indicated periods, the intraday high and low sales prices per share of our Class A common stock as reported on the NASDAQ Global Market. High Low Year Ended December 31, 2016 Third quarter (commencing September 21, 2016) $33.40 $26.84 Fourth quarter $31.43 $22.00 Year Ended December 31, 2017 First quarter $46.21 $26.40 Second quarter $57.57 $35.04 Third quarter $62.86 $46.49 Fourth quarter $67.30 $43.44 Holders of RecordAs of January 31, 2018, there were approximately 14 holders of record of our Class A common stock and 46 holders of record of our Class B commonstock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose sharesare held in street name by brokers and other nominees. This number of holders also does not include stockholders whose shares may be held in trust by otherentities.Dividend PolicyWe have never declared or paid any dividends on our Class A or Class B common stock, and we do not anticipate paying any cash dividends in theforeseeable future. We currently intend to retain any earnings to finance the operation and expansion of our business. Any future determination to paydividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our earnings, capitalrequirements, results of operations, financial condition, business prospects and other factors that our board of directors considers relevant. See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding our financial condition. Inaddition, our credit facility contains restrictions on our ability to pay dividends.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.Recent Sales of Unregistered SecuritiesNone.Stock Performance GraphThis performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, orotherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ours under the Securities Actof 1933, as amended, except as shall be expressly set forth by specific reference in such filing.33Table of Contents The following graph compares the cumulative total stockholder return on an initial investment of $100 in our Class A common stock betweenSeptember 21, 2016 (our initial trading day) and December 31, 2017, with the comparative cumulative total returns of the Standard & Poor’s (S&P) 500Index, Russell 2000 Index and NASDAQ 100 Index over the same period. As previously discussed, we have not paid any cash dividends and, therefore, thecumulative total return calculation for us is based solely upon stock price appreciation (depreciation) and not reinvestment of cash dividends, whereas thedata for the S&P 500 Index, Russell 2000 Index and NASDAQ 100 Index assumes reinvestments of dividends. The graph assumes the closing market price onSeptember 21, 2016 of $30.10 per share as the initial value of our Class A common stock. The returns shown are based on historical results and are notnecessarily indicative of, nor intended to forecast, future stock price performance. For the fiscal year 2017, we added the NASDAQ 100 Index because thecompanies which comprise the NASDAQ 100 index align with our growing business. 34Table of Contents Item 6. Selected Financial DataThe following tables set forth our selected consolidated financial data for the periods indicated. We have derived the selected consolidated statementsof operations data for 2015, 2016, and 2017 and the selected consolidated balance sheet data as of December 31, 2016 and 2017 from our auditedconsolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for 2014and the selected consolidated balance sheet data as of December 31, 2014 and 2015 were derived from our audited consolidated financial statements that arenot included in this Annual Report on Form 10-K.The following selected consolidated financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our consolidated financial statements and the related notes appearing in “Item 8. Financial Statements andSupplementary Data” in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our future results. Year Ended December 31, 2014 2015 2016 2017 (in thousands, except per share data) Consolidated Statements of Operations Data: Revenue $44,548 $113,836 $202,926 $308,217 Operating expenses (1): Platform operations 12,559 22,967 39,876 66,230 Sales and marketing 14,590 26,794 46,056 61,379 Technology and development 7,250 12,819 27,313 52,806 General and administrative 9,385 13,276 32,163 58,446 Total operating expenses 43,784 75,856 145,408 238,861 Income from operations 764 37,980 57,518 69,356 Total other expense, net 1,707 8,125 13,684 5,731 Income (loss) before income taxes (943) 29,855 43,834 63,625 Provision for (benefit from) income taxes (948) 13,926 23,352 12,827 Net income $5 $15,929 $20,482 $50,798 Net income (loss) attributable to common stockholders (2) $— $8,764 $(26,727) $50,798 Net income (loss) per share attributable to common stockholders–basic (2) $— $0.85 $(1.46) $1.26 Net income (loss) per share attributable to common stockholders–diluted (2) $— $0.39 $(1.46) $1.15 Year Ended December 31, 2014 2015 2016 2017 (in thousands) Non-GAAP Financial and Operating Data: Gross spend (3) $211,266 $552,325 $1,027,984 $1,555,856 Gross billings (4) $201,804 $529,975 $990,561 $1,491,742 As of December 31, 2014 2015 2016 2017 (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $17,315 $4,047 $133,400 $155,950 Accounts receivable, net 78,364 191,943 377,240 599,565 Total assets 102,238 210,231 537,596 797,164 Accounts payable 58,293 108,461 321,163 490,377 Long-term debt, net of current portion 16,493 45,918 25,847 27,000 (5)Total liabilities 80,372 171,885 373,216 551,581 Convertible preferred stock 27,997 24,204 — — Total stockholders’ equity (deficit) (6,131) 14,142 164,380 245,583 (1)Includes stock-based compensation expense as follows:35Table of Contents Year Ended December 31, 2014 2015 2016 2017 (in thousands) Platform operations $14 $71 $756 $2,674 Sales and marketing 50 127 1,707 6,261 Technology and development 909 85 1,513 6,661 General and administrative 3,572 91 1,080 5,721 Total $4,545 $374 $5,056 $21,317 See Note 10 to our audited consolidated financial statements for more information regarding stock-based compensation expense.(2)See Note 3 to our audited consolidated financial statements for a description of the net income (loss) attributable to common stockholders and netincome (loss) per share attributable to common stockholders—basic and diluted computations.(3)Gross spend includes the value of a client’s purchases through our platform plus our platform fee, which is a percentage of a client’s purchases throughthe platform. We review gross spend for internal management purposes to assess market share and scale, and to plan for optimal levels of support forour clients. Some companies in our industry report revenue on a gross basis or use similar metrics, so tracking our gross spend allows us to compare ourresults to the results of those companies. Gross spend does not represent our revenue reported on a GAAP basis. Our gross spend is influenced by thevolume and characteristics of bids for advertising inventory won through our platform. We expect our revenue as a percentage of gross spend, which issometimes referred to as take rate, to fluctuate due to the types of services and features selected by our clients through our platform and certain volumediscounts. We track gross spend based on the location of our office servicing the respective clients. Other companies, including companies in ourindustry, may calculate gross spend or similarly titled measures differently, which reduces its usefulness as a comparative measure.(4)Gross billings represents the amount we invoice our clients, net of allowances. As some of our clients have payment relationships directly withadvertising inventory suppliers for the amount of advertising inventory the clients purchase through our platform, we do not invoice these clients forthis spend, and we only invoice such clients for data, other services and our platform fee. Accordingly, gross billings are less than gross spend andrepresent gross spend, less platform discounts and less the value of advertising inventory and data that our clients purchase directly from publishersthrough our platform. We report revenue on a net basis which represents gross billings net of amounts we pay suppliers for the cost of advertisinginventory, data and add-on features. We expect our revenue as a percentage of gross billings to fluctuate due to the types of services and featuresselected by our clients through our platform and certain volume discounts. We review gross billings for internal management purposes to adequatelyplan for our working capital needs and monitor collection risk. We track gross billings based on the billing address of the client. In many cases,international clients are serviced from our U.S. offices resulting in gross billings exceeding gross spend for international clients.(5)In January 2018, we repaid the outstanding principal and accrued interest. 36Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financialstatements and the related notes to those statements included in Item 8 to this Annual Report on Form 10-K. In addition to historical financial information,the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations, and involve risks anduncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K,particularly in the section titled “Item 1A. Risk Factors” and the “Special Note About Forward-Looking Statements”.References to “Notes” are notes included in our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.Overview We are a global technology company that empowers ad buyers by providing a self-service omnichannel software platform that enables our clients topurchase and manage data-driven digital advertising campaigns. Our platform allows clients to manage integrated advertising campaigns across variousadvertising channels and formats, including connected TV (CTV), mobile, video, audio, display, social and native, on a multitude of devices, including smartTVs, computers, and various mobile devices including phones and tablets. We commercially launched our platform in 2011 targeting display advertising. We have since extended our platform to address additional advertisingformats, and in 2017, approximately 62% of gross spend on our platform was for mobile, video, audio, social, and native. Our clients are the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements, orMSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising, data and other featuresthrough our platform. Executive SummaryHighlightsFor the years ended December 31, 2016 and 2017: •our revenue was $202.9 million and $308.2 million, respectively, representing an increase of 52%; and •our net income was $20.5 million and $50.8 million, respectively.Trends, Opportunities and ChallengesThe growing digitization of media and fragmentation of audiences has increased the complexity of advertising, and thereby increased the need forautomation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilitiesand advertising inventory. We believe that key opportunities include our ongoing global expansion, continuing development of our CTV, native, audio andvideo ad inventory, and continuing development of our data usage and advertising targeting capabilities.We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmaticadvertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largestadvertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of theiradvertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertisingthrough platforms such as ours.Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type ofadvertising inventory that we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our recentintegrations with supply-side partners.37Table of Contents We plan to invest for long-term growth. We anticipate that our operating expenses will increase significantly in the foreseeable future as we invest inplatform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales andmarketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in ourinfrastructure, including our information technology, financial and administrative systems and controls, to support our operations.In addition, we believe the markets outside of the U.S. offer an opportunity for growth, and we intend to make additional investments in sales andmarketing and product development to expand in these markets, including China, where we are making significant investments in launching our platformand growing our team.We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.Factors Affecting Our PerformanceGrowth in and Retention of Client Spend Our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients. Our clients include some of thelargest advertising agencies in the world, and we believe there is significant room for us to expand further within these clients. As a result, future revenuegrowth depends upon our ability to retain our existing clients and to gain a larger amount of their advertising spend through our platform. In order to analyze the contribution to the growth of our business driven by the increase in gross spend from existing clients, we measure annual grossspend for the set of clients, or cohort, that commenced spending on our platform in a specific year relative to subsequent periods. The gross spend from eachof our cohorts has increased over subsequent periods. However, over time we will likely lose clients from each cohort, clients may spend less on our platformand the growth rate of gross spend may change. Any such change could have a significant negative impact on gross spend and operating results.Ability to Expand our Omnichannel Reach, Including CTV and Digital RadioWe enable the purchase of advertising inventory in a wide variety of formats. Although display advertising represented 38% of our gross spend in2017, non-display advertising such as mobile, video and social are significant and increasing components of our gross spend. Our future growth will dependon our ability to maintain and grow the inventory of, and spend on, other channels. In addition, we believe that our ability to integrate and offer CTV anddigital radio advertising inventory for purchase through our platform, and in particular our ability to manage the increased costs that will accompany thesepurchases, will impact the future growth of our business.Growth of the Programmatic Advertising MarketOur operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers,as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and anyacceleration, or slowing, of this growth would affect our operating and financial performance. In addition, even if the programmatic advertising marketcontinues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business.Development of International MarketsWe have been increasing our focus on markets outside the U.S. to serve the global needs of our clients. We believe that the global opportunity forprogrammatic advertising is significant due to the growing middle class abroad, and should continue to expand as publishers and advertisers outside the U.S.seek to adopt the benefits that programmatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presenceinternationally, and we expect our growth internationally to continue outpacing our domestic growth. Our growth and the success of our initiatives in newermarkets will depend on the continued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about geographicgross billings is set forth in Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.38Table of Contents SeasonalityIn the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largestportion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of theyear reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue tofluctuate based on seasonal factors that affect the advertising industry as a whole, and events such as the U.S. election cycle and the Olympics.Components of Our Results of OperationsWe have one primary business activity and operate in one operating and reportable segment.RevenueWe generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-onfeatures.We report revenue on a net basis which represents gross billings net of amounts we pay suppliers for the cost of advertising inventory, data and add-onfeatures. Our accounts receivable are recorded at the amount of gross billings to clients, net of allowances, for the amounts we are responsible to collect, andour accounts payable are recorded at the amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation torevenue reported on a net basis.Revenue as a percentage of gross spend may fluctuate from period to period due to a number of factors, such as changes in the proportion of spendrepresented by our larger customers with the lowest platform fees, our clients’ use of platform features and volume discounts. We expect that our revenue as apercentage of gross spend will fluctuate in the future, especially as we introduce and as our clients select new platform features, expand our omnichannelcapabilities, extend our reach to TV inventory and add additional clients whose businesses may have different underlying business models.See “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.Operating ExpensesWe classify our operating expenses into the following four categories:Platform Operations. Platform operations expense consists of expenses related to hosting our platform, which includes “internet traffic” associatedwith the viewing of available impressions or queries per second (QPS) and providing support to our clients. Platform operations expense includes hostingcosts, personnel costs, and amortization of acquired technology and capitalized software costs for the development of our platform, including allocatedoverhead. Personnel costs included in platform operations include salaries, bonuses, stock-based compensation, and employee benefit costs, and are primarilyattributable to personnel who provide our clients with support using our platform and the network operations group that supports our platform. We capitalizecertain costs associated with the development of our platform and amortize these costs in platform operations over their estimated useful lives. We allocateoverhead such as information technology infrastructure, rent and occupancy charges based on headcount.We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of QPSthrough our platform and hire additional personnel to support our clients.Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation,employee benefits costs and commission costs for our sales and marketing personnel. Sales and marketing expense also includes costs for marketdevelopment programs, advertising, promotional and other marketing activities, and allocated overhead. We allocate overhead such as informationtechnology infrastructure, rent and occupancy charges based on headcount. Commissions costs are expensed as incurred.Our sales organization focuses on marketing our platform to increase its adoption by existing and new clients. We are also focused on expanding ourinternational business by growing our sales teams in countries in which we currently operate, as well as establishing a presence in additional countries. As aresult, we expect sales and marketing expenses to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of revenue mayfluctuate from period to period based on revenue levels and the timing of our investments in our sales and marketing functions as these investments may varyin scope and scale over periods and are impacted by the revenue seasonality in our industry and business.39Table of Contents Technology and Development. Our technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development and maintenance of our platform,amortization of capitalized third-party software used in the development of our platform and allocated overhead. We allocate overhead such as informationtechnology infrastructure, rent and occupancy charges based on headcount. Technology and development costs are expensed as incurred, except to theextent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software developmentcosts included in other assets, non-current on our consolidated balance sheet. We amortize capitalized software development costs relating to our platform toplatform operations expense.We believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth. We therefore expecttechnology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions,increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spending on our platform. Our development effortsalso include additional platform functionality to support our international expansion. We also intend to invest in technology to further automate ourbusiness processes.General and Administrative. Our general and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-basedcompensation, and employee benefits costs associated with our executive, finance, legal, human resources, compliance, and other administrative personnel,as well as accounting and legal professional services fees, bad debt expense and allocated overhead. We allocate overhead such as information technologyinfrastructure, rent and occupancy charges based on headcount.We expect to continue to invest in corporate infrastructure to support growth. We expect general and administrative expenses to increase in absolutedollars in future periods.Other Expense, NetInterest Expense. Interest expense is mainly related to our debt, which carries a variable interest rate.Change in Fair Value of Convertible Preferred Stock Warrant Liabilities. Prior to our IPO, we had two outstanding warrants to purchase shares of ourconvertible preferred stock. These convertible preferred stock warrants were subject to re-measurement at each balance sheet date, and any change in fairvalue was recognized as a component of other expense, net. In connection with the closing of our IPO, the warrants converted into warrants to purchase sharesof common stock and were net exercised by the holders. As a result, we no longer re-measure the value of warrants after our IPO.Foreign Currency Exchange Loss, Net. Foreign currency exchange loss, net consists primarily of gains and losses on foreign currency transactions. Wehave foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies otherthan the U.S. Dollar, principally the Euro, the Canadian Dollar, British Pound, Australian Dollar, Japanese Yen and Indonesian Rupiah.Provision for Income TaxesThe provision for income taxes consists primarily of federal, state, and foreign income taxes. Our income tax provision may be significantly affectedby changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual resultsmay also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. Wereevaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.Our effective tax rate differs from the U.S. federal statutory income tax rate due to stock-based compensation, research and development tax credits,federal and foreign tax rate differences, state taxes, fair value adjustments associated with our warrant liabilities, and adjustments to our valuation allowance.Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuationallowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Objectively verifiableevidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.In 2017, we released all of our valuation allowance previously established against our U.K. net deferred tax assets of $0.3 million. Our decision torelease the valuation allowance on our U.K. deferred tax assets was due to, among other reasons, our three-year cumulative pre-tax income adjusted forpermanent items realized in U.K. jurisdictions and significant forecasted U.K. taxable income.40Table of Contents On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law. The primary impact of H.R.1 on our consolidated resultsfrom operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation of deferred taxes by $0.6million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%. Given cumulative overseas deficits, no liability forforeign earnings and profits has been established.Results of OperationsThe following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for theperiods presented: For the year ended December 31, 2015 2016 2017 (in thousands) Revenue $113,836 $202,926 $308,217 Operating expenses: Platform operations 22,967 39,876 66,230 Sales and marketing 26,794 46,056 61,379 Technology and development 12,819 27,313 52,806 General and administrative 13,276 32,163 58,446 Total operating expenses 75,856 145,408 238,861 Income from operations 37,980 57,518 69,356 Total other expense, net 8,125 13,684 5,731 Income before income taxes 29,855 43,834 63,625 Provision for income taxes 13,926 23,352 12,827 Net income $15,929 $20,482 $50,798 For the Year Ended December 31, 2015 2016 2017 (as a percentage of revenue*) Revenue 100% 100% 100%Operating expenses: Platform operations 20 20 21 Sales and marketing 24 23 20 Technology and development 11 13 17 General and administrative 12 16 19 Total operating expenses 67 72 77 Income from operations 33 28 23 Total other expense, net 7 7 2 Income before income taxes 26 22 21 Provision for income taxes 12 12 4 Net income 14% 10% 16% *Percentages may not sum due to rounding.Comparison of the Years Ended December 31, 2015, 2016 and 2017Revenue Year Ended December 31, 2016 vs 2015Change 2017 vs 2016Change 2015 2016 2017 $ % $ % (in thousands, except percentages) Revenue $113,836 $202,926 $308,217 $89,090 78% $105,291 52% 2016 Compared to 2015The increase in revenue was primarily due to an 86% increase in gross spend on our platform. Gross spend on our platform by existing clients addedprior to 2016 increased by 71% in the aggregate in 2016, and these existing clients represented approximately 91% of the total gross spend in 2016. In 2016,55% of existing clients added prior to 2016 increased their gross spend on our platform and their average increase in gross spend was approximately $2.1million.41Table of Contents 2017 Compared to 2016The increase in revenue was primarily due to a 51% increase in gross spend on our platform. Gross spend on our platform by existing clients addedprior to 2017 increased by 40% in the aggregate in 2017, and these existing clients represented approximately 91% of the total gross spend in 2017. In 2017,59% of existing clients added prior to 2017 increased their gross spend on our platform and their average increase in gross spend was approximately $2.0million.Revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix and the extent to which clientsutilize our platform’s features.Platform Operations Year Ended December 31, 2016 vs 2015Change 2017 vs 2016Change 2015 2016 2017 $ % $ % (in thousands, except percentages) Platform operations $22,967 $39,876 $66,230 $16,909 74% $26,354 66%Percent of revenue 20% 20% 21% 2016 Compared to 2015The increase in platform operations expense was primarily due to increases of $11.5 million in hosting costs and $4.2 million in personnel costs,including $0.7 million of stock-based compensation. The increase in hosting costs was primarily attributable to supporting the increased use of our platformby our clients. The increase in personnel costs was primarily due to an increase in headcount for our client support team.2017 Compared to 2016 The increase in platform operations expense was primarily due to increases of $17.6 million in hosting costs, $6.6 million in personnel costs,including $1.9 million of stock-based compensation, and $1.3 million in allocated facilities costs. The increase in hosting costs was primarily attributable tosupporting the increased use of our platform by our clients. The increase in personnel costs was primarily due to an increase in headcount for our clientsupport team. The increase in allocated facilities costs was primarily driven by an increase in rent expense associated with new operating leases to support ourgrowth.We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes oftransactions through our platform and hire additional personnel to support our clients.Sales and Marketing Year Ended December 31, 2016 vs 2015Change 2017 vs 2016Change 2015 2016 2017 $ % $ % (in thousands, except percentages) Sales and marketing $26,794 $46,056 $61,379 $19,262 72% $15,323 33%Percent of revenue 24% 23% 20% 2016 Compared to 2015The increase in sales and marketing expense was primarily due to increases of $11.3 million in personnel costs, including $1.6 million of stock-basedcompensation, $5.2 million in marketing expenses and $2.5 million in allocated facilities costs. The increase in personnel costs was primarily due to anincrease in sales and marketing headcount in order to support our sales efforts and to continue to develop and maintain relationships with our clients. Theincrease in overall marketing expenses was mainly related to our participation in industry events, tradeshows and related public relations activities. Theincrease in allocated facilities costs was primarily driven by an increase in rent expense associated with new operating leases to support our growth.2017 Compared to 2016The increase in sales and marketing expense was primarily due to increases of $15.6 million in personnel costs, including $4.6 million of stock-basedcompensation, and $2.4 million in allocated facilities costs, partially offset by a decrease of $2.8 million in marketing expenses. The increase in personnelcosts was primarily due to an increase in sales and marketing headcount in order to support our sales efforts and to continue to develop and maintainrelationships with our clients. The increase in allocated facilities costs was primarily driven by an increase in rent expense associated with new operatingleases to support our growth. The decrease in marketing costs was mainly related to a shift in our participation in industry events, tradeshows and relatedpublic relations activities.42Table of Contents We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform withexisting and new clients and expanding our international business.Technology and Development Year Ended December 31, 2016 vs 2015Change 2017 vs 2016Change 2015 2016 2017 $ % $ % (in thousands, except percentages) Technology and development $12,819 $27,313 $52,806 $14,494 113% $25,493 93%Percent of revenue 11% 13% 17% 2016 Compared to 2015The increase in technology and development expense was primarily due to increases of $10.1 million in personnel costs, including $1.4 million ofstock-based compensation, $2.9 million in allocated facilities costs and $1.4 million in contractor and temporary staff costs. The increases in personnel costsand contractor and temporary staff costs were primarily attributable to increased headcount and use of contractor and temporary staff to maintain and supportour technology and development efforts. The increase in allocated facilities costs was primarily driven by an increase in rent expense associated with newoperating leases to support our growth.2017 Compared to 2016The increase in technology and development expense was primarily due to increases of $21.0 million in personnel costs, including $5.1 million ofstock-based compensation, $3.5 million in allocated facilities costs and $1.0 million in contractor and temporary staff costs. The increases in personnel costsand contractor and temporary staff costs were primarily attributable to increased headcount and use of contractor and temporary staff to maintain and supportour technology and development efforts. The increase in allocated facilities costs was primarily driven by an increase in rent expense associated withoperating leases to support our growth.We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform tosupport additional features and functions, increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spendingon our platform. We also intend to invest in technology to further automate our business processes.General and Administrative Year Ended December 31, 2016 vs 2015Change 2017 vs 2016Change 2015 2016 2017 $ % $ % (in thousands, except percentages) General and administrative $13,276 $32,163 $58,446 $18,887 142% $26,283 82%Percent of revenue 12% 16% 19% 2016 Compared to 2015The increase in general and administrative expense was primarily due to increases of $9.0 million in personnel costs, including $1.0 million of stock-based compensation, $4.9 million in professional services fees, $1.4 million in contractor and temporary staff costs and $1.3 million in bad debt expense. Theincrease in personnel costs and professional services fees was primarily related to finance and legal services to support our growth and in preparation for ourIPO. The increase in contractor and temporary staff costs was primarily related to supplementing our finance headcount in preparation for our IPO. Theincrease in bad debt expense was primarily attributable to a reserve established for one client.43Table of Contents 2017 Compared to 2016The increase in general and administrative expense was primarily due to increases of $18.1 million in personnel costs, including $4.6 million of stock-based compensation, $3.9 million in professional services fees, $2.4 million in bad debt expense and $1.9 million in allocated facilities costs. The increase inpersonnel costs was primarily related to finance, human resources and legal headcount to support our growth. The increase in bad debt expense was primarilyattributable to specific client reserves. The increase in allocated facilities costs was primarily driven by an increase in rent expense associated with operatingleases to support our growth. The increase in third-party professional services fees was primarily related to finance and legal services to support our growth,including $1.5 million in legal, accounting, printing and other costs related to the secondary offerings completed in March and June 2017.We expect to continue to invest in corporate infrastructure to support growth. We expect general and administrative expenses to increase in absolutedollars in future periods.Other Expense, Net Year Ended December 31, 2016 vs 2015 2017 vs 2016 2015 2016 2017 $ Change $ Change (in thousands) Total other expense, net $8,125 $13,684 $5,731 $5,559 $(7,953) 2016 Compared to 2015The increase in other expense, net was primarily related to an increase in the fair value of our convertible preferred stock warrant liabilities of$3.5 million and an increase in interest expense of $1.9 million. The increase in the fair value of our convertible preferred stock warrant liabilities wasprimarily due to an increase in the valuation of our preferred stock. The increase in interest expense was primarily attributable to an increase in our debtborrowings and the liquidation fee of $0.8 million paid at the closing of our IPO related to our prior debt facility.2017 Compared to 2016The decrease in other expense, net was primarily due to decreases of $9.5 million in expense related to the fair value of our convertible preferred stockwarrant liabilities, which were exercised as part of our IPO in September 2016, and $1.3 million in interest expense attributable to a reduction in our debtborrowings and the aforementioned liquidation fee. These decreases were partially offset by an increase in foreign currency exchange losses of $2.8 millionresulting from higher foreign denominated accounts receivable and accounts payable balances in 2017 compared to 2016.Provision for Income Taxes Year Ended December 31, 2015 2016 2017 (in thousands, except percentages) Provision for income taxes $13,926 $23,352 $12,827 Effective tax rate 46.6% 53.3% 20.2% The difference between the effective tax rate in 2015 of 46.6% and the federal statutory income tax rate of 35% was mainly due to state taxes, net offederal benefit, and a change in the fair value of our warrant liabilities.The difference between the effective tax rate in 2016 of 53.3% and the federal statutory income tax rate of 35% was primarily due to higher non-deductible preferred stock warrant expense and stock-based compensation expense.The difference between the effective tax rate in 2017 of 20.2% and the federal statutory income tax rate of 35% was primarily due to discrete benefitsof $19.9 million associated with disqualifying dispositions of incentive stock options, partially offset by the impact of higher pre-tax income in U.S.jurisdictions.44Table of Contents Quarterly Results of OperationsThe following tables set forth our quarterly unaudited consolidated statements of operations data in dollars and as a percentage of total revenue foreach of the eight quarters in the period ended December 31, 2017. We have prepared the quarterly unaudited consolidated statements of operations data on abasis consistent with the audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Annual Reporton Form 10-K. In the opinion of management, the financial information in these tables reflects all adjustments, consisting only of normal recurringadjustments, which management considers necessary for a fair statement of this data. This information should be read in conjunction with the auditedconsolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.The results of historical periods are not necessarily indicative of the results for any future period. Three Months Ended Mar 31, Jun 30, Sept 30, Dec 31, Mar 31, Jun 30, Sept 30, Dec 31, 2016 2016 2016 2016 2017 2017 2017 2017 (in thousands) Revenue $30,378 $47,182 $52,956 $72,410 $53,352 $72,804 $79,413 $102,648 Operating expenses: Platform operations 7,513 8,682 10,422 13,259 12,549 15,151 17,397 21,133 Sales and marketing 8,431 11,251 11,600 14,774 12,476 14,166 16,200 18,537 Technology and development 4,639 5,763 7,292 9,619 10,461 12,135 13,181 17,029 General and administrative 6,399 6,452 8,591 10,721 15,930 11,658 14,227 16,631 Total operating expenses 26,982 32,148 37,905 48,373 51,416 53,110 61,005 73,330 Income from operations 3,396 15,034 15,051 24,037 1,936 19,694 18,408 29,318 Total other expense, net 5,264 1,260 6,087 1,073 792 1,303 2,354 1,282 Income (loss) before income taxes (1,868) 13,774 8,964 22,964 1,144 18,391 16,054 28,036 Provision for (benefit from) income taxes (828) 6,176 5,320 12,684 (3,765) (458) 5,825 11,225 Net income (loss) $(1,040) $7,598 $3,644 $10,280 $4,909 $18,849 $10,229 $16,811 Net income (loss) attributable to common stockholders $(48,249) $2,392 $972 $10,280 $4,909 $18,849 $10,229 $16,811 Net income (loss) per share attributable to common stockholders: Basic $(4.45) $0.22 $0.08 $0.27 $0.13 $0.47 $0.25 $0.41 Diluted $(4.45) $0.15 $0.06 $0.24 $0.11 $0.43 $0.23 $0.38 The following table sets forth our unaudited consolidated results of operations for the specified periods as a percentage of our revenue for thoseperiods. Three Months Ended Mar 31, Jun 30, Sept 30, Dec 31, Mar 31, Jun 30, Sept 30, Dec 31, 2016 2016 2016 2016 2017 2017 2017 2017 (as a percentage of revenue*) Revenue 100% 100% 100% 100% 100% 100% 100% 100%Operating expenses: Platform operations 25 18 20 18 24 21 22 21 Sales and marketing 28 24 22 20 23 19 20 18 Technology and development 15 12 14 13 20 17 17 17 General and administrative 21 14 16 15 30 16 18 16 Total operating expenses 89 68 72 67 96 73 77 71 Income from operations 11 32 28 33 4 27 23 29 Total other expense, net 17 3 11 1 1 2 3 1 Income (loss) before income taxes (6) 29 17 32 2 25 20 27 Provision for (benefit from) income taxes (3) 13 10 18 (7) (1) 7 11 Net income (loss) (3)% 16% 7% 14% 9% 26% 13% 16% *Percentages may not sum due to rounding. 45Table of Contents Liquidity and Capital ResourcesAt December 31, 2017, we had cash and cash equivalents of $156.0 million, including cash of $15.1 million held by our international subsidiaries,and working capital of $247.3 million.We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our amended credit facility(see the section captioned “Amended Revolving Credit Agreement” below) will be sufficient to meet our working capital requirements for at least the next12 months. Our current credit facility matures in May 2022. Our future capital requirements and the adequacy of available funds will depend on many factors,including those set forth under “Risk Factors” within this Annual Report on Form 10-K.In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements.If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additionalfinancing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additionalrestrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability toconduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieveour business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operateour business could be adversely affected.Amended Revolving Credit AgreementOn May 9, 2017, we, a syndicate of banks, led by Citibank, N.A., and Citibank, N.A., as agent, entered into an Amended and Restated Loan andSecurity Agreement, which we refer to as the Amended Revolving Credit Agreement. The Amended Revolving Credit Agreement, among other things,provides for an increase of $75.0 million in the aggregate principal amount of commitments available under our senior secured asset-based revolving creditfacility, or Revolving Credit Facility, and provides us greater flexibility with respect to working capital, acquisitions and general corporate purposes.Available funding commitments under the Revolving Credit Facility, subject to certain conditions, total up to $200.0 million, with a $20.0 million sublimitfor swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase theRevolving Credit Facility by an amount not to exceed $100.0 million. Any borrowings under the Revolving Credit Facility are due in full in May 2022. Wemay prepay the borrowings without penalty at any time. The Revolving Credit Agreement is collateralized by substantially all of our assets, including apledge of certain of our accounts receivable, deposit accounts, intellectual property, investment property, and equipment, and availability under theAmended Revolving Credit Agreement is based on a percentage of eligible accounts receivable, as reduced by certain reserves. As of December 31, 2017, ouroutstanding principal balance under the Revolving Credit Facility was $27.0 million, and in January 2018, we repaid this balance.For additional information regarding the Amended Revolving Credit Agreement, refer to Note 8—Debt.Cash FlowsThe following table summarizes our cash flows for the periods presented: Year Ended December 31, 2015 2016 2017 (in thousands) Cash flows provided by (used in) operating activities $(36,560) $75,031 $31,224 Cash flows used in investing activities (6,376) (9,221) (16,064)Cash flows provided by financing activities 29,668 63,543 7,390 Increase (decrease) in cash and cash equivalents $(13,268) $129,353 $22,550 Operating ActivitiesOur cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients andrelated payments to our suppliers of advertising inventory and data. The timing of cash receipts from clients and payments to suppliers can significantlyimpact our cash flows from operating activities. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles canvary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarter basis.46Table of Contents In 2015, cash used in operating activities of $36.6 million resulted from a net decrease in our working capital of $61.7 million, partially offset by ournet income of $15.9 million and adjustments to add back non-cash expenses of $9.2 million. The net decrease in working capital was primarily related to anincrease in accounts receivable of $114.2 million, partially offset by an increase in accounts payable of $50.0 million. The increase in accounts receivablewas primarily due to the increase in spend through our platform and the timing of cash receipts from clients and the increase in accounts payable wasprimarily due to the timing of payments to suppliers.In 2016, cash provided by operating activities of $75.0 million resulted from a net increase in our working capital of $33.8 million, net income of$20.5 million and adjustments to add back non-cash expenses of $20.7 million. The net increase in working capital was primarily related to an increase inaccounts payable of $209.5 million, partially offset by an increase in accounts receivable of $187.7 million. The increase in accounts payable was primarilydue to the increased volume of transactions with suppliers and an improvement in matching the timing of our supplier payments to contractual terms. Theincrease in accounts receivable was primarily due to the increase in spend through our platform and the timing of cash receipts from clients.In 2017, cash provided by operating activities of $31.2 million resulted from a net decrease in our working capital of $49.5 million, partially offset byour net income of $50.8 million and adjustments to add back non-cash expenses of $29.9 million. The net decrease in working capital was primarily relatedto an increase in accounts receivable of $224.6 million, partially offset by an increase in accounts payable of $171.8 million. The increase in accountsreceivable was primarily due to the increase in spend through our platform and the timing of cash receipts from clients and the increase in accounts payablewas primarily due to the timing of payments to suppliers.Investing ActivitiesOur primary investing activities have consisted of purchases of property and equipment in support of our expanding headcount as a result of ourgrowth, and capital expenditures to develop our software in support of enhancing our technology platform. Purchases of property and equipment may varyfrom period-to-period due to the timing of the expansion of our operations, the addition of headcount and the development cycles of our softwaredevelopment. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.In 2015, we used $6.4 million of cash in investing activities, consisting of $5.1 million to purchase property and equipment and $1.8 million ofinvestments in capitalized software, partially offset by $0.6 million associated with the proceeds from the redemption of a short-term certificate of deposit.In 2016, we used $9.2 million of cash in investing activities, consisting of $6.9 million to purchase property and equipment and $2.3 million ofinvestments in capitalized software.In 2017, we used $16.1 million of cash in investing activities, consisting of $10.1 million to purchase property and equipment, $3.0 million ofinvestments in capitalized software, and $3.0 million for certain assets accounted for as a business acquisition.Financing ActivitiesOur financing activities consisted primarily of proceeds from the issuance of convertible preferred stock, borrowings and repayments of our debt,proceeds from our equity compensation plans, and proceeds from the issuance of Class A common stock as part of our IPO. Net cash provided by financingactivities has been and will be used to finance our operations, capital expenditures, platform development and rapid growth.In 2015, cash provided by financing activities of $29.7 million was primarily due to proceeds from borrowings of $45.0 million, partially offset byrepayments of prior borrowings of $15.0 million.In 2016, cash provided by financing activities of $63.5 million was primarily driven by net proceeds from our IPO of $73.8 million, proceeds from ourline of credit of $75.8 million and proceeds from the issuance of Series C convertible preferred stock of $60.0 million. Cash provided by these financingactivities was partially offset by repayments on our line of credit and debt of $95.0 million and the repurchase of preferred and common stock of$54.0 million.In 2017, cash provided by financing activities of $7.4 million was primarily due to proceeds from the employee stock purchase plan of $7.0 millionand proceeds from stock option exercises of $2.6 million, partially offset by repayments under financing obligations of $1.0 million and taxes paid related tonet settlement of restricted stock of $1.0 million.47Table of Contents Off-Balance Sheet ArrangementsWe do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purposeentities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did nothave any other off-balance sheet arrangements at December 31, 2017 other than operating leases and the indemnification agreements described in Note 13 of“Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.Contractual Obligations and Known Future Cash RequirementsOur principal commitments consist of our debt obligations and non-cancelable leases for our various office facilities. In certain cases, the terms of thelease agreements provide for rental payments on a graduated basis.The following table summarizes our contractual obligations, including interest, at December 31, 2017: Payments Due by Period Less than 1-3 3-5 More than Total 1 Year Years Years 5 Years (in thousands) Debt obligations (1) $31,185 $961 $1,925 $28,299 $— Operating lease obligations 31,753 7,570 15,111 8,861 211 Other contractual commitments 36,999 27,914 9,085 — — Total minimum payments $99,937 $36,445 $26,121 $37,160 $211 (1)Includes $27.0 million of principal obligations pursuant to our revolving credit facility as of December 31, 2017. Our revolving credit facility maturesin May 2022. Interest on the principal balance was estimated from January 1, 2018 to the maturity date using the LIBOR rate as of December 31, 2017(1.6%) plus the applicable margin (2.0%). In January 2018, we repaid the outstanding principal and accrued interest in the aggregate amount of $27.1million.As of December 31, 2017, our total amount of gross unrecognized tax benefits was $3.1 million before netting with deferred tax assets for tax creditcarryforwards and is considered a long-term obligation. Due to their nature, there is a high degree of uncertainty regarding the time of future cash outflowsand other events that extinguish these liabilities.In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners,lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages toproperty or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations,obligations, and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resultingfrom their own business operations, obligations, and acts or omissions, or the business operations, obligations, and acts or omissions of third parties. Theseindemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnificationagreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of theirstatus or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are noclaims that we are aware of that could have a material effect on our consolidated financial statements.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us tomake estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimatesand assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable underthe circumstances. Our actual results could differ from these estimates.We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenuerecognition as net versus gross in our revenue arrangements, the assumptions used in the valuation models to determine the fair value of stock options andstock-based compensation expense, and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we considerthese to be our critical accounting policies and estimates.48Table of Contents Revenue RecognitionWe generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-onfeatures. We charge our clients a platform fee, which is a percentage of a client’s purchases through the platform. In addition, we invoice our clients for thecost of advertising inventory purchased, plus data and any add-on features purchased through the platform.We generate revenue from buyers of advertising inventory through our platform. We maintain separate arrangements with each client and supplier inthe form of MSAs, which set out the terms of the relationship and access to our platform. We recognize revenue when four basic criteria are met: (1) persuasiveevidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fees are fixed or determinable; and (4) collectability isreasonably assured. In applying the foregoing criteria, we recognize revenue upon the completion of a transaction, that is, when a bid is won, subject tosatisfying these criteria.Subsequent to a bid being won through our platform, the associated fees are generally not subject to adjustment or refund. Historically, any refundsand adjustments have not been material. We assess collectability based on a number of factors, including the creditworthiness of a client and related paymenthistory. We generally bill buyers for the gross amount of advertising inventory, data or other add-on features they purchase through our platform plus ourplatform fees, although some of our clients have payment relationships directly with advertising inventory suppliers, in which case we only bill the clients fordata, other services and our platform fees.We report revenue net of amounts we pay suppliers for the cost of advertising inventory, data and add-on features in conformity with AccountingStandards Codification 605-45, Revenue Recognition—Principal Agent Considerations. The determination of whether we are the principal or agent, andhence whether to report revenue on a gross basis for the amount of the advertising inventory, third-party data and other add-on features the buyers purchaseusing the platform plus our platform fees or on a net basis for the amount of platform fees charged to the buyer, requires us to evaluate a number of indicators,none of which is presumptive or determinative. We determined that we are not the primary obligor for the purchase of advertising inventory, third-party dataand other add-on features but rather the primary obligor to provide a platform that enables buyers to bid on advertising inventory, and use data and other add-on features in designing and executing their campaigns. We do not have pricing latitude with respect to cost of advertising inventory, third-party data andother add-on features purchased by clients through our platform. The fee we charge clients is a percentage of their spend through the platform, similar to acommission, and our fee is not contingent on the results of an advertising campaign. The client can select the advertising inventory supplier, third-party dataand other add-on features through the platform. We have credit risk on the spend through our platform as we are required to pay suppliers irrespective ofwhether we collect from clients.As a result of these and other factors, we have determined we are not the principal in the purchase and sale of advertising inventory, data and otheradd-on features in all of our arrangements and we therefore report revenue on a net basis for the fees we charge clients.Stock-Based CompensationCompensation expense related to stock options, restricted stock awards and units, which we refer to, collectively, as restricted stock, and awardsgranted under our employee stock purchase plan, or ESPP, is measured and recognized in our consolidated financial statements based on the fair value of theawards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of restrictedstock is calculated using the closing market price of our common stock on the date of grant. Stock-based compensation expense related to stock options andrestricted stock is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensationexpense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.Stock options granted to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. We believe thatthe fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the non-employee stock options isre-measured each period until a commitment date is reached, which is generally the vesting date.Determining the fair value of stock options and ESPP awards requires judgment. Our use of the Black-Scholes option pricing model requires the inputof subjective assumptions, including the fair value of the underlying common stock for periods prior to the completion of our IPO, the expected term of theoption, the expected volatility of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used inour option-pricing model represent our best estimates. These estimates involve inherent uncertainties and the application of our judgment. If factors changeand different assumptions are used, our stock-based compensation expense could be materially different in the future.49Table of Contents These assumptions and estimates are as follows:Fair Value of Common Stock. For stock options granted subsequent to our IPO and ESPP awards, the fair value of common stock is based on theclosing price of our common stock as reported on the NASDAQ Global Market stock exchange on the grant date. Prior to our IPO, the board of directorsdetermined the fair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including ouractual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones inour business, the likelihood of achieving a liquidity event and transactions involving our preferred or common stock, among other factors. The fair value wasdetermined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation ofPrivately Held Company Equity Securities Issued as Compensation.Risk -Free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities approximating the expected term ofthe awards.Expected Term. Given insufficient historical data relating to stock option exercises, to determine the expected term, we apply the simplified approach,in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. For ESPP awards, theexpected term is the time period from the grant date to the respective purchase dates included within each offering period.Volatility. Because we have a short trading history for our common stock, we determine the price volatility based on the historical volatilities of apublicly traded peer group based on daily price observations over a period equivalent to the expected term of the award, and during the year ended December31, 2017, we began to include a blend of implied volatilities from our traded options.Dividend Yield. The dividend yield assumption is based on our history and current expectations of dividend payouts. We have never declared or paidany cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future, so we used an expected dividendyield of zero.The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine the fair value of ourstock options: Year Ended December 31, 2015 2016 2017 Expected term (in years) 6.0 6.0 6.0 Expected volatility 64.5% 58.1% 52.6%Risk-free interest rate 1.62% 1.62% 2.03%Estimated dividend yield —% —% —% During the year ended December 31, 2016, we early adopted Accounting Standards Update, or ASU, No. 2016-09, Compensation—StockCompensation (Topic 718): Improvements to Employee Share—Based Payment Accounting and changed our policy from estimating forfeitures to recordingforfeitures when they occur. The impact of forfeitures on our historical consolidated financial statements was not material. However, since we account forforfeitures when they occur rather than estimating for the purposes of determining our stock-based compensation expense, our operating results may beimpacted in the period in which significant forfeitures occur.Income TaxesOur income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimatesutilized in determining the global effective tax rate. Actual results may also differ from our estimate based on changes in economic conditions. Such changescould have a substantial impact on the income tax provision. We reevaluate the judgments surrounding our estimates and make adjustments, as appropriate,each reporting period.Deferred income tax assets and liabilities are determined based upon the net effects of the differences between the consolidated financial statementscarrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years inwhich the differences are expected to be reversed. A valuation allowance is used to reduce some or all of the deferred tax assets if, based upon the weight ofavailable evidence, it is more likely than not that those deferred tax assets will not be realized.50Table of Contents We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination bythe taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positionsare then measured based on the largest benefit that has a greater than 50% likelihood of being realized. We recognize interest and penalties accrued related toour uncertain tax positions in our income tax provision in the accompanying consolidated statement of operations.On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law. The primary impact of H.R.1 on our consolidated resultsfrom operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation of deferred taxes by $0.6million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%. Given cumulative overseas deficits, no liability forforeign earnings and profits has been established.Recently Issued Accounting PronouncementsFor information regarding recent accounting pronouncements, refer to Note 2 of “Item 8. Financial Statements and Supplementary Data” included inthis Annual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosure about Market RiskWe have operations both within the U.S. and internationally, and we are exposed to market risks in the ordinary course of our business. These risksinclude primarily interest rate, foreign currency exchange and inflation risks.Interest Rate RiskWe are exposed to market risk from changes in interest rates on our credit facility, which accrues interest at a variable rate. We have not used anyderivative financial instruments to manage our interest rate risk exposure. Based upon the principal balance owed on our revolving credit facility as ofDecember 31, 2017, a hypothetical one percentage point increase or decrease in the interest rate under our revolving credit facility would result in acorresponding increase or decrease in interest expense of approximately $0.3 million annually.Foreign Currency Exchange RiskWe have foreign currency risks related to our revenue and expenses denominated in currencies other than the U.S. Dollar, principally the Euro, theCanadian Dollar, British Pound, Australian Dollar, Japanese Yen and Indonesian Rupiah. The volatility of exchange rates depends on many factors that wecannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gainsand losses related to translating cash balances, trade accounts receivable and payable balances that are denominated in currencies other than the U.S. Dollar.The effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts at December 31, 2017, would result in a foreigncurrency loss of approximately $9.2 million. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may be moregreatly affected by fluctuations in the exchange rates of the currencies in which we do business.From time to time we may enter into forward contracts or other derivative transactions in an attempt to hedge our foreign currency risk. There can beno assurance that such transactions will be effective in hedging some or all of our foreign currency exposures and under some circumstances could generatelosses for us.Inflation RiskWe do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to becomesubject to significant inflationary pressures, we might not be able to fully offset such higher costs through price increases. Our inability or failure to do socould harm our business, financial condition and results of operations.51Table of Contents Item 8. Financial Statements and Supplementary DataTHE TRADE DESK, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 53 Consolidated Balance Sheets 55 Consolidated Statements of Operations 56 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 57 Consolidated Statements of Cash Flows 58 Notes to Consolidated Financial Statements 59 The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations,” which isincorporated herein by reference. 52Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Trade Desk, Inc. Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of The Trade Desk, Inc. and its subsidiaries as of December 31, 2017 and 2016, and therelated consolidated statements of operations, of convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years inthe period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have auditedthe Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all materialrespects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO because a material weakness in internal control over financial reporting related to an absence of information technology generalcontrols over certain financially significant applications existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referredto above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weaknessin determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidated financial statements, and our opinion regarding theeffectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is toexpress opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. Weare a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independentwith respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 53Table of Contents Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Los Angeles, CaliforniaFebruary 27, 2018 We have served as the Company’s auditor since 2015. 54Table of Contents THE TRADE DESK, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except par values) As of December 31, 2016 2017 ASSETS Current assets: Cash and cash equivalents $133,400 $155,950 Accounts receivable, net 377,240 599,565 Prepaid expenses and other current assets 5,763 10,298 TOTAL CURRENT ASSETS 516,403 765,813 Property and equipment, net 14,779 17,405 Deferred income taxes 1,778 3,359 Other assets, non-current 4,636 10,587 TOTAL ASSETS $537,596 $797,164 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Current liabilities: Accounts payable $321,163 $490,377 Accrued expenses and other current liabilities 22,973 28,155 TOTAL CURRENT LIABILITIES 344,136 518,532 Debt, net 25,847 27,000 Other liabilities, non-current 3,233 6,049 TOTAL LIABILITIES 373,216 551,581 Commitments and contingencies (Note 13) STOCKHOLDERS’ EQUITY Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of December 31, 2016 and 2017 — — Common stock, par value $0.000001; 1,000,000 Class A shares authorized as of December 31, 2016 and 2017; 10,071 and 32,486 shares issued and outstanding as of December 31, 2016 and 2017, respectively; 95,000 Class B shares authorized as of December 31, 2016 and 2017; 29,060 and 9,155 shares issued and outstanding as of December 31, 2016 and 2017, respectively — — Additional paid-in capital 179,198 209,603 Retained earnings (accumulated deficit) (14,818) 35,980 TOTAL STOCKHOLDERS’ EQUITY 164,380 245,583 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $537,596 $797,164 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.55Table of Contents THE TRADE DESK, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2015 2016 2017 Revenue $113,836 $202,926 $308,217 Operating expenses: Platform operations 22,967 39,876 66,230 Sales and marketing 26,794 46,056 61,379 Technology and development 12,819 27,313 52,806 General and administrative 13,276 32,163 58,446 Total operating expenses 75,856 145,408 238,861 Income from operations 37,980 57,518 69,356 Interest expense 1,141 3,075 1,791 Change in fair value of preferred stock warrant liabilities 5,961 9,458 — Foreign currency exchange loss, net 1,023 1,151 3,940 Total other expense, net 8,125 13,684 5,731 Income before income taxes 29,855 43,834 63,625 Provision for income taxes 13,926 23,352 12,827 Net income $15,929 $20,482 $50,798 Net income (loss) attributable to common stockholders $8,764 $(26,727) $50,798 Net income (loss) per share attributable to common stockholders: Basic $0.85 $(1.46) $1.26 Diluted $0.39 $(1.46) $1.15 Weighted average shares outstanding: Basic 10,290 18,280 40,262 Diluted 16,779 18,280 44,056 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.56Table of Contents THE TRADE DESK, INC.CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK ANDSTOCKHOLDERS’ EQUITY (DEFICIT)(In thousands) Retained Total Convertible Class A and B Additional Earnings Stockholders’ Preferred Stock Common Stock (1) Paid-In (Accumulated Equity Shares Amount Shares Amount Capital Deficit) (Deficit) Balance as of December 31, 2014 66,330 $27,997 10,166 $— $488 $(6,619) $(6,131)Modification to Series B participation rights — (3,793) — — — 3,793 3,793 Exercise of common stock options — — 711 — 166 — 166 Issuance of common stock to employee — — 7 — — — — Stock-based compensation — — — — 385 — 385 Net income — — — — — 15,929 15,929 Balance as of December 31, 2015 66,330 24,204 10,884 — 1,039 13,103 14,142 Exercise of common stock options — — 785 — 488 — 488 Stock-based compensation — — — — 5,144 — 5,144 Issuance of series C convertible preferred stock, net of issuance costs 11,501 59,871 — — — — — Reclassification of preferred stock warrant liability upon net exercise of warrant 789 3,789 — — — — — Repurchase of convertible preferred stock (12,384) (4,623) — — (1,168) (46,041) (47,209)Repurchase and retirement of common stock — — (189) — — (2,362) (2,362)Issuance of Class A common stock upon IPO, net of underwriters’ commissions and offering costs of $10,366 — — 4,667 — 73,634 — 73,634 Conversion of convertible preferred stock to Class B common stock in connection with IPO (66,236) (83,241) 22,079 — 83,241 — 83,241 Conversion of warrant for convertible preferred stock to a warrant for Class B common stock in connection with IPO — — — — 12,596 — 12,596 Net exercise of warrant to purchase Class B common stock — — 449 — — — — Issuance of common stock under employee stock purchase plan — — 276 — 4,224 — 4,224 Grants of restricted stock — — 180 — — — — Net income — — — — — 20,482 20,482 Balance as of December 31, 2016 — — 39,131 — 179,198 (14,818) 164,380 Exercise of common stock options — — 1,932 — 2,565 — 2,565 Stock-based compensation — — — — 21,860 — 21,860 Issuance of common stock under employee stock purchase plan — — 433 — 6,997 — 6,997 Restricted stock, net of forfeitures and shares withheld for taxes — — 145 — (1,017) — (1,017)Net income — — — — — 50,798 50,798 Balance as of December 31, 2017 — $— 41,641 $— $209,603 $35,980 $245,583 (1)See Note 9-Capitalization for discussion of the establishment of the Company’s two classes of common stock and the reclassification of its commonstock into Class B common stock prior to the Company’s initial public offering (“IPO”) in September 2016.The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.57Table of Contents THE TRADE DESK, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2015 2016 2017 OPERATING ACTIVITIES: Net income $15,929 $20,482 $50,798 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,828 3,798 7,209 Stock-based compensation 374 5,056 21,317 Change in fair value of preferred stock warrant liabilities 5,961 9,458 — Deferred income taxes 338 (607) (1,581)Bad debt expense 542 1,890 4,289 Other 176 1,160 (1,303)Changes in operating assets and liabilities: Accounts receivable (114,170) (187,736) (224,636)Prepaid expenses and other assets (3,040) (2,675) (5,033)Accounts payable 50,021 209,483 171,793 Accrued expenses and other liabilities 5,481 14,722 8,371 Net cash provided by (used in) operating activities (36,560) 75,031 31,224 INVESTING ACTIVITIES: Purchases of property and equipment (5,128) (6,884) (10,110)Capitalized software development costs (1,799) (2,337) (2,954)Business acquisition — — (3,000)Redemption of short-term investment 551 — — Net cash used in investing activities (6,376) (9,221) (16,064)FINANCING ACTIVITIES: Proceeds from line of credit 30,000 75,847 — Repayment on line of credit (15,000) (65,000) — Proceeds from term debt 15,000 — — Repayment of term debt — (30,000) — Payment of debt financing costs (190) (976) (154)Payment of financing obligations (109) (550) (1,001)Proceeds from issuance of Series C convertible preferred stock — 60,000 — Repurchase of preferred stock and common stock — (54,000) — Proceeds from exercise of stock options 166 488 2,565 Proceeds from employee stock purchase plan — 4,224 6,997 Taxes paid related to net settlement of restricted stock — — (1,017)Payment of stock repurchase costs (39) (155) — Payment of Series C convertible preferred stock offering cost — (129) — Proceeds from the issuance of Class A common stock in initial public offering, net of underwriting commissions — 78,120 — Payment of offering costs—initial public offering (160) (4,326) — Net cash provided by financing activities 29,668 63,543 7,390 Increase (decrease) in cash and cash equivalents (13,268) 129,353 22,550 Cash and cash equivalents—Beginning of year 17,315 4,047 133,400 Cash and cash equivalents—End of year $4,047 $133,400 $155,950 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income taxes $12,931 $16,740 $19,163 Cash paid for interest $895 $1,696 $1,320 Capitalized assets financed by accounts payable $88 $3,490 $701 Tenant improvements paid by lessor $— $— $640 Debt financing costs included in debt, net $— $— $1,153 Stock-based compensation included in capitalized software development costs $11 $88 $543 Conversion of convertible preferred stock to Class B common stock $— $83,241 $— Conversion of warrant for convertible preferred stock to a warrant for Class B common stock and net exercise of warrant to purchase Class B common stock $— $12,596 $— Deferred initial public offering costs and stock repurchase costs included in accounts payable $58 $— $— Net exercise of warrants to purchase Series Seed convertible preferred stock $— $3,789 $— Asset retirement obligation $— $354 $—The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.58Table of Contents THE TRADE DESK, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1—Nature of OperationsThe Trade Desk, Inc. (the “Company”) was formed in November 2009 as a Delaware corporation. The Company is headquartered in Ventura,California and has offices in various cities in the United States (“U.S.”), Europe, Asia and Australia. The Company is a global technology company thatempowers ad buyers by providing a self-service omnichannel software platform that enables its clients to purchase and manage data-driven digitaladvertising campaigns across various advertising channels and formats.RisksThe Company is subject to certain business risks, including dependence on key employees, competition, market acceptance of the Company’splatform, ability to source demand from buyers of advertising inventory, availability of equity or debt financings and dependence on growth to achieve itsbusiness plan.Note 2—Basis of Presentation and Summary of Significant Accounting PoliciesBasis of Presentation and Principles of ConsolidationThe accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ofAmerica (“GAAP”) and include the operations of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated inconsolidation. The Company has no components of other comprehensive income (loss), and accordingly, the Company’s comprehensive income is the sameas its net income for all periods presented.Reverse Stock SplitOn September 2, 2016, the Company effected a 1-for-3 reverse stock split of its outstanding common stock and a proportional adjustment to the thenexisting conversion ratios for each series of convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in theseconsolidated financial statements and notes thereto, have been adjusted retrospectively, where applicable, to reflect this reverse stock split and adjustment ofthe preferred stock conversion ratios.Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and thereported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.On an on-going basis, management evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination ofrevenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for doubtful accounts, (3) the useful lives of property andequipment and capitalized software development costs, (4) income taxes, (5) assumptions used in the Black-Scholes option pricing model to determine thefair value of stock-based compensation, (6) the recognition and disclosure of contingent liabilities and (7) the assumptions used in valuing acquired assetsand assumed liabilities in business combinations. These estimates are based on historical data and experience, as well as, various other factors thatmanagement believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assetsand liabilities that are not readily apparent from other sources. Prior to the IPO, the Company used estimates to determine the value of common and preferredstock which required the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions andfinancial inputs. Actual results may differ materially from those estimates under different assumptions or circumstances.Revenue RecognitionThe Company generates revenue from clients who enter into agreements to use the Company’s platform to purchase advertising inventory, data andother add-on features. The Company charges clients a platform fee, which is a percentage of a client’s purchases through the platform. In addition, theCompany invoices clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform less anyadvertising inventory that clients purchase directly from suppliers through the Company’s platform. The Company maintains agreements with each clientand supplier in the form of master service agreements, which set out the terms of the relationship and access to the Company’s platform.59Table of Contents The Company recognizes revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred orservices have been rendered; (3) the fees are fixed or determinable, and (4) collectability is reasonably assured. In applying the foregoing criteria, theCompany recognizes revenue upon the completion of a transaction, that is, when a bid is won, subject to satisfying these criteria. Subsequent to a bid beingwon through the Company’s platform, the associated fees are generally not subject to adjustment or refund. Historically, any refunds and adjustments havenot been material. The Company assesses collectability based on a number of factors, including the creditworthiness of a client or advertiser and relatedpayment history. The Company generally bills clients for the gross amount of advertising inventory, data or other add-on features they purchase through theCompany’s platform plus the Company’s platform fees, although some of the Company’s clients have payment relationships directly with advertisinginventory suppliers in which case the Company only bills the clients for data, other services and the Company’s platform fees.The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, data and add-on features in conformity withAccounting Standards Codification (“ASC”) 605-45, Revenue Recognition -Principal Agent Considerations. The determination of whether the Company isthe principal or agent, and hence whether to report revenue on a gross basis for the amount of the advertising inventory, third-party data and other add-onfeatures the clients purchase using the platform plus the Company’s platform fees or on a net basis for the amount of platform fees charged to the client,requires the Company to evaluate a number of indicators, none of which is presumptive or determinative. The Company determined that it is not the primaryobligor for the purchase of advertising inventory, third-party data and other add-on features but rather the primary obligor to provide a platform that enablesclients to bid on advertising inventory, and use data and other add-on features in designing and executing their campaigns. The Company does not havepricing latitude with respect to the cost of advertising inventory, third-party data and other add-on features purchased by clients through the Company’splatform. The fee the Company charges clients is a percentage of their purchases through the Company’s platform, similar to a commission, and theCompany’s fee is not contingent on the results of an advertising campaign. The client has supplier selection for the advertising inventory, third-party dataand other add-on features through the platform. The Company has credit risk on the gross spend through the Company’s platform, which includes theamounts due to suppliers for purchases through the Company’s platform plus the Company’s platform fees, as the Company is required to pay suppliersirrespective of whether the Company collects from clients.Based on these and other factors, the Company has determined it is not the principal in the purchase and sale of advertising inventory, data and otheradd-on features in all of the Company’s arrangements and therefore reports revenue on a net basis for the fees the Company charges clients.The Company’s accounts receivable are recorded at the amount of gross billings to clients, net of allowances (“Gross Billings”), for the amounts it isresponsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accountspayable appear large in relation to revenue reported on a net basis.Operating ExpensesThe Company classifies its operating expenses into four categories:Platform Operations. Platform operations expense consists of expenses related to hosting the Company’s platform, which includes “internet traffic”associated with the viewing of available impressions or queries per second (QPS) and providing support to clients. Platform operations expense includeshosting costs, personnel costs, and amortization of acquired technology and capitalized software costs for the development of the Company’s platform,including allocated overhead. Personnel costs included in platform operations include salaries, bonuses, stock-based compensation, and employee benefitcosts, and are primarily attributable to personnel who provide the Company’s clients with support using the Company’s platform and the Company’s networkoperations group, who support the Company’s platform. The Company capitalizes certain costs associated with the development of the Company’s platformand amortizes these costs over their estimated useful lives in platform operations expense. The Company allocates overhead such as information technologyinfrastructure, rent and occupancy charges based on headcount.Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation,employee benefits costs and commission costs for the Company’s sales and marketing personnel. Sales and marketing expense also includes costs for marketdevelopment programs, advertising, promotional and other marketing activities, and allocated overhead. The Company allocates overhead such asinformation technology infrastructure, rent and occupancy charges based on headcount. Commissions costs are expensed as incurred.60Table of Contents Technology and Development. The Company’s technology and development expenses consist primarily of personnel costs, including salaries,bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development and maintenance ofthe Company’s platform, amortization of capitalized third-party software used in the development of the Company’s platform and allocated overhead. TheCompany allocates overhead such as information technology infrastructure, rent and occupancy charges based on headcount. Technology and developmentcosts are expensed as incurred, except to the extent that such costs are associated with software development that qualify for capitalization, which are thenrecorded as capitalized software development costs included in other assets, non-current on the Company’s consolidated balance sheet. The Companyamortizes capitalized software development costs relating to the Company’s platform to platform operations expense.General and Administrative. The Company’s general and administrative expenses consist primarily of personnel costs, including salaries, bonuses,stock-based compensation, and employee benefits costs associated with the Company’s executive, finance, legal, human resources, compliance, and otheradministrative personnel, as well as accounting and legal professional services fees, bad debt expense and allocated overhead. The Company allocatesoverhead such as information technology infrastructure, rent and occupancy charges based on headcount.Stock-Based CompensationCompensation expense related to stock options, restricted stock awards and units, which are referred to collectively as restricted stock, and awardsgranted under the Company’s employee stock purchase plan (“ESPP”), is measured and recognized in the consolidated financial statements based on the fairvalue of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair valueof restricted stock is calculated using the closing market price of the Company’s common stock on the date of grant. Stock-based compensation expenserelated to stock options and restricted stock is recognized on a straight-line basis over the requisite service periods of the awards, which is generally fouryears. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.Stock options granted to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. The Companybelieves that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the non-employeestock options is re-measured each period until a commitment date is reached, which is generally the vesting date.Determining the fair value of stock options and ESPP awards requires judgment. The Company’s use of the Black-Scholes option pricing modelrequires the input of subjective assumptions, including the fair value of the underlying common stock for periods prior to the completion of the Company’sIPO, the expected term of the option, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of theCompany’s common stock. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These estimates involveinherent uncertainties and the application of management’s judgment.These assumptions and estimates are as follows:Fair Value of Common Stock. For stock options granted subsequent to the Company’s IPO and ESPP awards, the fair value of common stock is basedon the closing price of its common stock as reported on the NASDAQ Global Market on the grant date. Prior to the IPO, the board of directors determined thefair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including the Company’sactual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones inthe Company, the likelihood of achieving a liquidity event and transactions involving the Company’s preferred or common stock, among other factors. Thefair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants,Valuation of Privately Held Company Equity Securities Issued as Compensation.Risk -Free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities approximating the expected term ofthe awards.Expected Term. Given insufficient historical data relating to stock option exercises, to determine the expected term, the Company applies thesimplified approach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award.For ESPP awards, the expected term is the time period from the grant date to the respective purchase dates included within each offering period.61Table of Contents Volatility. Because the Company has a short trading history for its common stock, the Company determines the price volatility based on the historicalvolatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the award, and during the yearended December 31, 2017, the Company began to include a blend of implied volatilities from its traded options.Dividend Yield. The dividend yield assumption is based on the Company’s history and current expectations of dividend payouts. The Company hasnever declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, so the Companyused an expected dividend yield of zero.During the year ended December 31, 2016, the Company early adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation—StockCompensation (Topic 718): Improvements to Employee Share—Based Payment Accounting and changed its policy from estimating forfeitures to recordingforfeitures when they occur. The impact of forfeitures on the Company’s historical consolidated financial statements was not material and the Company’sadoption of this guidance was also not material. The change in accounting policy to record forfeitures when they occur and the requirement to record excesstax benefits when they occur in the statement of operations has resulted in a reduction in the Company’s effective tax rate and may result in volatility inearnings in the future.The Company will continue to use judgment in evaluating the assumptions related to the Company’s stock-based compensation. Future expenseamounts for any particular period could be affected by changes in the Company’s assumptions or market conditions.Income TaxesDeferred income tax assets and liabilities are determined based upon the net tax effects of the differences between the Company’s consolidatedfinancial statements carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxableincome in the years in which the differences are expected to be reversed. A valuation allowance is used to reduce some or all of the deferred tax assets if,based upon the weight of available evidence, it is more likely than not that those deferred tax assets will not be realized. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained onexamination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statementsfrom such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interestand penalties accrued related to its uncertain tax positions in its income tax provision in the accompanying consolidated statements of operations.On December 22, 2017, "H.R.1," known as the "Tax Cuts and Jobs Act," was signed into law. The primary impact of H.R.1 on the Company’sconsolidated results from operations for the year ended December 31, 2017 and consolidated balance sheet as of December 31, 2017 was the revaluation ofdeferred taxes by $0.6 million resulting from the reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Givencumulative overseas deficits, no liability for foreign earnings and profits has been established.Net Income (Loss) Per Share Attributable to Common StockholdersBasic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to commonstockholders by the weighted-average number of shares of common stock outstanding. The Company applies the two-class method to allocate net income(loss) between common and other participating securities based on their participation rights. Prior to the conversion of preferred stock to common stockconcurrent with the IPO and because the holders of the Company’s convertible preferred stock were entitled to participate in dividends, the Companyallocated net income to common and preferred stock based on their respective rights to receive dividends, whether or not declared. For 2015, the adjustmentto the carrying value of the Series B preferred stock (Note 9) has been recorded as a benefit to net income attributable to common stockholders. For 2016, theexcess of the repurchase price of preferred stock over its carrying value (Note 9) has been recorded as a reduction to net income to determine net lossattributable to common stockholders.Diluted net income (loss) per share attributable to common stockholders adjusts the basic net income (loss) per share attributable to commonstockholders and the weighted-average number of shares of common stock outstanding for the potentially dilutive impact of stock options, restricted stock,ESPP and warrants, using the treasury-stock method, and convertible preferred stock using the as-if-converted method.62Table of Contents Cash and Cash EquivalentsThe Company considers all short-term highly liquid investments with an original maturity of three months or less to be cash equivalents. Cashequivalents, consisting of money market funds, are carried at fair value. Refer to Note 6—Fair Value Measurements for additional information regarding thefair value of cash equivalents.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at the invoiced amount, are unsecured and do not bear interest. The Company performs ongoing credit evaluationsof its clients and certain advertisers when the Company’s agreements with its clients contain sequential liability terms that provide that the client paymentsare not due to the Company until the client has received payment from its customers who are advertisers. The allowance for doubtful accounts is based on thebest estimate of the amount of probable credit losses in existing accounts receivable. The allowance for doubtful accounts is determined based on historicalcollection experience and the review in each period of the status of the then-outstanding accounts receivable, while taking into consideration current clientinformation, subsequent collection history and other relevant data. The Company reviews the allowance for doubtful accounts on a quarterly basis. Accountbalances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.The following table presents changes in the allowance for doubtful accounts (in thousands): Year Ended December 31, 2015 2016 2017 Beginning balance $172 $686 $2,574 Add: bad debt expense 542 1,890 4,289 Less: write-offs, net of recoveries (28) (2) (4,606)Ending balance $686 $2,574 $2,257 Property and Equipment, NetProperty and equipment are recorded at historical cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the following estimated useful lives: Years Computer equipment 2 Purchased software 5 Furniture, fixtures and office equipment 5 Leasehold improvements * *Leasehold improvements are amortized on a straight-line basis over the term of the lease, or the useful life of the assets,whichever is shorter.Repair and maintenance costs are charged to expense as incurred, while renewals and improvements are capitalized. When assets are retired orotherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in theCompany’s operating results.Capitalized Software Development CostsThe Company capitalizes certain costs associated with creating and enhancing internally developed software related to the Company’s technologyinfrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time tosoftware development projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software developmentcosts that do not qualify for capitalization, as further discussed below, are expensed as incurred and recorded in technology and development expenses in theconsolidated statements of operations.63Table of Contents Software development activities typically consist of three stages: (1) the planning phase; (2) the application and infrastructure development stage; and(3) the post implementation stage. Costs incurred in the planning and post implementation phases, including costs associated with the post-configurationtraining and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with softwaredeveloped when the preliminary project stage is completed, management implicitly or explicitly authorizes and commits to funding the project and it isprobable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development phases, includingsignificant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and the software is ready for its intendedpurpose. Software development costs are amortized using a straight-line method over the estimated useful life of two years, commencing when the software isready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived.The Company does not transfer ownership of its internally developed software, or lease its software, to third parties.Business CombinationsThe results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of theacquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on theacquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in theconsolidated statements of operations.The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities.Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment and estimates, including theselection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. TheCompany engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assetsacquired and liabilities assumed in a business combination.In October 2017, the Company paid $3.0 million in cash for certain assets of a data company accounted for as a business combination. These assetsprimarily consisted of acquired technology and goodwill which are included in other assets, non-current.Operating LeasesThe Company records rent expense for operating leases, some of which have escalating rent payments, on a straight-line basis over the lease term. TheCompany begins recognition of rent expense on the date of initial possession, which is generally when the Company enters the leased premises and begins tomake improvements in preparation for its intended use. Some of the Company’s lease arrangements provide for concessions by the landlords, includingpayments for leasehold improvements and rent-free periods. The Company accounts for the difference between the straight-line rent expense and rent paid asdeferred rent.Debt Issuance CostsDebt issuance costs related to the term loans have been recorded as a reduction of the carrying amount of the debt and are amortized to interestexpense using the effective interest method. Debt financing costs associated with credit facilities have been deferred and recorded in other assets, non-currentand are amortized to interest expense on a straight-line basis over the term of the credit facilities.Preferred Stock Warrant LiabilitiesPrior to the completion of the Company’s IPO, warrants to purchase preferred stock of the Company were accounted for as liabilities at fair valuebecause the underlying shares of convertible preferred stock were contingently redeemable, including in the case of a deemed liquidation, which could haveobligated the Company to transfer assets to the preferred stockholders. The preferred stock warrants were recorded at fair value at each balance sheet date andchanges in the fair value of the preferred stock warrants during each reporting period were recorded in the Company’s consolidated statements of operationsuntil the earlier of the exercise or expiration of the warrants or the warrants’ conversion to warrants to purchase common stock, at which time any remainingliability was reclassified to additional paid-in capital. Immediately prior to the completion of the Company’s IPO, all of the Company’s then-outstandingconvertible preferred stock warrants were remeasured to fair value and automatically converted and reclassified into Class B common stock warrants and allremaining warrants were net exercised.64Table of Contents Fair Value of Financial InstrumentsFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a fairvalue hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at themeasurement date.Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, suchas quoted market prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can becorroborated by observable market data for substantially the full term of the asset or liability.Level 3—Unobservable inputs.Observable inputs are based on market data obtained from independent sources.The carrying amounts of accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to the short-term nature of these instruments. The carrying value of the line of credit and term loans approximates fair value based on borrowing rates currently availableto the Company for financing with similar terms and were determined to be Level 2.The Company’s convertible preferred stock warrants were measured using unobservable inputs that required a high level of judgment to determine fairvalue, and were thus classified as Level 3.Certain long lived assets including capitalized software development costs are also subject to measurement at fair value on a non-recurring basis ifthey are deemed to be impaired as a result of an impairment review. To date, no material impairments have been recorded on those assets. Concentration of RiskFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents andaccounts receivable. The Company maintains its cash and cash equivalents with financial institutions and its cash levels exceed the Federal DepositInsurance Corporation (FDIC) federally insured limits.For 2015, two clients each accounted for 12% of Gross Billings. For 2016, three clients accounted for 15%, 13% and 11%, respectively, of GrossBillings. For 2017, three clients accounted for 22%, 11% and 10%, respectively, of Gross Billings.As of December 31, 2016, three clients accounted for 27%, 13% and 12%, respectively, of consolidated accounts receivable. As of December 31, 2017,three clients accounted for 33%, 14% and 11%, respectively, of consolidated accounts receivable.As of December 31, 2016, one supplier accounted for 10% of consolidated accounts payable. As of December 31, 2017, one supplier accounted for12% of consolidated accounts payable.Foreign Currency Transactions and TranslationThe Company has entities operating in various countries. Each of these entities’ functional currency is the U.S. Dollar. Transactions in foreigncurrencies are translated into U.S. Dollars at the rates of exchange in effect at the date of the transaction. Net transaction losses were approximately$1.0 million, $1.2 million, and $3.9 million for the years ended December 31, 2015, 2016 and 2017, respectively, and are included in foreign currencyexchange loss, net in the accompanying consolidated statements of operations.Commencing in 2015 the Company entered into forward contracts to hedge foreign currency exposures related primarily to the Company’s foreigncurrency denominated accounts receivable. The Company does not designate the foreign exchange forward contracts as hedges for accounting purposes andchanges in the fair value of the foreign exchange forward contracts are recorded in foreign exchange loss, net in the accompanying consolidated statements ofoperations. As of December 31, 2016 and 2017, the Company had open forward contracts with aggregate notional amounts of $27.1 million and$58.4 million, respectively. The fair value of the open forward contracts was not material. The Company’s forward contracts generally have terms of 30-210 days.65Table of Contents Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606),which amends the existing accounting standards for revenue recognition. Under ASU 2014-09, a company will recognize revenue when it transfers promisedgoods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertaintyof revenue and cash flows arising from contracts with customers. In August 2015, the FASB approved the deferral of the new standard by one year, whichdefers the effective date of ASU 2014-09 by one year. In 2016, the FASB issued additional amendments to the new revenue guidance. This guidance iseffective for annual reporting periods beginning after December 31, 2017, including interim periods within that reporting period. The guidance permits theuse of either the retrospective or cumulative effect transition method. The Company used the modified retrospective approach transition method to adopt thisguidance on January 1, 2018 and has determined that adoption of this guidance does not have an impact on its consolidated results of operations, financialposition or cash flows.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires an entity to recognize right-of-use assets and lease liabilities on itsbalance sheet and disclose key information about leasing arrangements. The guidance offers specific accounting guidance for a lessee, lessor, and sale andleaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user ofthe financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating,with the classification affecting the pattern of expense recognition in the income statement. This guidance is effective for annual reporting periods beginningafter December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoptionpermitted. Although the Company is currently evaluating the impact of this guidance on its consolidated financial statements, the Company expects thatmost of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the new guidance.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments, which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments toextend credit held by a reporting entity at each reporting date. ASU 2016-13 revises the impairment model to utilize an expected loss methodology in placeof the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to,available for sale debt securities and accounts receivable. This guidance is effective for annual reporting periods beginning after December 15, 2019,including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on itsconsolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and CashPayments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective forannual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, includingadoption in an interim period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes suchinterim period. The adoption of ASU 2016-15 should be applied using a retrospective transition method to each period presented, unless impracticable to doso. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated statement of cash flows.In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation: Scope of Modification Accounting, which provides guidanceon the types of changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting inFASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation. This guidance is effective for annual reporting periodsbeginning after December 15, 2017, including interim periods within that reporting period. The Company does not expect that the adoption of this guidancewill have a material impact on its consolidated financial statements.Note 3—Net Income (Loss) Per Share Attributable to Common StockholdersThe Company has two classes of common stock, Class A and Class B. Basic and diluted net income (loss) per share attributable to commonstockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.66Table of Contents The computations of the numerators and denominators of the basic and diluted net income (loss) per share attributable to common stockholders are asfollows (in thousands, except per share amounts): Year Ended December 31, 2015 2016 2017 Net income (loss) per share attributable to common stockholders—basic: Numerator: Net income $15,929 $20,482 $50,798 Less: Income attributable to convertible preferred stock (10,958) — — Add: Preferred stock modification 3,793 — — Less: Premium on repurchase of convertible preferred stock — (47,209) — Net income (loss) attributable to common stockholders $8,764 $(26,727) $50,798 Denominator: Weighted-average shares outstanding 10,290 18,280 40,262 Net income (loss) per share attributable to common stockholders—basic $0.85 $(1.46) $1.26 Net income (loss) per share attributable to common stockholders—diluted: Numerator: Net income (loss) attributable to common stockholders—basic $8,764 $(26,727) $50,798 Add: Income attributable to dilutive convertible preferred stock 1,624 — — Less: Preferred stock modification (3,793) — — Net income (loss) attributable to common stockholders—diluted $6,595 $(26,727) $50,798 Denominator: Weighted-average shares outstanding 10,290 18,280 40,262 Dilutive convertible preferred stock 2,790 — — Options to purchase common stock 3,699 3,415 Employee stock purchase plan shares — — 268 Restricted stock — — 111 Weighted-average shares outstanding—diluted 16,779 18,280 44,056 Net income (loss) per share attributable to common stockholders—diluted $0.39 $(1.46) $1.15 The following table presents the anti-dilutive shares excluded from the calculation of diluted net income (loss) per share attributable to commonstockholders (in thousands): Year Ended December 31, 2015 2016 2017 Anti-dilutive equity awards under stock-based award plans 248 6,069 1,246 Common shares issuable upon conversion of convertible preferred stock 19,320 — — Common shares issuable upon conversion of preferred stock warrants 547 — — Total shares excluded from net income (loss) per share attributable to common stockholders—diluted 20,115 6,069 1,246 67Table of Contents Note 4—Property and Equipment, NetMajor classes of property and equipment were as follows (in thousands): As of December 31, 2016 2017 Computer equipment $2,542 $4,520 Purchased software 6,686 7,735 Furniture and fixtures 2,563 4,306 Construction in progress 2,319 102 Leasehold improvements 4,374 9,645 18,484 26,308 Less: Accumulated depreciation (3,705) (8,903) $14,779 $17,405 Depreciation expense for 2015, 2016 and 2017 was $1.0 million, $2.4 million and $5.3 million respectively.The Company has purchased software under a financing arrangement where the Company makes installment payments over a four-year period. TheCompany has taken possession of the software and runs the software on its own equipment. As of December 31, 2016 and 2017, the software had a cost basisof $1.8 million. Accumulated depreciation on this software as of December 31, 2016 and 2017 was $0.9 million and $1.2 million, respectively. Depreciationexpense on this software was $0.4 million for 2015, 2016 and 2017. To date, there have been no impairment charges to property and equipment.Note 5—Capitalized Software Development CostsCapitalized software development costs, included in other assets, non-current, were as follows (in thousands): As of December 31, 2016 2017 Capitalized software development costs, gross $4,280 $6,133 Less: Accumulated amortization (1,520) (1,734)Capitalized software development costs, net $2,760 $4,399 The Company capitalized $1.8 million, $2.4 million and $3.5 million of software development costs in 2015, 2016 and 2017, respectively.Amortization expense was $0.9 million, $1.4 million and $1.9 million for 2015, 2016 and 2017, respectively. Based on the Company’s capitalized softwaredevelopment costs ready for intended use as of December 31, 2017, estimated amortization expense of $1.9 million and $0.8 million is expected to berecognized in 2018 and 2019, respectively. Amortization has not started on $1.7 million of capitalized software development costs that are not yet ready forintended use as of December 31, 2017.Note 6—Fair Value MeasurementsAt December 31, 2017, cash equivalents of $5.0 million consisted of money market funds, which were classified as Level 1 of the fair value hierarchyand are valued using quoted market prices in active markets. The Company had no cash equivalents at December 31, 2016. The Company had no othermaterial financial instruments that were measured at fair value at December 31, 2016 and 2017. 68Table of Contents The Company’s preferred stock warrants are recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value ofpreferred stock warrants are summarized below (in thousands): Year Ended December 31, 2015 2016 Beginning balance $966 $6,927 Change in value of preferred stock warrants recorded in other expense, net 5,961 9,458 Reclassification to convertible preferred stock upon net exercise of Series Seed warrant in February 2016 — (3,789)Conversion of preferred stock warrants to common stock warrants upon the closing of the Company’s IPO on September 26, 2016 — (12,596)Ending balance $6,927 $— In connection with the IPO, outstanding warrants exercisable for 1,382,505 shares of convertible preferred stock were automatically converted intowarrants exercisable for 460,834 shares of Class B common stock and net exercised resulting in the issuance of 448,545 shares of Class B common stockbased on the IPO price of $18.00 per share and taking into account the 1-for-3 reverse stock split. The aggregate fair value of these warrants upon the closingof the IPO was $12.6 million, which was reclassified from liabilities to additional paid-in capital.The Company determined the fair value of the preferred stock warrants utilizing the Black-Scholes model with the following assumptions: Series Seed Series A-3 As of As of Dec 31, 2015 Sept 26, 2016 Dec 31, 2015 Sept 26, 2016 Contractual term (years) 5.7 4.9 7.2 6.5 Expected volatility 60.3% 59.1% 61.3% 59.1%Risk-free interest rate 1.84% 1.12% 2.09% 1.34%Estimated dividend yield —% —% —% —% Note 7—Accounts PayableAccounts payable included the following (in thousands): As of December 31, 2016 2017 Accounts payable–media and data $307,018 $477,716 Accounts payable–other 14,145 12,661 Total $321,163 $490,377 Note 8—DebtAmended Revolving Credit AgreementOn May 9, 2017, the Company, a syndicate of banks, led by Citibank, N.A., and Citibank, N.A., as agent, entered into an amended and restated loanand security agreement (the “Amended Revolving Credit Agreement”). Among other things, the Amended Revolving Credit Agreement provides for anincrease of $75.0 million in the aggregate principal amount of commitments available under the Company’s senior secured asset-based revolving creditfacility (the “Revolving Credit Facility”) and provides the Company with greater flexibility with respect to working capital, acquisitions and generalcorporate purposes. Available funding commitments to the Company under the Revolving Credit Facility, subject to certain conditions, total up to$200.0 million, with a $20.0 million sublimit for swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit. Under certaincircumstances and subject to certain conditions, the Company has the right to increase the Revolving Credit Facility by an additional amount not to exceed$100.0 million. Any borrowings under the Revolving Credit Facility are due in full in May 2022. The Company may prepay the borrowings without penaltyat any time. The Amended Revolving Credit Agreement is collateralized by substantially all of the Company’s assets, including a pledge of certain of theCompany’s accounts receivable, deposit accounts, intellectual property, investment property, and equipment. Availability under the Revolving CreditFacility was $168.1 million at December 31, 2017, and is based on a percentage of eligible accounts receivable, as reduced by certain reserves.69Table of Contents Loans under the Revolving Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate ofeither a Base Rate or a LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as afluctuating interest rate equal to the greatest of (1) the federal funds rate plus 0.50%, (2) Citibank, N.A.’s prime rate, and (3) one month LIBOR rate plus 2.0%.The applicable margin is defined as a rate between 1.0% to 1.5% for Base Rate Borrowings and between 2.0% and 2.5% for LIBOR Rate Borrowings,depending on the amount of average excess availability on the Revolving Credit Facility. The fee for undrawn amounts ranges from 0.325% to 0.375%.Interest is payable either (a) monthly for Base Rate Borrowings or (b) for LIBOR Rate Borrowings, on the earlier of (1) the last day of the interest period whichcan be one, two, three or six months as selected by the Company or (2) the last day of each three month interval. The Company will also be required to paycustomary letter of credit fees, as necessary. The Amended Revolving Credit Agreement contains customary conditions to borrowings, events of default and covenants, including covenants thatrestrict the Company’s ability to sell assets, make changes to the nature of its business, engage in mergers or acquisitions, incur, assume or permit to existadditional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchasecapital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Amended RevolvingCredit Agreement also requires that if the Company’s excess availability is less than the greater of (a) $15.0 million and (b) 12.5% of the lesser of (1) theborrowing base then in effect and (2) the commitments under the Revolving Credit Facility then in effect, the Company will maintain a consolidated fixedcharge coverage ratio of at least 1.15 to 1.00. As of December 31, 2017, the Company was in compliance with all covenants.The Revolving Credit Facility matures and all outstanding amounts become due and payable on May 9, 2022. Under the Revolving Credit Facility,the Company had an outstanding debt, net balance of $27.0 million that bore interest at weighted average rate of 3.6% as of December 31, 2017. In January2018, the Company repaid the outstanding principal and accrued interest in the aggregate amount of $27.1 million. In connection with the Company’s prior debt facility, the Company was required to pay a fee of $0.8 million upon the occurrence of the IPO. Thisliquidation fee was paid upon the completion of the IPO and recorded as a component of interest expense in the consolidated statements of operations for theyear ended December 31, 2016.Note 9—CapitalizationIn September 2016, and in preparation of the IPO and the establishment of two classes of common stock, each share of the then outstanding commonstock was reclassified to Class B common stock. The Company sold Class A common stock in the IPO. The Class A and Class B have the same rights andpreferences including rights to dividends, except the Class B is entitled to ten votes per share and the Class A is entitled to one vote per share. Each share ofClass B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class Bcommon stock will convert automatically into one share of Class A common stock upon any transfer, except for certain transfers described in the Company’srestated certificate of incorporation, including, without limitation, certain transfers for tax and estate planning purposes. During the period from September2016 through December 2016, 4.2 million shares of Class B common stock were converted to Class A common stock, and during the year ended December31, 2017, 21.8 million shares of Class B common stock were converted to Class A common stock. In addition, upon the earlier of (1) the date on which theoutstanding shares of Class B common stock represent less than 10% of the aggregate number of the then outstanding shares of Class A common stock andClass B common stock and (2) the affirmative vote or written consent of the holders of at least 66 2 ⁄ 3 % of the outstanding shares of Class B common stock,all outstanding shares of Class B common stock will convert automatically into Class A common stock, and no additional shares of Class B common stockwill be issued. Prior to the reclassification of existing common stock to Class B common stock, the existing common stock was entitled to one vote per share.As of December 31, 2017, the Company is authorized to issue 1,095,000,000 shares of common stock, par value $0.000001 per share, and100,000,000 shares of preferred stock, par value, $0.000001 per share. The authorized common stock consists of 1,000,000,000 shares of Class A commonstock and 95,000,000 shares of Class B common stock.No shares of preferred stock are outstanding as of December 31, 2016 and 2017. The Company’s board of directors has the discretion to determine therights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences,of each series of preferred stock.70Table of Contents Initial Public OfferingOn September 26, 2016, the Company completed its IPO whereby 4,666,667 shares of Class A common stock were issued and sold by the Companyand 700,000 shares of Class A common stock were sold by selling stockholders, pursuant to the underwriters’ exercise of their over-allotment option, at theIPO price of $18.00 per share. The Company received net proceeds from the offering of approximately $78.1 million after deducting underwriting discountsand commissions of $5.9 million, but before deducting offering costs of $4.5 million. The Company did not receive any proceeds from the sales of shares bythe selling stockholders. In connection with the Company’s IPO: (1) all shares of the Company’s outstanding Series Seed, A-1, A-2, A-3, B and C convertiblepreferred stock automatically converted into an aggregate 22,078,637 shares of Class B common stock on a one for one-third basis and (2) warrantsexercisable for 1,382,505 shares of convertible preferred stock were automatically converted into warrants exercisable for 460,834 shares of Class B commonstock and net exercised resulting in the issuance of 448,545 shares of Class B common stock based on the IPO price of $18.00 per share and taking intoaccount the 1-for-3 reverse stock split.In addition, upon completion of the IPO, costs associated with the IPO of $4.5 million were reclassified from other assets, non-current to additionalpaid-in capital.Secondary OfferingsIn March 2017, the Company completed a secondary offering (the “March 2017 Offering”) in which a total of 7,281,789 shares of Class A commonstock were sold by certain selling stockholders to the public at a price of $35.50 per share, including 949,798 shares of Class A common stock sold to theunderwriters pursuant to an option to purchase additional shares granted to them.In June 2017, the Company completed another secondary offering (the “June 2017 Offering”) in which a total of 4,846,600 shares of Class A commonstock were sold by certain selling stockholders to the public at a price of $52.00 per share, including 530,148 shares of Class A common stock sold to theunderwriters pursuant to an option to purchase additional shares granted to them.The Company did not receive any proceeds from either the March 2017 Offering or the June 2017 Offering. The Company incurred $0.9 million and$0.6 million in offering costs related to the March 2017 Offering and the June 2017 Offering, respectively, and these costs were included within general andadministrative expenses in the condensed consolidated statements of operations during the first and second quarters of 2017, respectively.Convertible Preferred Stock In February 2016, the Company issued 11,500,587 shares of Series C convertible preferred stock for $60.0 million and used $54.0 million of theproceeds to repurchase 3,897,928 and 8,485,350 shares of Series Seed preferred stock (including shares issued upon exercise of warrant described below) andSeries A preferred stock (comprising shares of Series A-1, A-2 and A-3), respectively, each at 80% of the Series C offering price per share of $5.22, and188,786 shares of common stock at a price per share of $12.51. Warrants to purchase 808,135 shares of Seed preferred stock were net exercised, resulting inthe issuance of 788,755 shares of Series Seed preferred stock of which 614,052 shares were then repurchased.The repurchase price of the convertible preferred stock, including legal costs, of $51.8 million exceeded the carrying value of $4.6 million at the dateof repurchase. The repurchase price in excess of the then carrying value of the preferred stock of $47.2 million was recorded as a reduction to additional paid-in capital of $1.2 million and a reduction to retained earnings of $46.0 million. For the computation of net loss per share attributable to common stockholdersfor the year ended December 31, 2016, the repurchase price in excess of the then carrying value of the preferred stock of $47.2 million was recorded as areduction to net income in computing net loss attributable to common stockholders.All shares of the Company’s outstanding Series Seed, A-1, A-2, A-3, B and C convertible preferred stock automatically converted into an aggregate22,078,637 shares of Class B common stock on a one for one-third basis upon the completion of the Company’s IPO.Modification of Series B Preferred StockIn 2015, the Series B preferred stockholders agreed to modify the then liquidation rights and preference of the Series B preferred stock. The Companyrecorded the modification as an extinguishment as the fair value of the Series B preferred stock immediately before and immediately after the modificationwere substantially different (i.e., more than10%). The Company recorded the difference between the carrying value of the Series B preferred stock and the fairvalue after the modification, of $3.8 million, as a reduction to the carrying value of the Series B preferred stock and a reduction to accumulated deficit. The$3.8 million has been recorded as an adjustment to the net income attributable to common stockholders in accordance with ASC 260, Earnings per Share.71Table of Contents Rights and Preferences of Convertible Preferred StockPrior to the Company’s IPO, the Company’s convertible preferred stock had voting rights that allowed the holder to vote the number of common stockequal to which such shares of preferred stock could be converted; entitled the preferred stockholders to certain dividend right; entitled the holders topreference in payment upon a liquidation event, including upon a change in control, prior to the common stock holders equal to the greater of the originalpurchase price plus any dividends or such amount per share as would have been payable had all shares of the preferred stock been converted into commonstock; and were convertible at the option of the holder at any time or automatically upon a qualified IPO.Note 10—Stock-Based CompensationTotal stock-based compensation expense, by operating expense category, recorded in the consolidated statements of operations was as follows (inthousands): Year Ended December 31, 2015 2016 2017 Platform operations $71 $756 $2,674 Sales and marketing 127 1,707 6,261 Technology and development 85 1,513 6,661 General and administrative 91 1,080 5,721 Total $374 $5,056 $21,317 Stock-Based Award PlansThe Company is authorized to issue stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based andcash-based awards under its 2016 Incentive Award Plan. As of December 31, 2017, 3.5 million shares remained available for grant under the Company’s 2016Incentive Award Plan. The number of shares authorized for grant is subject to increase each year on January 1, equal to the lesser of (a) 4% of the commonstock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determinedby the board of directors.Stock options granted under the Company’s stock incentive plans generally vest over four years, subject to the holder’s continued service through thevesting date, and expire no later than 10 years from the date of grant. Restricted stock awards and units, which are referred to collectively as restricted stock,generally vest over four years, subject to the holder’s continued service through the vesting date.Stock Option InformationThe following summarizes stock option activity: SharesUnder Option(in thousands) Weighted-AverageExercise Price Weighted-AverageContractualLife (years) AggregateIntrinsic Value(in thousands) Outstanding as of December 31, 2016 (1) 5,429 $4.94 Granted 1,473 44.20 Exercised (1,932) 1.33 Cancelled (225) 18.49 Outstanding as of December 31, 2017 (2) 4,745 $17.96 7.4 $136,085 Exercisable as of December 31, 2017 2,242 $4.81 5.9 $91,829 (1)Includes options to purchase 389 and 5,040 shares of Class A and Class B common stock, respectively.(2)Includes options to purchase 1,780 and 2,965 shares of Class A and Class B common stock, respectively.72Table of Contents The fair value of options on the date of grant is estimated based on the Black-Scholes option pricing model. The weighted average assumptions usedto value options granted to employees for the periods presented were as follows: Year Ended December 31, 2015 2016 2017 Expected term (years) 6.0 6.0 6.0 Expected volatility 64.5% 58.1% 52.6%Risk-free interest rate 1.62% 1.62% 2.03%Estimated dividend yield —% —% —% The weighted average grant date fair value per share of stock options granted for the years ended December 31, 2015, 2016 and 2017 and were $1.12,$11.61 and $22.48, respectively. The total intrinsic value of options exercised during the years ended December 31, 2015, 2016 and 2017 were $1.9 million,$13.7 million and $84.8 million, respectively.Stock-based compensation expense related to stock options was $0.4 million, $1.7 million and $7.9 million for the years ended December 31, 2015,2016 and 2017, respectively. At December 31, 2017, the Company had unrecognized employee stock-based compensation relating to stock options ofapproximately $36.7 million, which is expected to be recognized over a weighted-average period of 2.8 years.On January 1, 2018, the number of shares authorized for grant under the Company’s 2016 Incentive Award Plan was increased by 1.7 million shares inaccordance with plan provisions.Restricted Stock and Restricted Stock UnitsThe following summarizes restricted stock activity: Shares(in thousands) Weighted-AverageGrant DateFair ValuePer Share Unvested as of December 31, 2016 193 $29.65 Granted 307 43.76 Vested (54) 30.06 Forfeited (28) 29.97 Unvested as of December 31, 2017 418 $39.95 Stock-based compensation expense related to restricted stock was $0.1 million and $2.7 million for the years ended December 31, 2016 and 2017,respectively. At December 31, 2017, the Company had unrecognized employee stock-based compensation relating to restricted stock of approximately$15.6 million, which is expected to be recognized over a weighted-average period of 3.4 years.Employee Stock Purchase PlanIn September 2016, the Company established an ESPP with 800,000 shares of Class A common stock available for issuance. As of December 31, 2017,0.5 million shares remained available for grant under this plan. The number of shares authorized for grant is subject to increase each year on January 1, equalto the lesser of (a) 800,000 shares, (b) 1% of the common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendaryear, and (c) such smaller number of shares as determined by the Company’s board of directors.Under the ESPP, all eligible employees were auto-enrolled upon the IPO and each eligible employee was then permitted to authorize payrolldeductions of up to 100% of their compensation to purchase shares of Class A common stock, subject to applicable ESPP and statutory limits. The ESPPprovides for offering periods generally up to two years, with purchases occurring and new offering periods commencing generally every six months. The firstESPP purchase (pursuant to a truncated purchase period starting on the Company’s IPO) occurred on December 29, 2016, and subsequent purchases willgenerally occur on May 15th and November 15th each year. At each purchase date, employees are able to purchase shares at 85% of the lower of (1) theclosing market price per share of Class A common stock on the employee’s enrollment into the applicable offering period and (2) the closing market price pershare of Class A common stock on the purchase date. The ESPP has an automatic reset feature, whereby the offering period resets if the fair value of theCompany’s common stock on a purchase date is less than that on the original offering date.73Table of Contents The fair value of ESPP shares was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: Year ended December 31, 2016 2017 Expected term (years) 0.8 0.9 Expected volatility 48.9% 45.9%Risk-free interest rate 0.69% 1.22%Estimated dividend yield —% —% The first offering period allowed for cash contributions in addition to payroll deductions, and as a result, stock-based compensation expense for thisoffering period was marked-to-market. On December 14, 2016, the cash contribution feature was removed and the final mark-to-market adjustment wasrecorded as of this date. The ESPP has a six month holding period (12 months for the first offering period) with respect to common stock purchases. Due to theholding period, the Company applies a discount to reflect the non-transferability of the shares. Stock-based compensation expense related to ESPP totaled$3.3 million and $10.7 million for the years ended December 31, 2016 and 2017, respectively, and stock-based compensation related to the first offeringperiod was $3.3 million and $10.1 million for the years ended December 31, 2016 and 2017, respectively. The first offering period is scheduled to expireimmediately following the November 15, 2018 purchase date. At December 31, 2017, the Company had unrecognized employee stock-based compensationrelating to ESPP awards of approximately $6.6 million, which is expected to be recognized over a weighted-average period of 0.7 years.On January 1, 2018, the number of shares available for issuance under the Company’s Employee Stock Purchase Plan was increased by 0.4 millionshares in accordance with plan provisions.Note 11—Income TaxesThe following are the domestic and foreign components of the Company’s income (loss) before income taxes (in thousands): Year Ended December 31, 2015 2016 2017 Domestic $29,224 $45,904 $66,148 International 631 (2,070) (2,523)Income before income taxes $29,855 $43,834 $63,625 The following are the components of the provision for (benefit from) income taxes (in thousands): Year Ended December 31, 2015 2016 2017 Current: Federal $11,123 $18,300 $9,944 State and local 2,325 5,595 3,906 Foreign 140 64 558 Total current provision 13,588 23,959 14,408 Deferred: Federal 197 (68) (172)State and local 141 (539) (1,382)Foreign — — (27)Total deferred (benefit) provision 338 (607) (1,581)Total provision for income taxes $13,926 $23,352 $12,827 74Table of Contents A reconciliation of the statutory tax rate to the effective tax rate for the periods presented is as follows: Year Ended December 31, 2015 2016 2017 U.S. federal statutory income tax rate 35.0% 35.0% 35.0%State and local income taxes, net of federal benefit 5.4 7.5 2.6 Foreign income at other than U.S. rates (0.3) 1.1 2.7 Stock-based compensation 0.4 3.8 (19.0)Meals and entertainment 0.2 0.3 0.4 Change in value of preferred stock warrant liabilities 7.0 7.6 — Research and development credit (1.0) (3.1) (2.8)Federal deferred tax asset revaluation — — 0.9 Other permanent items (0.1) 0.4 0.9 Change in valuation allowance — 0.7 (0.5)Effective income tax rate 46.6% 53.3% 20.2% Set forth below are the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities (inthousands): As of December 31, 2016 2017 Deferred tax assets (liabilities): Reserves and allowances $1,774 $1,804 Accrued expenses 2,651 1,810 Net operating losses 326 — Research and development tax credit 280 774 Stock-based compensation 126 1,722 Other 760 971 Prepaid expenses (484) (580)Property and equipment (2,254) (2,026)Capitalized software development costs (1,075) (1,116)Valuation allowance (326) — Total deferred tax assets, net $1,778 $3,359 As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s viewwith regard to future realization of deferred tax assets. During 2016, management recorded a valuation allowance of $0.3 million against its U.K. net deferredtax assets, based on the previous history of cumulative losses and the conclusion that future taxable profit may not be available for the utilization of thedeferred tax assets for U.K. income tax purposes. During 2017, management released the valuation allowance due to, among other reasons, three years ofcumulative pre-tax income. Management determined that sufficient positive evidence existed to conclude that it is more likely than not there will be fullutilization of the deferred tax assets in the U.K.; therefore, the entire valuation allowance of $0.3 million was released during 2017.As of December 31, 2017, the Company had state research and development tax credits of approximately $1.3 million, which carry forwardindefinitely.As of December 31, 2017, unremitted earnings of the subsidiaries outside of the U.S. were approximately $4.8 million, on which no state taxes havebeen paid. The Company’s intention is to indefinitely reinvest these earnings outside the U.S. Upon distribution of those earnings in the form of a dividendor otherwise, the Company would be subject to both state income taxes and withholding taxes payable to various foreign countries. The amounts of such taxliabilities that might be payable upon repatriation of foreign earnings are not material.As of December 31, 2016 and 2017, the Company had gross unrecognized tax benefits of approximately $1.0 million and $3.1 million, respectively,which would affect the Company’s effective tax rate if recognized. The Company classifies liabilities for unrecognized tax benefits in other liabilities, non-current.75Table of Contents A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows (in thousands): Balance at December 31, 2015 $— Increases related to current year tax positions 605 Increases related to prior year tax positions 402 Balance at December 31, 2016 1,007 Increases related to current year tax positions 1,971 Increases related to prior year tax positions 123 Balance at December 31, 2017 $3,101 Interest and penalties related to the Company’s unrecognized tax benefits accrued as of December 31, 2017 were not material.The Company is currently under examination by the Internal Revenue Service for the years ended December 31, 2014 and 2015. The examination isin the preliminary stage and therefore, the Company does not expect significant changes to the unrecognized tax benefits during the next twelve months.The Company is subject to examination by taxing authorities in the U.S. federal, state and various foreign jurisdictions. For federal and state incometaxes, the Company remains subject to examination for 2010 and subsequent years. The majority of the Company’s foreign subsidiaries remain subject toexamination by the local taxing authorities for 2013 and subsequent periods.Note 12—Segment and Geographic InformationThe Company has determined that it operates as one operating segment. The Company’s chief operating decision maker reviews financial informationon a consolidated basis, together with certain operating and performance measures principally to make decisions about how to allocate resources and measureperformance.Gross Billings, based on the billing address of the clients or client affiliates, were as follows (in thousands): Year Ended December 31, 2015 2016 2017 US $477,585 $868,877 $1,270,116 International 52,390 121,684 221,626 Total $529,975 $990,561 $1,491,742 The Company’s property and equipment, net located outside the U.S. was $2.5 million and $3.6 million as of December 31, 2016 and 2017,respectively.Note 13—Commitments and ContingenciesThe Company has various non-cancelable operating leases primarily for its corporate and international offices. As of December 31, 2017, theCompany’s non-cancelable minimum lease commitments were as follows (in thousands): Year Amount 2018 $7,570 2019 7,724 2020 7,387 2021 6,309 2022 2,552 Thereafter 211 $31,753 Rent expense for non-cancelable operating leases was $2.2 million, $4.8 million and $8.2 million for the years ended December 31, 2015, 2016 and2017, respectively.76Table of Contents As of December 31, 2017, the Company has non-cancelable commitments to its hosting services providers, marketing contracts and commitments toproviders of software as a service. As of December 31, 2017, the Company’s purchase obligations were as follows (in thousands): Year Amount 2018 $27,914 2019 8,871 2020 214 $36,999 Guarantees and IndemnificationIn the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, businesspartners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to beprovided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnificationagreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilitiesthat may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provideindemnification under such agreements, and thus there are no claims that the Company is aware of that could have a material effect on the Company’sbalance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded as of December 31, 2016and 2017.LitigationFrom time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course ofbusiness. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any ofthese proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.Employment ContractsThe 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 certainstock options in the event of changes in control, as defined and involuntary terminations.Note 14—Related Party TransactionsFrom January to May 2015, the Company processed $0.2 million of spend through its platform with Falk Technologies GmbH. Thomas Falk, one ofthe Company’s directors, was previously the chief executive officer of Falk Technologies GmbH during such period. 77Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and Procedures Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness ofour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), as of December 31, 2017. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required todisclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, asappropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specifiedin the SEC’s rules and forms. Based on this evaluation, our CEO and CFO have concluded that, due to the material weakness in our internal control overfinancial reporting as described below, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2017.Our management, including our CEO and CFO, has concluded that, notwithstanding the material weakness in our internal control over financialreporting, the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results ofoperations and cash flows for the periods presented in conformity with U.S. GAAP. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 using the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on its assessment, ourmanagement, including our CEO and CFO, has concluded that our internal control over financial reporting was not effective as of December 31, 2017 due toa material weakness in our internal control over financial reporting resulting from an absence of information technology general controls (“ITGCs”) overcertain financially significant applications. These control deficiencies resulted in an immaterial adjustment which was identified and corrected in the sameperiod. Additionally, these control deficiencies could impact the effectiveness of information technology dependent controls which could result in materialmisstatements of the consolidated financial statements and disclosures that would not be prevented or detected. Accordingly, our management hasdetermined that these control deficiencies constitute a material weakness.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, ourindependent registered public accounting firm, as stated in their report, which appears in Item 8 of this Annual Report on Form 10-K. Completion of Remediation Measures During the quarter ended December 31, 2017, we completed the remediation measures including the validation, testing of the design and concludingon the operating effectiveness of our controls related to the following previously reported material weaknesses in internal control over financial reporting: •our failure to maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and trainingcommensurate with our structure and financial reporting requirements; •the absence of formalized policies and controls designed to address accounting policies and procedures across multiple processes; and\ •the lack of formal policies and procedures around segregation of duties. 78Table of Contents Remediation In Progress Regarding the previously reported material weakness resulting from the absence of ITGCs over certain financially significant applications, during thequarter ended December 31, 2017, we completed the remediation measures including validation, testing of the design and concluding on the operatingeffectiveness of ITGCs over our financially significant applications, with the exception of our platform system applications as discussed below. We have not completed the remediation measures related to certain ITGCs over our platform system applications as of December 31, 2017. CertainITGCs related to our platform system applications were not fully implemented or have not been in place for a sufficient period of time to adequately evaluatewhether the related material weakness has been completely remediated as of December 31, 2017. During the quarter ended December 31, 2017, weimplemented certain controls over our platform system applications related to restricted access and change management. These internal controls will require further evaluation, including testing the operating effectiveness of these internal controls over a sustained periodof financial reporting cycles. The actions that we are taking are subject to ongoing review by our management, including our CEO and CFO, as well as audit committee oversight.As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weakness, we may also conclude that additionalmeasures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate additional time. We willcontinue to assess the effectiveness of our internal control over financial reporting and take steps to remediate our material weakness expeditiously.Changes in Internal Control over Financial ReportingDuring the quarter ended December 31, 2017, we implemented certain controls over our platform system applications related to restricted access andchange management that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations on Effectiveness of ControlsManagement recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance thatthe objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments indecision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by theindividual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also isbased in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliancewith policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud mayoccur and not be detected. Item 9B. Other InformationNone.79Table of Contents PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item in our proxy statement relating to our 2018 annual meeting of stockholders to be filed by us with the Securitiesand Exchange Commission no later than 120 days after the close of our fiscal year ended December 31, 2017 (the "Proxy Statement") and is incorporatedherein by reference.We have a code of business ethics and conduct that applies to all of our employees, including our Principal Executive Officer, Principal FinancialOfficer, Principal Accounting Officer, and our Board of Directors. A copy of this code, "Code of Business Conduct and Ethics", is available on our website athttp://investors.thetradedesk.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, aprovision of our Code of Business Conduct and Ethics by posting such information on our investor relations website under the heading "Leadership &Governance" at http://investors.thetradedesk.com. Item 11. Executive CompensationThe information required by this item will be included in the Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item will be included in the Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item will be included in the Proxy Statement and is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesThe information required by this item will be included in the Proxy Statement and is incorporated herein by reference. 80Table of Contents PART IVItem 15. Exhibits and Financial Statement Schedules(a) We have filed the following documents as part of this Annual Report on Form 10-K:1. Consolidated Financial StatementsSee Index to Consolidated Financial Statements in Item 8 herein.2. Financial Statement SchedulesNo financial statement schedules are provided because the information called for is not required or is shown in the financial statements of thenotes thereto.3. ExhibitsExhibits required to be filed as part of this report are: Exhibit Incorporated by Reference FiledNumber Exhibit Description Form Filing Date Number Herewith 3.1 Amended and Restated Certificate of Incorporation. S-1/A 9/6/2016 3.2 3.2 Amended and Restated Bylaws. S-1 8/22/2016 3.4 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Form of Class A Common Stock Certificate. S-1/A 9/6/2016 4.2 4.3 Form of Class B Common Stock Certificate. S-8 9/22/2016 4.4 10.1 Second Amended and Restated Investor Rights Agreementdated as of February 9, 2016, by and among The TradeDesk, Inc. and the investors listed therein. S-1/A 9/6/2016 10.1 10.2(a) Loan and Security Agreement, dated as of March 30, 2016,among The Trade Desk, Inc., the lenders party thereto, andCitibank, N.A., as administrative agent. S-1/A 9/6/2016 10.2 10.2(b) Amended and Restated Loan and Security Agreement, datedas of May 9, 2017, among The Trade Desk, Inc., the lendersparty thereto, and Citibank, N.A., as administrative agent. 10-Q 5/11/2017 10.1 10.3(a)+ The Trade Desk, Inc. 2010 Stock Plan. S-1/A 9/6/2016 10.5(a) 10.3(b)+ Form of Stock Option Agreement under The Trade Desk, Inc.2010 Stock Plan. S-1/A 9/6/2016 10.5(b) 10.3(c)+ Exercise Notice under The Trade Desk, Inc. 2010 Stock Plan. S-1/A 9/6/2016 10.5(c) 10.4(a)+ The Trade Desk, Inc. 2015 Equity Incentive Plan. S-1/A 9/6/2016 10.6(a) 10.4(b)+ First Amendment to The Trade Desk, Inc. 2015 EquityIncentive Plan S-8 9/22/2016 99.2 10.4(c)+ Form of Stock Option Agreement under The Trade Desk, Inc.2015 Equity Incentive Plan. S-1/A 9/6/2016 10.6(b) 10.4(d)+ Form of Stock Option Agreement under The Trade Desk, Inc.2015 Equity Incentive Plan (with accelerated vesting). S-1/A 9/6/2016 10.6(c) 10.4(e)+ Exercise Notice under The Trade Desk, Inc. 2015 EquityIncentive Plan. S-1/A 9/6/2016 10.6(d) 10.5(a)+ The Trade Desk, Inc. 2016 Incentive Award Plan. S-1 8/22/2016 10.7(a) 10.5(b)+ Form of Stock Option Agreement under The Trade Desk, Inc.2016 Equity Incentive Plan. S-1 8/22/2016 10.7(b) 81Table of Contents Exhibit Incorporated by Reference FiledNumber Exhibit Description Form Filing Date Number Herewith 10.6+ The Trade Desk, Inc. 2016 Employee Stock Purchase Plan S-8 9/22/2016 99.5 10.7+ Form of Indemnification Agreement. S-1 8/22/2016 10.8 10.8+ Employment Agreement, dated as of May 11, 2017, betweenThe Trade Desk, Inc. and Jeff T. Green. 10-Q 05/11/17 10.2 10.9+ Employment Agreement, dated as of May 11, 2017, betweenThe Trade Desk, Inc. and David R. Pickles. 10-Q 05/11/17 10.3 10.10+ Employment Agreement, dated as of May 11, 2017, betweenThe Trade Desk, Inc. and Paul E. Ross. 10-Q 05/11/17 10.4 10.11+ Employment Agreement, dated as of May 11, 2017, betweenThe Trade Desk, Inc. and Robert D. Perdue. 10-Q 05/11/17 10.5 10.12+ Employment Agreement, dated as of May 11, 2017, betweenThe Trade Desk, Inc. and Brian J. Stempeck. 10-Q 05/11/17 10.6 21.1 List of Subsidiaries of the Registrant. X 23.1 Consent of PricewaterhouseCoopers LLP, independentregistered public accounting firm. X 24.1 Power of Attorney (included on signature page to this AnnualReport on Form 10-K) X 31.1 Certification of Principal Executive Officer Pursuant toExchange Act Rules 13a-14(a) and 15d-14(a), as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Pursuant toExchange Act Rules 13a-14(a) and 15d-14(a), as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1 (1) Certifications of Principal Executive Officer and PrincipalFinancial Officer Pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. X 101.ins XBRL Instance Document X 101.sch XBRL Taxonomy Schema Linkbase Document X 101.cal XBRL Taxonomy Calculation Linkbase Document X 101.def XBRL Taxonomy Definition Linkbase Document X 101.lab XBRL Taxonomy Label Linkbase Document X 101.pre XBRL Taxonomy Presentation Linkbase Document X +Indicates a management contract or compensatory plan or arrangement.(1)The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of theSecurities Exchange Act of 1934, as amended, or the Exchange Act, and is not to be incorporated by reference into any filing of The Trade Desk, Inc.under the Securities Act of 1933, as amended, of the Securities Act, or the Exchange Act, whether made before or after the date hereof, regardless ofany general incorporation language in such filing. Item 16. Form 10-K SummaryNone. 82Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Ventura, California, on the 27th day of February, 2018. THE TRADE DESK, INC. By: /s/ PAUL E. ROSS Paul E. RossChief Financial OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeff T. Green and Paul E.Ross, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and inhis or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with allexhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact andagents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith,as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or anyof them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ JEFF T. GREEN Chief Executive Officer, Director (principal February 27, 2018Jeff T. Green executive officer) /s/ PAUL E. ROSS Chief Financial Officer (principal financial February 27, 2018Paul E. Ross officer and principal accounting officer) /s/ ROBERT D. PERDUE Chief Operating Officer, Director February 27, 2018Robert D. Perdue /s/ KATHRYN E. FALBERG Director February 27, 2018Kathryn E. Falberg /s/ THOMAS FALK Director February 27, 2018Thomas Falk /s/ ERIC B. PALEY Director February 27, 2018Eric B. Paley /s/ JUAN N. VILLALONGA Director February 27, 2018Juan N. Villalonga /s/ DAVID B. WELLS Director February 27, 2018David B. Wells 83EXHIBIT 21.1SUBSIDIARIES OF THE TRADE DESK, INC. The UK Trade Desk Ltd (United Kingdom)The Trade Desk Cayman (Cayman Islands)The Trade Desk Australia PTY LTD (Australia)The Trade Desk GmbH (Germany)The Trade Desk Korea Yuhan Hoesa (South Korea)The Trade Desk (Singapore) PTE. LTD. (Singapore)The Trade Desk Japan K.K. (Japan)The Trade Desk Limited (Hong Kong) (Cui Yi Information Science and Technology (Shanghai) Company Limited)The Trade Desk France SAS (France)The Trade Desk Spain srl (Spain)The Trade Desk Canada Inc. (Canada)EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S‑3 (No. 333-221495) and Form S-8 (No. 333-218135 and 333-213750) of The Trade Desk, Inc. of our report dated February 27, 2018 relating to the financial statements and the effectiveness of internal control overfinancial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 27, 2018 Exhibit 31.1Certification of Principal Executive Officerpursuant toExchange Act Rules 13a-14(a) and 15d-14(a),as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Jeff T. Green, certify that:1.I have reviewed this annual report on Form 10-K of The Trade Desk, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 27, 2018 /s/ Jeff T. Green Jeff T. GreenChief Executive Officer (Principal Executive Officer) Exhibit 31.2Certification of Principal Financial Officerpursuant toExchange Act Rules 13a-14(a) and 15d-14(a),as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Paul E. Ross, certify that:1.I have reviewed this annual report on Form 10-K of The Trade Desk, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 27, 2018 /s/ Paul E. Ross Paul E. RossChief Financial Officer (Principal Financial Officer) Exhibit 32.1Certifications of Principal Executive Officer and Principal Financial Officerpursuant to18 U.S.C. Section 1350,as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), Jeff T. Green, Chief Executive Officer (Principal Executive Officer) ofThe Trade Desk, Inc. (the “Company”), and Paul E. Ross, Chief Financial Officer (Principal Financial Officer) of the Company, each hereby certifies that, tothe best of his knowledge: 1)Our Annual Report on Form 10-K for the year ended December 31, 2017, to which this certification is attached as Exhibit 32.1 (the “Report”)fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: February 27, 2018 /s/ Jeff T. Green Jeff T. Green Chief Executive Officer (Principal Executive Officer) /s/ Paul E. Ross Paul E. Ross Chief Financial Officer (Principal Financial Officer)The foregoing certifications are being furnished pursuant to 18 U.S.C. Section 1350. They are not being filed for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, regardless of any general incorporationlanguage in such filing.

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