Last10K.com

Trade Desk, Inc. (TTD) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

Trade Desk, Inc.

CIK: 1671933 Ticker: TTD
Exhibit 99.1

The Trade Desk Reports First Quarter Financial Results

LOS ANGELES--(BUSINESS WIRE)--May 7, 2020--The Trade Desk, Inc. (NASDAQ: TTD), a provider of a global technology platform for buyers of advertising, today announced financial results for its first quarter ended March 31, 2020.

“Despite the Covid-19 pandemic, our team delivered a strong March quarter. We delivered 33% year-over year revenue growth and strong EBITDA margins. We generated robust cash flow in the quarter and ended March with a strong cash position and balance sheet. This financial discipline allows us to continue to invest in our platform,” said Founder and CEO of The Trade Desk, Jeff Green. “This will be key as the world’s leading brands and agencies look to leverage advertising to gain share as we emerge from this current environment. While the timing is unpredictable right now, we can be certain that advertisers will increasingly value measurability in their campaigns, and that they’ll use data-driven strategies to drive precision and value across all channels. And nowhere will this be more apparent than the accelerated shift from linear to connected TV.”

First Quarter 2020 Financial Highlights:

The following table summarizes our consolidated financial results for the quarters ended March 31, 2020 and 2019 ($ in millions, except per share amounts):

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

2019

GAAP Results

 

 

 

 

 

 

 

 

Revenue

 

$

160.7

 

 

$

121.0

 

Increase in revenue year over year

 

 

33

%

 

 

41

%

Net Income

 

$

24.1

 

 

$

10.2

 

Diluted EPS

 

$

0.50

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

Non-GAAP Results

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

39.0

 

 

$

24.7

 

Adjusted EBITDA Margin

 

 

24

%

 

 

20

%

Non-GAAP Net Income

 

$

43.4

 

 

$

23.1

 

Non-GAAP Diluted EPS

 

$

0.90

 

 

$

0.49

 

First Quarter and Recent Business Highlights Include:

  • Continued Omnichannel Spend Growth: Omnichannel solutions remain a strategic focus for The Trade Desk as the industry continues shifting toward transparency and programmatic buying. Specific channel highlights from Q1 include:
    • Total Mobile (in-app, video, and web) spend grew 38% from Q12019 to Q12020
    • Mobile Video spend grew 74% from Q12019 to Q12020
    • Mobile In-App spend grew 55% from Q12019 to Q12020
    • Connected TV spend grew 100% from Q12019 to Q12020
    • Audio spend grew 60% from Q12019 to Q12020
  • Strong Customer Retention:Customer retention remained over 95% during the quarter, as it has for the previous 5 years.
  • Expanding Partnerships in Asia:
    • The Trade Desk and TikTok, the leading destination for short-form mobile video, announced a new advertising partnership covering key Asia Pacific markets. The partnership will allow advertisers to directly access premium TikTok inventory across the Asia-Pacific region via The Trade Desk platform. TikTok is the first short-form video platform to integrate its ad offerings with The Trade Desk, making this a unique industry-leading development for brands in the region.
    • The Trade Desk and Samba TV, the leading provider of consumer cross screen television insights and analytics, expanded their US partnership to international markets beginning in Australia.
  • Revamped The Trade Desk “Edge” Academy learning platform:
    • The Trade Desk revamped its industry-leading digital advertising courseware and certification platform, and is making it available free of charge for the first time until the end of 2020. In addition, the learning platform will be open to all users, from advertising industry professionals to those looking to build the required skills to enter the field.
  • Industry Awards: The Trade Desk was recently ranked #7 for Best Workplaces™ Asia 2020 for the small/medium company category and was named a Best Workplaces™ in Greater China 2019 by Great Places to Work®. The Trade Desk won for the Best Demand Side Platform at the ClickZ Marketing Technology Awards 2019 and Best Demand-Side Technology in the 2019 AdExchanger Awards. The Trade Desk was also named Best Medium Workplace by Great Place to Work™ and Fortune for the third year in a row.


The following information was filed by Trade Desk, Inc. (TTD) on Thursday, May 7, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-37879

 

THE TRADE DESK, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

 

 

27-1887399

(State or other jurisdiction of

incorporation or organization)

 

 

 

(I.R.S. Employer

Identification No.)

42 N. Chestnut Street

Ventura, California 93001

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (805) 585-3434

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $0.000001 per share

 

TTD

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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 growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2020, the registrant had 40,888,742 shares of Class A common stock and 5,169,630 shares of Class B common stock outstanding.

 

 


THE TRADE DESK, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

 

  

 

Page

Part I.

  

FINANCIAL INFORMATION

 

3

Item 1.

  

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

  

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

  

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

7

 

  

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

  

Controls and Procedures

 

21

Part II.

  

OTHER INFORMATION

 

23

Item 1.

  

Legal Proceedings

 

23

Item 1A.

  

Risk Factors

 

23

Item 6.

  

Exhibits

 

44

Signatures

 

45

 


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

 

 

 

As of

 

 

As of

 

 

 

March 31,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

325,211

 

 

$

130,876

 

Short-term investments, net of allowance for credit losses

   of $275 and $0 as of March 31, 2020 and December 31, 2019, respectively

 

 

120,625

 

 

 

124,112

 

Accounts receivable, net of allowance for credit losses

   of $5,776 and $3,920 as of March 31, 2020 and December 31, 2019, respectively

 

 

947,973

 

 

 

1,166,376

 

Prepaid expenses and other current assets

 

 

48,002

 

 

 

27,857

 

TOTAL CURRENT ASSETS

 

 

1,441,811

 

 

 

1,449,221

 

Property and equipment, net

 

 

78,877

 

 

 

64,012

 

Operating lease assets

 

 

200,242

 

 

 

173,449

 

Deferred income taxes

 

 

18,950

 

 

 

18,950

 

Other assets, non-current

 

 

27,324

 

 

 

23,129

 

TOTAL ASSETS

 

$

1,767,204

 

 

$

1,728,761

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

663,410

 

 

$

868,618

 

Accrued expenses and other current liabilities

 

 

48,437

 

 

 

47,178

 

Operating lease liabilities

 

 

22,527

 

 

 

14,577

 

TOTAL CURRENT LIABILITIES

 

 

734,374

 

 

 

930,373

 

Operating lease liabilities, non-current

 

 

204,688

 

 

 

174,873

 

Debt, net

 

 

143,000

 

 

 

 

Other liabilities, non-current

 

 

11,108

 

 

 

10,998

 

TOTAL LIABILITIES

 

 

1,093,170

 

 

 

1,116,244

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued

   and outstanding as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, par value $0.000001 Class A, 1,000,000 shares authorized;

   40,865 and 40,305 shares issued and outstanding as

   of March 31, 2020 and December 31, 2019, respectively

   Class B, 95,000 shares authorized; 5,170 and 5,171 shares issued and outstanding

   as of March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

417,769

 

 

 

380,079

 

Accumulated other comprehensive income

 

 

158

 

 

 

 

Retained earnings

 

 

256,107

 

 

 

232,438

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

674,034

 

 

 

612,517

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,767,204

 

 

$

1,728,761

 

 

 

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

3


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$

160,660

 

 

$

120,987

 

Operating expenses:

 

 

 

 

 

 

 

 

Platform operations

 

 

40,208

 

 

 

33,651

 

Sales and marketing

 

 

34,294

 

 

 

22,737

 

Technology and development

 

 

36,794

 

 

 

25,312

 

General and administrative

 

 

38,598

 

 

 

33,617

 

Total operating expenses

 

 

149,894

 

 

 

115,317

 

Income from operations

 

 

10,766

 

 

 

5,670

 

Other expense (income):

 

 

 

 

 

 

 

 

Interest income, net

 

 

(1,092

)

 

 

(997

)

Foreign currency exchange loss, net

 

 

1,234

 

 

 

1,330

 

Credit loss expense on available-for-sale securities

 

 

275

 

 

 

 

Total other expense, net

 

 

417

 

 

 

333

 

Income before income taxes

 

 

10,349

 

 

 

5,337

 

Benefit from income taxes

 

 

(13,708

)

 

 

(4,814

)

Net income

 

$

24,057

 

 

$

10,151

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.23

 

Diluted

 

$

0.50

 

 

$

0.21

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

45,501

 

 

 

43,906

 

Diluted

 

 

48,313

 

 

 

47,314

 

 

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

4


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

24,057

 

 

$

10,151

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Change in unrealized gain on available-for-sale investments, net of tax of $68

 

 

158

 

 

 

 

Comprehensive income

 

$

24,215

 

 

$

10,151

 

5


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Class A and B

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance as of December 31, 2018

 

 

43,864

 

 

$

 

 

$

270,447

 

 

$

 

 

$

124,120

 

 

$

394,567

 

Exercise of common stock options

 

 

592

 

 

 

 

 

 

9,502

 

 

 

 

 

 

 

 

 

9,502

 

Restricted stock, net of forfeitures and shares

    withheld for taxes

 

 

23

 

 

 

 

 

 

(1,146

)

 

 

 

 

 

 

 

 

(1,146

)

Stock-based compensation

 

 

 

 

 

 

 

 

16,324

 

 

 

 

 

 

 

 

 

16,324

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,151

 

 

 

10,151

 

Balance as of March 31, 2019

 

 

44,479

 

 

$

 

 

$

295,127

 

 

$

 

 

$

134,271

 

 

$

429,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

45,476

 

 

$

 

 

$

380,079

 

 

$

 

 

$

232,438

 

 

$

612,517

 

Impact upon adoption of new accounting

    standard (Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

(388

)

Exercise of common stock options

 

 

539

 

 

 

 

 

 

19,320

 

 

 

 

 

 

 

 

 

19,320

 

Restricted stock, net of forfeitures and shares

    withheld for taxes

 

 

20

 

 

 

 

 

 

(4,893

)

 

 

 

 

 

 

 

 

(4,893

)

Stock-based compensation

 

 

 

 

 

 

 

 

23,263

 

 

 

 

 

 

 

 

 

23,263

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

158

 

 

 

 

 

 

158

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,057

 

 

 

24,057

 

Balance as of March 31, 2020

 

 

46,035

 

 

$

 

 

$

417,769

 

 

$

158

 

 

$

256,107

 

 

$

674,034

 

 

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

6


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

24,057

 

 

$

10,151

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,477

 

 

 

4,456

 

Stock-based compensation

 

 

22,965

 

 

 

15,869

 

Allowance for credit losses on accounts receivable

 

 

1,310

 

 

 

224

 

Investment credit loss

 

 

275

 

 

 

 

Noncash lease expense

 

 

7,402

 

 

 

4,421

 

Other

 

 

3,209

 

 

 

379

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

210,552

 

 

 

127,232

 

Prepaid expenses and other assets

 

 

(15,791

)

 

 

(6,580

)

Accounts payable

 

 

(205,967

)

 

 

(138,886

)

Accrued expenses and other liabilities

 

 

892

 

 

 

(4,489

)

Operating lease liabilities

 

 

(2,673

)

 

 

(3,066

)

Net cash provided by operating activities

 

 

52,708

 

 

 

9,711

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(35,705

)

 

 

(73,950

)

Maturities of investments

 

 

39,180

 

 

 

 

Purchases of property and equipment

 

 

(18,310

)

 

 

(6,085

)

Capitalized software development costs

 

 

(965

)

 

 

(1,417

)

Net cash used in investing activities

 

 

(15,800

)

 

 

(81,452

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

143,000

 

 

 

 

Payment of debt financing costs

 

 

 

 

 

(6

)

Proceeds from exercise of stock options

 

 

19,320

 

 

 

9,502

 

Taxes paid related to net settlement of restricted stock awards

 

 

(4,893

)

 

 

(1,146

)

Net cash provided by financing activities

 

 

157,427

 

 

 

8,350

 

Increase (decrease) in cash and cash equivalents

 

 

194,335

 

 

 

(63,391

)

Cash and cash equivalents—Beginning of period

 

 

130,876

 

 

 

207,232

 

Cash and cash equivalents—End of period

 

$

325,211

 

 

$

143,841

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Capitalized assets financed by accounts payable

 

$

10,200

 

 

$

1,487

 

Asset retirement obligation

 

$

65

 

 

$

126

 

Stock-based compensation included in capitalized software development costs

 

$

298

 

 

$

455

 

Cash paid for amounts included in the measurement of lease liabilities included in

   operating cash flows

 

$

4,902

 

 

$

3,792

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

34,155

 

 

$

35,015

 

 

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

7


THE TRADE DESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Nature of Operations

The 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 North America, Europe, Asia and Australia. The Company is a technology company that empowers buyers of advertising by providing a self-service cloud-based platform on which ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and, social, on a multitude of devices, such as computers, mobile devices, and connected TV.

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

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2019.

Except for the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326” or “CECL”), there have been no changes to the Company’s accounting policies and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2019, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year ending December 31, 2020.

Use of Estimates

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

For the three months ended March 31, 2020, the impact of the decline in business activity brought about by the Coronavirus pandemic (“COVID-19”) continues to evolve. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

Adoption of New Accounting Standard

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 326, which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. As a result, the Company revised its impairment model to utilize an expected loss methodology in place of an incurred loss methodology related to its marketable securities and allowance for doubtful accounts. The Company adopted ASC 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment recorded on January 1, 2020, is not material.

Accounts Receivable and Allowance for Credit Losses (formerly Allowance for Doubtful Accounts)

Accounts receivable are recorded at the invoiced amount, are unsecured and do not bear interest. The Company performs ongoing credit evaluations of its clients and certain advertisers when the Company’s agreements with its clients contain sequential liability terms that provide that the client payments are not due to the Company until the client has received payment from its clients who are advertisers. We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the Consolidated Statements of Income. Based on the implementation of CECL during the first quarter of 2020, the Company considers macro-economic factors and industry

8


specific default rates in the valuation of trade receivables and the related allowance for credit losses. The industry specific default rates are applied to the advertiser’s industry in the case where the receivables are subject to sequential liability or the Company is engaged with the advertiser directly. The services of an outside valuation firm were used to assist in the determination of the macro-economic factors and the industry default rates. For the three months ended March 31, 2020, our assessment considered business and market disruptions caused by COVID-19 and estimates of credit defaults by industry.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. This guidance will be effective for the Company in the first quarter of 2021 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impacts of the provisions of ASU 2020-04 on our financial condition, results of operations, and cash flows.

 

Note 3—Earnings Per Share

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

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

24,057

 

 

$

10,151

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding—basic

 

 

45,501

 

 

 

43,906

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Options to purchase common stock

 

 

2,447

 

 

 

2,952

 

Employee stock purchase plan shares

 

 

116

 

 

 

122

 

Restricted stock

 

 

249

 

 

 

334

 

Weighted-average shares outstanding—diluted

 

 

48,313

 

 

 

47,314

 

Basic EPS

 

$

0.53

 

 

$

0.23

 

Diluted EPS

 

$

0.50

 

 

$

0.21

 

Anti-dilutive equity awards under stock-based award plans

   excluded from the determination of diluted EPS

 

 

388

 

 

 

818

 

 

9


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

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

 

 

 

As of March 31, 2020

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

Cash

 

$

61,623

 

 

$

 

 

$

61,623

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

248,459

 

 

 

 

 

 

248,459

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

9,535

 

 

 

29,021

 

 

 

38,556

 

Corporate debt securities

 

 

 

 

 

68,829

 

 

 

68,829

 

U.S. government and agency securities

 

 

5,594

 

 

 

22,775

 

 

 

28,369

 

Total

 

$

325,211

 

 

$

120,625

 

 

$

445,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

 

 

 

 

Cash

 

$

32,123

 

 

$

 

 

$

32,123

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

45,588

 

 

 

 

 

 

45,588

 

Time deposits

 

 

35,000

 

 

 

 

 

 

35,000

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

15,666

 

 

 

24,975

 

 

 

40,641

 

Corporate debt securities

 

 

 

 

 

78,998

 

 

 

78,998

 

U.S. government and agency securities

 

 

2,499

 

 

 

20,139

 

 

 

22,638

 

Total

 

$

130,876

 

 

$

124,112

 

 

$

254,988

 

 

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the periods presented within this quarterly report were immaterial.

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

 

 

 

March 31, 2020

 

Due in one year

 

$

111,528

 

Due in one to two years

 

 

9,097

 

Total

 

$

120,625

 

 

Note 5—Leases

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating lease cost

 

$

9,538

 

 

$

5,171

 

Short-term lease cost

 

 

239

 

 

 

407

 

Variable lease cost

 

 

811

 

 

 

329

 

Sublease income

 

 

(990

)

 

 

(302

)

Total lease cost

 

$

9,598

 

 

$

5,605

 

 

10


Maturities of lease commitments as of March 31, 2020 were as follows (in thousands):

 

Year

 

Amount

 

2020 (for remaining nine months)

 

$

18,430

 

2021

 

 

49,466

 

2022

 

 

46,390

 

2023

 

 

42,304

 

2024

 

 

33,305

 

Thereafter

 

 

161,160

 

Total undiscounted lease commitments

 

 

351,055

 

Less: commitments for leases not yet commenced

 

 

(78,521

)

Less: interest

 

 

(45,319

)

Present value of lease liabilities

 

 

227,215

 

Less: operating lease liabilities, current

 

 

(22,527

)

Operating lease liabilities, non-current

 

$

204,688

 

 

 

Note 6—Debt

Credit Facility

As of March 31, 2020, the Company’s outstanding debt balance under the Credit Facility was $143.0 million, which bore interest at a weighted average annual rate of 2.20%. The Company was in compliance with all covenants as of March 31, 2020. In March 2020, the Company drew down $143.0 million under the Credit Facility as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of the worldwide decline in business activity brought about by the COVID-19.

 

Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Platform operations

 

$

1,462

 

 

$

1,056

 

Sales and marketing

 

 

5,314

 

 

 

3,227

 

Technology and development

 

 

8,590

 

 

 

4,936

 

General and administrative

 

 

7,599

 

 

 

6,650

 

Total

 

$

22,965

 

 

$

15,869

 

 

Stock Options

The following summarizes stock option activity:

 

 

 

Shares

Under Option

(in thousands)

 

 

Weighted-

Average

Exercise Price

 

Outstanding as of December 31, 2019

 

 

4,064

 

 

$

70.74

 

Granted

 

 

46

 

 

 

269.45

 

Exercised

 

 

(539

)

 

 

35.91

 

Cancelled

 

 

(34

)

 

 

139.02

 

Outstanding as of March 31, 2020

 

 

3,537

 

 

$

77.97

 

Exercisable as of March 31, 2020

 

 

1,624

 

 

$

40.82

 

 

On January 1, 2020, the number of shares authorized for grant under the Company’s 2016 Incentive Award Plan was increased by 1.8 million shares in accordance with plan provisions.

11


Restricted Stock

The following summarizes restricted stock activity:

 

 

 

Shares

(in thousands)

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested as of December 31, 2019

 

 

457

 

 

$

120.65

 

Granted

 

 

19

 

 

 

265.32

 

Vested

 

 

(45

)

 

 

115.68

 

Forfeited

 

 

(9

)

 

 

202.87

 

Unvested as of March 31, 2020

 

 

422

 

 

$

125.81

 

 

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $7.8 million and $4.0 million for the three months ended March 31, 2020 and 2019, respectively.

On January 1, 2020, the number of shares available for issuance under the Company’s ESPP was increased by 0.5 million shares in accordance with plan provisions.

Note 8—Income Taxes

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

For the three months ended March 31, 2020 and 2019, the provision for income taxes included $24.3 million and $11.0 million, respectively, of benefits associated with stock-based awards.  

For the three months ended March 31, 2020, and 2019, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to tax benefits associated with employee exercises of stock options and vesting of restricted stock units, foreign tax rate differences, state taxes, and research and development tax credits.

There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2020, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

Note 9—Geographic Information

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

Gross Billings, based on the billing address of the clients or client affiliates, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020