The Trade Desk, Inc.
Q4 2019 Earnings Call Transcript

Published: 28 Feb 2020

[Operator:]

Greetings. Welcome to The Trade Desk Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.I would now like to turn the conference over to your host Mr. Chris Toth, Vice President of Investor Relations. Thank you. You may begin.

[Chris Toth:]

Thank you, operator. Hello, and good afternoon. Welcome to The Trade Desk fourth quarter and fiscal year 2019 earnings conference call. On the call today from our Ventura headquarters is Founder and CEO, Jeff Green and on his first earnings call as Chief Financial Officer is Blake Grayson.A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I'd like to remind you that except for historical information, the matters that we will be describing will be forward-looking statements, which are dependent upon certain risks and uncertainties. I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings.In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe that providing non-GAAP measures combined with our GAAP results, provides a more meaningful representation regarding the company's operational performance.I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

[Jeff Green:]

Thanks, Chris and thank you all for joining us. You've already seen the results, but let me just cover a couple of highlights that I think are particularly noteworthy.Total spend on our platform in 2019 was a record $3.1 billion. Spend in Q4 topped $1 billion, the first time we have ever crossed the $1 billion mark in a single quarter. This record spend helped drive revenue growth of 39% for the year. And our adjusted EBITDA margin was 32% marking the fourth year in a row above 30%. Net income was $108 million and we have been GAAP profitable every year since 2013.These results are highly encouraging. We continue to generate strong revenue growth while we also deliver profitability that is significantly higher than almost all other comparable software and Internet companies of our size. We will also continue to look for ways to invest that profitability to accelerate our growth.With all of that said about 2019, I'm even more excited about 2020. I've never felt more confident heading into a new year. That's because as the largest independent DSP in the world, I believe we are uniquely positioned to grow and grab share regardless of any changes to the regulatory or tech environment. I'm expecting spend growth to accelerate this year to 35.7% year-over-year versus 33% last year. We project that will drive revenue growth of at least 30.5% and EBITDA margin of at least 30%.Part of our confidence comes from the amazing progress we made in 2019. Whether it's bringing more and more advertisers on to our platform or the tremendous growth we've seen across our inventory availability or the explosion of Connected TV and how that is transforming advertising or the growth of the use of data on our platform, which grew 65% year-over-year, I'm amazed at how far we've come and so quickly. The progress we made in 2019 puts us in a great position to grab share not only in 2020, but well into the future.I want to spend a few minutes getting into these points in more detail. I believe that in many ways we're at a watershed moment in our industry and for our business. I say that not simply because of the revolutionary impact of emerging trends such as CTV, but also because we're at a point where we no longer have to make the case for data-driven advertising. Advertisers get it. They understand it and they want to apply it. It's no longer a question of what the hell is this thing, but it's more a question of, how can I do more with you.While advertising is about $725 billion today we expect it to pass $1 trillion in about seven years. We continue to assert what we have from the very beginning

[Blake Grayson:]

Thanks, Jeff and good afternoon everyone. I want to start off by saying that, I'm thrilled to be a part of The Trade Desk. I joined the company, because I am so optimistic about the opportunity in front of us. It's rare in my opinion to find a company with such a unique value proposition, in such a large and growing available market. It's also rare, to find a company that can grow at a rapid rate, while producing profitable growth, even as we try to invest in the right areas, as quickly as we can.I also have been very impressed with the team Jeff has assembled. I'm excited to be part of this journey. And I look forward to helping The Trade Desk scale to a much larger company.As Jeff mentioned, 2019 was a strong year for The Trade Desk, as we continued our growth trajectory, ending the year with more than $3.1 billion in spend on our platform and $661 million in revenue.We also ended the year with adjusted EBITDA of nearly $214 million and GAAP net income of over $108 million, marking the seventh straight year of positive GAAP net income.The Trade Desk's ability to give advertisers an alternative to large search and social media platforms was on full display, in the fourth quarter. Q4 revenue expanded 35% year-over-year, to $215.9 million.We saw a strong spend growth during the holiday season, in our audio, Connected TV and mobile in-app channels. In Q4, we saw spend in both North America and international accelerate versus Q3.89% of our fourth quarter spend came from existing customers, who have been with us for over a year. Turning now to our expenses, all comparisons are on a year-over-year basis, unless otherwise noted.Total operating expenses in Q4 increased to $163 million, up 46%. Platform operations or effectively our cost of revenue increased 34%, driven primarily by the increase in QPS, our platform fees.As a percent of revenue, our platform operations is decreasing year-over-year. We expect more improvement in 2020, which I will talk about, in a few minutes. Technology and development grew 36%, driven by increased investments, in our platform.Sales and marketing grew 59%, driven primarily by an increase in account management and business development. Finally, G&A grew 61%. We expect to see the most leverage or improvement in our G&A, in 2020, and certainly overtime, as we scale the business.Adjusted EBITDA was a record $83.5 million in Q4, representing a 39% margin. Adjusted net income for the quarter was $71.6 million or $1.49, per fully diluted share. We closed the year with $255 million in cash and short-term investments. Our DSOs ended the year at 118 days. And our DPOs were 94 days.Finally, I would like to share our guidance for the first quarter, in 2020 and preview our focus areas of investment. For Q1, we expect revenue to be $169 million and adjusted EBITDA to be $35 million.And for 2020, we expect the full year revenue to be at least $863 million, on total gross spend, of at least $4.24 billion, and adjusted EBITDA to be at least $259 million or about 30% of revenue.For 2020, we expect total operating expenses of $752 million. And we expect our full year tax rate to be about 25%. We expect stock-based compensation expense for the year, to be about 13% of revenue. And finally, share count is expected to be about 50 million, as we exit 2020.From over the decade, I spent at Amazon. I believe, in actively managing, how and where we allocate capital within the company, toward areas that can drive growth and efficiency, not only in 2020, but in the years beyond.Let me preview a few areas, I'm very excited about. First is in our people that can drive incremental spend, on our platform. We will aggressively add more business development and account management employees.This includes both in North America and international. With the massive available market in front of us and the generational shift to Connected TV, you should expect sales and marketing to generally grow, a little faster than revenue growth, over the next few years.The second is product expansion on our platform. One thing our customers have come to expect from us is more product and functionality on our platform. It is why the company relaunched its platform, in June of 2018.It is also why we will continue to invest heavily in technology and development, as we keep our focus on the customer. And build features and functionality that generate better ROIs for media buyers, and their clients.That should spin our flywheel even faster. In the coming year and beyond, one should expect to see more capability in CTV and better tools for measurement, and contextual targeting for example.And third is in our platform operations. As our QPS increases, our cost to serve also increases. However, we have the opportunity to improve our efficiency and lower our platform operation expenses, even more as we scale.This includes improving the management of our data center, managing the cost of our outside cloud computing partners, in addition to investing, into efficiency initiatives that can reduce our cost to serve, per impression overtime.I can tell you from the relatively short-time, I've been here, that we are 100% focused on building the best products and services we can for our customers, rapidly gaining share in programmatic, while it's still in its infancy and building for the long-term not the next quarter.We already invest today in the areas we believe have the most potential. I look forward to helping the team move even faster and more efficiently, than it does today. And I'm very excited about the opportunities we have ahead of us.With that, I will hand it back to Jeff for any final comments and of course, Q&A. Jeff?

[Jeff Green:]

So in closing, let me reiterate, that we are off to a great start to the year. Our expectations for spend acceleration in 2020 demonstrate the trust, advertisers place in us. Our objectivity is more valuable to advertisers than ever.We are even more bullish on our future, than we were a year ago. The opportunities in areas such as, CTV give us confidence, that we will continue to aggressively take share. Our investments are paying off. When we see surprises they are typically to the upside. And we believe The Trade Desk is best positioned to realize continued growth in our industry for this year, next year and beyond.That concludes our prepared remarks. Operator, let's open it up for questions.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Shyam Patil with Susquehanna Financial Group. Please proceed with your question.

[Shyam Patil:]

Hey, guys. Congrats on the strong 2019 and welcome aboard Blake. I had a couple of questions. As you guys mentioned, 1Q looks like it's off to a very strong start with 40% growth which is an acceleration from 4Q. Annual growth looks to be in the low 30s percent range, at least initially. Can you just talk about this and just the puts and takes that you're taking into consideration? And then, I have a quick follow-up.

[Jeff Green:]

Sure. So, first of all, I can't express loudly enough how excited I am for the year and also how excited I am about Q1. I've never been in this position where I'm this confident going into a new year and especially have the momentum that we do from Q1. With 40% growth year-over-year, that's just a surprise. We knew it would be strong, but we didn't know it would be that strong.And, of course, Connected TV is a huge driver of that. But we're also seeing more than expected from political. While, in 2016 presidential election year, it was low single digits, it's low single digits again, but they're higher than last time. But, of course, on the other side of Super Tuesday, certain candidates might spend more or less as a result of that. And it's really hard to predict what that will do.Of course, we're also watching the virus around the world, the coronavirus, and trying to measure the impact that that will have on everything globally. And while we don't think it will have a significant impact in the current environment, it's prudent to be measured. So, we're more comfortable moving expectations up as we go, but our optimism is as strong as it could be.

[Shyam Patil:]

Awesome. And then, I just had a quick follow-up. The initial EBITDA margin guide for the year of about 30%, I think that's the highest initial guide that you guys have given in your history. I assume some of this is just natural operating leverage and some of its efficiencies identified by Blake and the team. But, I was just wondering, if you could talk about this a bit more.

[Jeff Green:]

Yes. So I'll give my true sense and I'd love Blake to give his sort of fresh opinion. So, I feel like I've been apologizing to investors. Since, we've been a public company, where we say, we know that at maturity we will be a very profitable business. But our hope is to reinvest as much as possible for now and we still believe that this market is in land grab phase.As I have always said, global advertising will soon be a $1 trillion industry and we want to capture as much of that as possible and that means, we need to grow as fast as possible. But we will not do that irresponsibly and we're going to continue to look for ways to invest as aggressively as possible.So after multiple years of investing as aggressively as we can and never wanting to hire the wrong people or hire at a rate that will negatively impact our culture, we've consistently outperformed on EBITDA, almost apologetically. So this was our first time of looking at it and saying, even though we're investing as aggressively as we can, I think, it's highly likely that we'll produce something close to 30% EBITDA margins yet again. So that's how we get to this place. And I'm really excited for what it represents. Blake, I'd love your fresh opinion.

[Blake Grayson:]

Yes. Thanks, Shyam. You're correct, that we have guided in prior years to somewhere between 27% and 29%. Like Jeff said, we feel with our scale we can deliver 30% in 2020, but still investing in growth areas as quickly as we're able to. The only additional real point I'd add is, remember that we don't manage to an EBITDA target. So if we see great opportunities to invest that can spin our flywheel, we're going to take that option. But still looking at the investment opportunities in front of us we feel like 30% is realistic.

[Jeff Green:]

Thanks, Shyam. Next question, operator?

[Operator:]

Our next question comes from the line of Michael Levine with Pivotal Research. Proceed with your question.

[Michael Levine:]

Great quarter, guys and thanks for the question. Wanted to talk a little bit more about Chrome, the recent update that they made on February 4. And it's probably the biggest question that we get from investors is, just skepticism regarding how you guys can navigate through it. So, I mean, it was great what you gave us in the prepared remarks Jeff, but maybe you could help clarify and maybe give a little high level about cookies. Obviously, it seems like the guide looks particularly strong.

[Jeff Green:]

Yes. And so - and while I said in the guide, like, there are certain pieces of uncertainty out there in the market. Admittedly, this is not one of them that we're including in any conservatism. We have pretty strong conviction that the value exchange of the Internet is not changing at all, and the targeting is not going away.And that -- Google has done a good job of starting a good debate. They haven't necessarily given clarity in their most recent blog post, and let's just remember that that is all that it was sort of started the recent discussion is simply a blog post, where they said they expect to make changes in two years. But there's been lots of supposition about, what that means and what the impact will be.So let me start by just talking about maybe the worst plausible scenario. And then when we see that that one is not that bad, we can then walk back and talk about where I think it's much more likely to land. So some are afraid that Google will do exactly what Safari did, which is they'll eliminate third-party cookies altogether. What Google had announced only four-ish months earlier or maybe it was 8 earlier in the year, they had announced that they were going to handle third-party cookies differently. And we gave them lots of public praise for threading the needle between privacy and relevance.But if they were to take a Safari-like approach, which just remember, Apple is not directly dependent on advertising really at all, and Google's entire business is built on top of advertising, so it seems unlikely. But, let's say, they go there.Then what I would do is point you to the part of our business that is most dependent on cookies, which is our display business, while it's not our fastest growing channel. If you look at that closely and we have and just anticipating what would happen here, Safari spend in Q4 grew faster for display than the rest of it. And the reason why I think that's really important is because it's indicative of the fact that Apple's policy changes in getting rid of third-party cookies did not stop us from growing. In fact, we're growing faster there.So -- and I'll also just reinforce that display is ballpark 20% of our business today. So there's not that much of our business that is directly dependent on cookies at this point. So even in a situation where Google goes to a policy like Apple, I don't think that we're negatively impacted much at all if at all.What I think is far more likely than the scenario that I just described, is that Google will find a way to do a better job of threading the needle between privacy and relevance than what Apple did. I suspect they'll end up landing at something closer to the policy that they talked about just months earlier. We have had great discussions with people at Google who are front and center in this discussion. The discussion inside of Google alone is far from over. It will be really interesting to see where they go, but in all possible scenarios, we are as well off as we are today or better, the way that we calculate it.

[Chris Toth:]

Thanks Michael. Our next question, Devon [ph].

[Operator:]

Our next question comes from the line of Tim Nollen with Macquarie Group. Please proceed with your question.

[Tim Nollen:]

Thanks very much. I'd like to ask about a couple of more things on CTV, if I could Jeff. You've been ebullient about this for a long time now and the numbers are all coming through very, very strongly. I'm curious if you could give us a bit more color on where you are buying CTV ads. And I'm thinking, is it network apps like an ESPN app? Is it a virtual bundle like a Sling TV? Is it an AVOD platform like a Roku channel or an Amazon Fire? Or is it something open ubiquitous like Pluto TV or something like that? I'm sure it's all of that. But if anything you could sort of give us to sort of lay out where the activity is.And then you've got Peacock coming this year from NBCU, which is probably going to be a pretty big ad-supported service. What are your thoughts on where that gets you to?And then if I could ask a follow-on regarding FreeWheel, your comments on FreeWheel and the header bidding, is that entirely within the NBCU/Comcast ecosystem given that they own FreeWheel? Or is this FreeWheel operating on behalf of the industry as a whole? Thanks a lot.

[Jeff Green:]

Okay. Great. If I skip any part of your question call me on it, because I definitely want to address all three of those questions. So, first, at a high level on Connected TV, I just want to remind everybody that, Connected TV spend increased in 2019 by 137%. So -- and shockingly that is our lowest growth year-to-date at 137%.And we're in the middle of what, I think, is a generational shift from traditional television to Internet-driven television. And while many people look at it, and say, it's going to be a linear decline no pun intended, I actually think that we're going to hit a cliff at some point where linear television is not able to do what it does without a certain amount of economics. And we're not that far away from it.So I've always said that, TV is something of a ticking time bomb. And I think we're getting closer to that. We're much, much closer to that especially as we look at our scale and see 80 million households available through our platform just in the United States.And then, of course, we expect to double again in 2020. So, with all of that as backdrop, let me dive in a little bit to your first question more specifically, which is where does the inventory come from.So first of all, it's coming from the large networks first and foremost. So that's – those are the content owners themselves. So whether that's an NBC or CBS or ABC or Disney or Discovery or Fox and ESPN and I could just keep going down the list. The large networks working with them directly is the biggest and perhaps the fastest growing, if memory serves.But secondly, it's from the content on all different connected devices like things like the Roku and of course our Amazon partnership. And then we're also seeing inventory from channels that don't exist in traditional television so the Hulus and Sony Crackles of the world for instance.And then last just new MVPDs and that's where the Plutos of the world and Sling TVs of the world come in. But all of those together are fueling that massive growth. And just really exciting to be a part of it, especially when the content owners themselves have changed so drastically in the last couple of years. So that's first question.As it relates to Peacock, in Phase 1, Peacock is not going to be ad-funded, which by the way if I were launching it if I had the job of deciding how to launch that, I would do the same thing. Phase 1, I would try to win over consumers. I would likely add as much quality content as possible. I think Disney+ used this exact same playbook. And then after you gain the loyalty of customers, I would give them the power of choice so that they could choose whether they wanted to pay for their content by seeing ads primarily or by paying additional money.And I suspect that that's where Peacock and NBC is going. And so that represents I think a huge opportunity for us in the future even though when Peacock first launches it won't be ad-funded.But lastly as it relates to your FreeWheel question, the unified yield is I think a very important just move for the industry and impact on the industry and that is not just isolated to Comcast inventory. It affects all of the inventory that FreeWheel powers.FreeWheel is a significant ad server and yield management platform for content way beyond just Comcast and they've done a good job of maintaining business outside of Comcast even though they were acquired several years ago. So I'm really excited about what they're doing and that does represent yield across everything.

[Operator:]

Our next question comes from the line of Nick Jones with Citi. Please proceed with your question.

[Nick Jones:]

Hi. Thanks for taking my questions. First you're talking a lot about walled gardens inevitably coming down and you're pretty vocal about it. And if Google kind of hears us and maybe sees it coming as well, what are the – what do you think the puts and takes they are considering and any Chrome changes? Does it potentially benefit them to make it harder to attribute or target to further trench them in their walled garden to try to postpone inevitable? And then I have one quick follow-up after.

[Jeff Green:]

Yes. So I think in broad strokes and this is all conjecture but it's not by accident that in the most recent blog post which has created all the discussion that they put a time line of two years. So that's on the other side of an election that gives them a lot of time to figure things out.And you're seeing way more consideration and conscientiousness about both privacy and antitrust inside of Google. So I think that they're looking at both of those things and trying to make certain that they don't step in it. So that makes it really hard and just having spent a lot of time at Microsoft on the other side of antitrust, you just get reluctant to make choices and you try to be deliberate and you take longer. And that's what I see happening there.They do – if they were to get rid of targeted advertising for everyone else then I think they have an antitrust problem. If they were to not do anything then I think they have a privacy problem. So I think they're just trying to figure out what's the right thing to do with both of those. And in a very Google like way they're going to try to engineer their way into something that's better. So I'm really optimistic about it. And we're having more conversation with Google now than we ever have on this. And so I'm really optimistic about where we'll end.

[Nick Jones:]

Great. And then Blake just one quick one. Can you talk about the free cash flow results on the year?

[Blake Grayson:]

Sure. So you can see that in the release the cash flow from operations, I think we were about $60 million. Free cash flow was at about $19 million. The difference there is the CapEx. So we've got PP&E and capitalized software of about $40 million. The vast majority of that's for the facilities and the build-out as we scale offices around the globe so both in North America and international.

[Jeff Green:]

One thing I just want to clarify on one of my previous responses. So I misspoke when I said that Peacock is not ad-funded. What I meant to say is that Peacock is not using programmatic ads today. It's ad-funded. Those are all just sold directly through NBC. And as a result, we haven't announced anything between us and Peacock on this. But for all the reasons I stated I'm optimistic that at some point that will happen.

[Chris Toth:]

Thanks Nick.

[Operator:]

Our next question comes from the line of Mark Mahaney with RBC. Please proceed with your question.

[Mark Mahaney:]

Okay. Thanks. Three quick ones. Anything on China? Is there any materiality in your 2020 outlook related to China? I know it's still early days for you but you've been in there for over a year. So just comment on that even though I know there's a lot of issues going on in that market now. Secondly, I know that -- I want to call you out Jeff on that -- your answer to the first question I didn't quite get.So the question is, your guidance for the first quarter has this very strong revenue growth for the full year implies this real material deceleration as you go through the year kind of implies that you exit 2020 like kind of like mid or high 20s revenue growth. Maybe that's the law of large numbers. Maybe there's some tough comp issues. Just talk through the -- and maybe it's you or Blake but just talk through whether other reasons for us to be thoughtful about expecting to see from a high -- very high level in Q1 market deceleration in revenue growth as we go through the year.And finally sorry, Jeff one high-level question, I thought about all these targeting changes that have occurred not just the cookies, but really just to clamp down I guess on the co-mingling of third-party data. And my interpretation of all this is that this can be a huge advantage to the walled gardens because of all the great first-party data. And you're kind of making a different pitch. You're making the argument that there may be less data or more data. It doesn't really matter where it will come down. The winners are going to be the companies that best work with the data. I think that's your pitch. And so I just want to just ask you to just maybe just take another turn at that. I think that the companies with a large amount of first-party data win. And then your pitch is that Trade Desk still wins because in any data environment restricted or expansive the best data -- not manipulators but the best data integrators those are the ones that win. Just -- am I stating your position right on that?

[Jeff Green:]

Sure. So I'll answer one of three and then I'll get Blake first stab at number two and I'll come back and just add color on the guide. So in terms of the materiality of China, we haven't forecasted anything material in our forecast for the year from China. It's one of those places where we could get surprised to the upside. We've done so much groundwork laying there that I'm very hopeful of what can happen there. Of course, there's lots of unforeseen things that they're managing right now, namely around the virus. And of course a significant amount of our operations are headquartered in Hong Kong and it had its fair share of political challenges last year. So despite all of that, I'm incredibly optimistic about what it could contribute in 2020 even though we haven't put it into our plan.The third thing that you asked on targeting changes, I think you mostly characterized that correctly which is that I don't believe that there will be a huge advantage to the walled gardens in large part because they don't have the most valuable asset in the ecosystem today, which is the asset of-- the data assets of the buyers. So the people who are funding the Internet, the advertisers, they have their own data. And there more and more -- and this is why we spend so much time in the prepared remarks talking about the mindset of a CMO and the way they're thinking about their data. They are looking for someone that they trust, not a media company, someone that is trying to help them deploy their data in the most objective way possible.And we are just continuing to win more and more favor from advertisers as it relates to their most precious data asset, which is about their customers. So, because we have that partnership with them and because we've always been focused on the buy side, I just believe having that advantage plus always doing the right thing as it relates to first and third-party data even if there is an environment where there's less of it, I think all that will do is make the quality go up. But I don't think data-driven decisions are going anywhere. And I don't think that that advantage that you hypothesized is actually real in large part because as they get bigger in their own data assets, people become more reluctant to share their data with them. So, with that Blake, anything you want to say about the guide before I add?

[Blake Grayson:]

Sure. Yes as we talked about on the call the -- overall, we're very happy with the full year guidance. I would say that you can definitely see that Q1 has gotten off to a great start for us. Political spending is a part of that. We have a lot of candidates involved right now and it's going to be lumpy. We don't see any major headwinds today, but like everyone knows we're going to have to watch how the macro environment unfolds and just the confidence that we'll raise as we go, we perform to the upside is, how we're going to operate.

[Jeff Green:]

Yes. So, the other thing I'll just say to add is, you said it must therefore be going from 40% to 20-something or low 20s. That's not how we see it from 40-something to 30-something. But that's largely because we think in the current environment it's prudent to be measured and we're more comfortable moving expectations up as we go.

[Chris Toth:]

Thanks, Mark. Next question Devin.

[Operator:]

Our next question comes from the line of Mark Kelley with Nomura. Proceed with your question.

[Mark Kelley:]

Hey, great. Thanks guys. Not to keep harping on the guide, but I just wanted to get a little bit more clarity on the mix of the gross spend outlook for 2020 and then also the revenue growth. I think this is the first time in I think maybe three or four years where it looks like gross spend will grow faster than revenue. So that implies that the take rate will come off a little bit. Well, help us think through that. When I think of CTV and data and some of the big drivers that you guys have talked about as being material this year, I think CTV is kind of a higher take rate. So what's the right way to interpret just the mix of the gross spend outlook versus the revenue outlook? Thank you.

[Jeff Green:]

Yeah. So I love that you've asked this question, especially because I think if you understand how we approach this philosophically and strategically then it can help you with modeling because this is really a strategic question that you're asking. And the strategic part of this is what do you care most about making money or grabbing land. And we've essentially said, we would rather grab land than anything.And so how can we adjust what I call consumer surplus what we're giving back to our customers and adding more value that just translates to more client retention and then makes the flywheel spin faster. So it is true, we're giving up a little bit of take rate to help the flywheel spin faster to get more spend. And that's why, I'm so excited by the gross spend numbers that we're sharing, because that to me represents what land grab is. And then that will have a trickle down effect. But this isn't something that we're sort of subject to. It's more that we're making a deliberate decision to give more back to get more loyalty from our customers just what consumer surplus is.

[Chris Toth:]

Thanks, Mark. Next question.

[Operator:]

Our next question comes from the line of Tom White with D.A. Davidson. Proceed with your question.

[Tom White:]

Great. Thanks for taking my question. Just on international, Jeff you sounded optimistic about growth there, but I'm not sure I heard you affirm what you said last quarter about accelerating international in 2020. Does coronavirus maybe factor into your view there?And then just a quick follow-up on the free cash flow question. If my arithmetic is right, I think free cash flow conversion of EBITDA was at a 9%, 10%, which is lower than we tend to see in other sort of tech or SaaS, SaaS-Desk businesses. Can you maybe just explain why that is? Is it just maybe the timing vagaries of cash collection between -- that can happen between publishers, agencies and advertisers? Or is there something else there? Thanks.

[Jeff Green:]

Great. So I'll take the first question and I'll have Blake take the second. So as it relates to international, so admittedly international hasn't been growing as fast as we wanted to and as fast as we expected to in the future. So I'm expecting them to have revenue acceleration at some point in the not-distant future.We have great momentum in many of the markets. We had record spend in Madrid and Paris and the U.K. in Q4. We also had record spend in Seoul Korea. As you point out, we've -- in some of our hubs like in Singapore and in Hong Kong and Shanghai, we've had just viruses and political issues and whatnot that have definitely created a little bit of a speed bump.And we also are scaling in those businesses where there's a little bit of a stair-step function that we expect to see in 2019 and 2020. The great news is that we've done this so many times now that we have 25 offices around the world that we're seeing the same patterns over and over again where we invest in the team and then we see that stair-step happen. That's exactly what is happening in Seoul that's exactly what is happening in Paris and Madrid. And we expect that to happen in all of our international markets at some point in the not-distant future. But we're definitely still at a place where we're investing.

[Blake Grayson:]

And then to follow-up on your cash flow question, so it's an accurate statement to say that so -- when you look at our DSOs and DPOs for the quarter, you get less flow-through from EBITDA because DSOs were as we said on the call, 118 in Q4, DPOs at 94. So the gap widened a little bit. I would just caution folks that just one or two days, can affect that AR/AP balance quite a bit. And so just to keep in mind closing that gap is top of mind for us. Strategically we want to bring it down. We feel very good about the quality of our receivables, but the timing of this can swing things quite a bit.

[Operator:]

Our next question comes from the line of Youssef Squali with SunTrust Robinson Humphrey. Proceed with your question.

[Youssef Squali:]

Great. Thank you very much. I have two. Maybe starting with you Jeff. The data business, I think you said was up about 65% for the quarter. I think that compares with somewhere like 80% to 90% in the prior several quarters. So just given the changes to the data collection you talked about, the cookie elimination et cetera has there been any material change either in data availability or in the quality of data that advertisers can access on the platform? And then Blake, on your 2020 guide I think it implies a couple of hundred basis points contraction in margin year 2020 over 2019. I think you called out negative leverage in sales and marketing as one. Is that the primary one? And if not maybe just help us how to think through it? Thank you.

[Jeff Green:]

Yeah. So let me take the first one. So I think your number is right at 65%, which is ballpark 150% of the growth rate of our media spend. So I'm really excited by the fact that it's growing at a faster rate in data than it is media, because that just means people are making more data-driven choices in our platform than ever before and data-driven is the trend.So I'm really optimistic about that. I wouldn't read too much into the 65% Q4 versus the 80% in previous quarters. You'll recall that we launched Next Wave, the year before. And so as a result of getting adoption from Next Wave in Q3 and Q4, we actually created pretty tough comps for ourselves in Q4. So the fact of that is 65% after all the momentum that we had in years previous, I'm really excited and optimistic about it. And I believe our data teams and our inventory teams were the all stars of our 2019. So.

[Blake Grayson:]

And then related to the – your 2020 guide question. So correct for 2020, where we're looking to invest the most would be in sales and marketing and technology and development. Essentially, those components that either get us closer to customers, grab share or build products and services that customers want. Like I said earlier, G&A you're going to find will decelerate in growth year-over-year, the most of any of those buckets. And then we'll continue – we expect to continue to get leverage in platform ops.

[Jeff Green:]

Youssef, one other thing I just want to add on the data side that, I should have made certain that, I mentioned is in Q4 we tested actually giving – the same way that we did with consumer surplus and all other aspects of our business and we're talking about in 2020, we tested giving a bunch of data away to see what impact that would have. So additionally that 65% difference is largely fueled by us experimenting with giving data away.

[Youssef Squali:]

Got it. Thank you.

[Operator:]

We have one more question from the line of Brian Schwartz with Oppenheimer. Please proceed with your question.

[Brian Schwartz:]

Yeah. Thank you for taking my question this afternoon. Jeff, I just wanted to follow up more granularly on the European business because it did look like it rebounded strongly in the quarter, which I actually thought was an impressive result considering all the macro you have Brexit uncertainty you even had the U.K. election late in the quarter. A question, I wanted to ask you is it just a better environment than we're thinking about over in Europe? Or is the priority from the brands the agencies for your business just sort of overtaking any uncertainty people may have about that region's spending environment? Thanks.

[Jeff Green:]

Yeah. So I mean in terms of what's happening in that region we have amazing momentum in Europe. Of course, it's a little bit more agency-centric. Of course, we've also been sort of managing the sort of post-GDPR world, which is I think a really interesting case study for the rest of the world to look at and the fact that we're seeing as much data-driven decisioning and we haven't seen any material changes to our business as a result of that we think is indicative of what's going to happen everywhere else in the world. But overall we're just – we're really excited about what's happening in EMEA and we're continuing to make investments.So when Blake talked about, we're just constantly looking for places to invest and places where we are going to make big bets and have confidence that they'll pay off investing in Europe is one of them.

[Operator:]

We have reached the end of our question-and-answer session as well as today's conference call. We thank you for your participation and have a wonderful day. This does conclude.