The Trade Desk, Inc. (NASDAQ:TTD) Q1 2023 Earnings Call Transcript May 10, 2023

The Trade Desk, Inc. beats earnings expectations. Reported EPS is $0.23, expectations were $0.12.

Operator: Greetings. Welcome to The Trade Desk First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin.

Chris Toth: Thank you, operator. Hello and good day to everyone. Welcome to The Trade Desk first quarter 2023 earnings conference call. On the call today are Founder and CEO, Jeff Green; Chief Financial Officer, Blake Grayson; and Executive Vice President of Finance, Laura Schenkein. 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 would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements which are dependent upon certain risks and uncertainties. These forward-looking statements represent our beliefs and assumptions only as of the date such statements are made.

Actual results may vary significantly and we expressly assume no obligations to update any of our forward-looking statements. Should any of our beliefs or assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. 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 of the company’s operational performance.

With that, I’ll now turn the call over to Founder and CEO, Jeff Green. Jeff?

Jeffrey Green: Thanks, Chris and thank you all for joining us today. As you’ve seen from our press release, we are off to a very strong start in 2023. We reported first quarter revenue of $383 million, representing growth of 21% compared with last year, again exceeding our own expectations. And has been in the case in the last few quarters, we continue to significantly outperform the digital advertising industry. We are gaining market share as advertisers embrace the precision and relevance of data-driven advertising on the open Internet via our platform. Even as most brands and advertisers continue to deal with some level of uncertainty, they are increasingly shifting more of their campaign dollars to decision, data-driven opportunities, where they can have more confidence that those dollars are working as hard as possible.

As a result, we are signing multiyear joint business plans, JBPs; with the leading agencies and brands, some of which represent spend projections that exceed $1 billion. From the beginning, our goal has been to align our incentives with the buy side. This continues today. Because we do not own any media and because of our unwavering commitment to the demand side, our clients trust that we represent their interest alone and we continue to innovate our platform to bring maximum value and ROI for their brand and agency campaigns. With that in mind, I’d like to focus my comments today on a few key areas. First, CTV; second, AI, including generative AI; third, agility; and fourth, the combination of OpenPath and identity. So first, the transformational impact of CTV.

In the first quarter, video which includes CTV, was the fastest-growing channel of our business. And our CTV growth is not just here in the United States. CTV continues to grow rapidly, both in EMEA and across Asia. As I’ve said before, the shift to CTV is driving significant change, not only in TV advertising but also in omnichannel advertising. In other words, our whole business. Many campaigns are now starting with high-value CTV impressions with carefully monitored reach and frequency. As part of an omnichannel campaign, these impressions are then followed up with less expensive display, audio, mobile and native ads to move the user down the funnel. The focus on the transformational nature of CTV is never more apparent than at this time of year as major networks work to sell as much of their inventory as possible in advance through the annual spring upfront process.

As the upfronts kick into gear, the role of programmatic CTV advertising is increasingly top of mind for our agency and brand clients. In recent years, upfronts have been charging higher CPMs for less reach in broadcast TV which only serves to assign more clarity on the value of digital and CTV. Add to that, the current writers’ strike undoubtedly time deliberately and we expect more dollars to flow into the spot market, programmatic and decision TV. As a result, I expect CTV to play a more central role than ever in this year’s upfront. Rave [ph] summarized recent trends in an article a couple of weeks ago that I quote, “Advertisers are requesting new deal terms with the major streaming TV companies ahead of this year’s spring ad haggle, including how brands spend through programmatic platforms.” In some cases, brands and agencies are asking streaming publishers to let The Trade Desk be a part of the deals.

The shift to decision CTV was reinforced at our recent Forward ’23 CTV event in New York City, where most of the major streaming media companies joined us on stage to talk about how they are innovating in CTV to bring value to the world’s top advertisers. Paramount talked about how advertisers are incorporating data, identity and optimization into the upfronts. Disney spoke about the multiyear transition taking place in CTV, much of it hinging on advances in addressability made possible by CTV. Also at Forward ’23, NBCU made the big announcement that they have adopted UID2. They are integrating UID2 in order to ensure a premium CTV experience with low ad loads and frequency controls for advertisers. Across the board, UID2 is accelerating as the primary currency or CTV decisioning.

As we’ve discussed previously, biddable marketplaces are inevitable for media companies to maximize demand and compete in the CTV content arms race. This only becomes more true as the streaming wars intensify each year. By the way, this also makes integration with The Trade Desk somewhat inevitable for all major streaming platforms as they scale because they need as much demand as possible to their platforms. Even Netflix, a company who just launched their advertising business model at the end of last year, highlighted on their earnings call a few weeks ago that the ad-funded subscriber is more valuable to them than the ad-free subscriber. Hulu has said the same thing for years. Even in the early days of the market, ad-supported streaming is proving to be the most effective engine for growth and value and that is even before Netflix brings the power of identity and biddable marketplaces to the table.

With a critical mass of premium CTV inventory available across a wide range of platforms, our advertising clients are eager to embrace the power of decisioning in their TV campaigns and many of them are working with us to drive new innovations in CTV to get the maximum value from their investments. Recently, we launched a new product, The TV Quality Index, or TVQI for short. It helps advertisers understand the quality of the ad experience that the consumer is having. The index analyzes consumer perceptions of different streaming platforms, ad relevance and publisher signals to ensure that each campaign targets the most relevant inventory to any specific audience group. It also helps advertisers compare the impact of premium video against the C of UGC skippable ads.

One of our large independent agency clients, Tombras recently ran a campaign for one of their large global banking customers. Tombras wanted to understand how CTV could help increase brand awareness and favorability. With TV QI, Tombras was able to see where increases in the index score drove meaningfully higher brand lift. In this particular campaign, Tombras was able to drive a 22.5% lift in awareness and a 17% improvement in favorability by focusing on high scoring inventory from HBO Max and Discovery Plus based on TVQI. The TV inventory quality is particularly important to advertisers when thinking about premium CTV content compared to the user-generated video content that often characterizes walled gardens. This was a priority for Sinyi Realty, one of the top real estate companies in Taiwan for an omnichannel campaign that they recently ran on the trade desk.

Sinyi wanted to boost its business by reaching more sellers and they had previously relied on social media marketing against UGC. With The Trade Desk, however, Sinyi was able to significantly expand targeted reach and improve performance with an omnichannel campaign that embrace CTV, online video and display advertising, allowing them to maximize precision and optimize frequency across all those channels at once. Sinyi onboarded their valuable first-party data, leverage UID2 to find new target audiences and use third-party behavioral data to find people interested in real estate and related topics, including consumers who had recently purchased home decoration products. With this approach, Sinyi was able to significantly expand their target audience, outperforming every one of their key KPIs. Indeed, Sinyi’s video advertising assets performed twice as well as their previous GC campaigns.

I think it’s also worth noting that while we spend a lot of time talking about the transformational nature of CTV, Sinyi’s experience is a typical one of many of our clients. As I mentioned before, CTV is often just a starting point. Very few advertisers execute in CTV alone. Almost all of them want to bring decisioning to their TV spend so that they can be more data-driven across all advertising channels and the emergence of premium CTV inventory at scale now enables that omnichannel optimization. Next, I’d like to talk about artificial intelligence and our focus on innovation. AI has always been a very strategic focus of The Trade Desk and we’re confident that once again, we’re in a leading position. In our original business plan, we said that our technology had to be a fusion of human and machine.

Our initial products reflected that paradigm. Humans are often best at creating hypotheses, especially about how to emotionally connect with other people, something that is key to the success of any advertising campaign. At the same time, machines can often test those hypotheses and constantly learn from new data. In 2018, AI was deployed throughout The Trade Desk product in enough places that we launched a brand that year, Koa. To our users, Koa denotes the presence of TTD’s proprietary AI learning technology that generates recommendations and optimizations. When we launched Koa in 2018, we used the analogy of the copilot, where our thousands of daily users are the pilots and our generative AI recommendation serve as their copilot. More and more of our users have these features turned on as a default because they know that they’re getting AI-driven insights and optimizations constantly applied to their campaigns.

I love what the CEO of Coca-Cola said publicly after their earnings a few weeks ago. And I quote, “Much has been said about AI and it’s certainly going to abate the maxim. Profound transformative technology is often overestimated in its impact in the short term and underestimated in the long term. This is going to have a profound impact, profound internally for the way our business operates but also how we engage with consumers.” He then added, “I think AI is going to make a huge impact in marketing.” With that in mind, not enough has been said about what it takes to make great AI. ChatGPT is an amazing technology but its usefulness is conditioned on the quality of the dataset it is pointed at. Regurgitating bad data, bad opinions or fake news, where AI generated deep bases, for example, will be a problem that all generative AI will likely be dealing with for decades to come.

We believe many of the novel AI use cases in market today will face challenges with monetization and copyright and data integrity or truth and scale. By contrast, we are so excited about our position in the advertising ecosystem when it comes to AI. We look at over 10 million ad requests every second. Those requests, in sum, represent a very robust and very unique dataset with incredible integrity. We can point generative AI at that dataset with confidence for years to come. We know that our size, our dataset size and integrity, our profitability and our team will make Koa and generative AI a promising part of our future. In the future, you’ll also hear us talk about other applications of AI in our business. These include generating code faster; changing the way customers understand and interact with their own data; generating new and more targeted creatives, especially for video and CTV; and using virtual assistance to shorten the learning curve that comes with the complicated world of programmatic advertising by optimizing the documentation process and making it more engaging.

We’ll have a lot more to say about the role of AI, particularly how it is getting more distributed within our system as well as many other game-changing innovations at our Net Platform Launch event on 66 in New York. It will be the largest platform launch in our history and I even hesitate to call it an upgrade because it is so much more than that. It will encompass a new approach to collaborative innovation, breakthroughs in how we service value for advertisers and expanding accessibility as marketers of all types embrace the power of programmatic. The new release is called Koki and we look forward to sharing new product announcements new ways for partners and clients to adopt and integrate with The Trade Desk and even deeper relationships as a result.

For the third topic today, I’d like to talk briefly about agility. In our work with the thousands of agencies and brands that utilize our platform, there has been a shift in the discussions we’re having over the last 12 months or so. All of our clients are cognizant of the macro market environment, whether it’s high interest rates or fears of recession, the stability of the banking system or ongoing supply chain issues. They are also, though, keenly aware of the role that advertising continues to play in helping them drive growth and differentiate their businesses even in times of uncertainty. Because of this, marketing leaders need to be deliberate with advertising budgets. More and more, they are looking to understand where they can shift investments and where they can be more flexible, agile and data-driven to find those important opportunities to differentiate and drive growth to their business.

And in that environment, the value of The Trade Desk becomes even more apparent. With us, agencies and brands can plan and optimize in real time. They can work in month-to-month increments versus a yearlong or a 6-month plan. A great example of this is FairPrice in Singapore. You may remember that FairPrice is one of our retail media partners. They are the largest grocery chain in Singapore. They are also an advertiser on our platform. Their goal was quite simple. In an increasingly competitive market, FairPrice wanted to reach new customers with a lower acquisition cost. Working with The Trade Desk, they were able to import their valuable first-party data from their loyalty program which comprises more than 2 million customers. Using UID2, they were able to do look-alike modeling to understand where additional potential customers might be targeted, potential customers who share some characteristics of their most loyal customers.

And the results were very impressive. When using UID2 to execute that modeling, FairPrice’s acquisition cost per customer was 1/3 lower than with traditional identifiers but also with twice the scale. The same trend is happening around the world. One of the world’s largest CPG companies, also one of our largest clients, recently highlighted this on their earnings call. They talked about how programmatic was helping them drive significant campaign and media efficiencies, maximizing the ROI of every campaign dollar. This efficiency helped them reinvest in more media and innovation, driving competitive differentiation. The trend towards agility and flexibility plays into the strengths of The Trade Desk. In fact, I would argue that at a time when it can be harder than ever to predict macro market trends, the ability to drive a growth and competitive differentiation agenda using our platform becomes more compelling than ever and we expect this trend to continue regardless of the macro environment.

More and more marketing leaders from CMOs to agency leaders, to media planners understand the power of programmatic to thoughtfully drive value. And they are leaning in, whether it’s in CTV, retail media, UID2 or any number of other key programmatic innovations. Finally, I’d like to discuss UID2 in the OpenPath. I’ve mentioned UID a few times on this call already but I’d like to touch on the progress we’ve made there and with OpenPath in the last few months as well. Much has been written about these innovations in recent weeks, especially about what they might mean for the evolving role of demand-side platforms and supply-side platforms. As I hope you picked up in the client stories I’ve shared today, UID2 is much more than a new identity alternative to cookies.

It’s really about helping our clients drive advertising precision in a privacy-safe way across all advertising channels. As the open Internet continues to grow and evolve, it’s essential that we develop new identity currencies that help us preserve the vital value exchange of relevant advertising or free content. Last quarter, I said we expect 75% of the third-party data ecosystem to be activating on UID2 by the middle of the year. I’m proud to report today that we are now right at that level with most major third-party data providers leveraging UID2s on our platform. A growing number of publishers are also sending UID2, providing advertisers with greater insight into audience engagement and campaign performance. And as a result, ad spend is increasingly gravitating towards ad impressions that include UID2.

It’s worth noting that, in some cases, we may see the same ad impression from up to 8 or 9 SSP supply paths on our platform. When this occurs, our clients are more likely to transact on impressions that incorporate UID2 because they have a clearer sense of exactly which audience they are reaching and how those ads are performing. A few weeks ago, for example, Unilever announced that ad impressions, including UID2, on Disney were 12x more effective in reaching their target audience than those with traditional identifiers. This is not atypical and our advertisers are willing to pay for the value of that precision. Indeed, CPMs on ad impressions containing UID2 are meaningfully higher than those without in most channels. In this way, UID2 simply helps advertisers drive as much value as possible from every advertising dollar.

The same can be said of OpenPath. To begin the discussion on OpenPath, let me first remind you of what it is. OpenPath is a direct integration from our platform into publisher inventory. It provides our clients with a direct line of sight into premium inventory across channels and it provides publishers with a direct view of what advertisers are willing to pay for their impressions. In no way, shape or form is OpenPath an effort by the Trade Desk to enter the supply side of digital advertising. That is not in our interest. To explain that a bit more clearly, it’s worth spending a moment on some of the industry dynamics that make OpenPath compelling for our clients. OpenPath was born of an advertiser interest in having a more clear and transparent path to publisher inventory, where every participant in the supply path is contributing more value than they are extracting in fees.

Advertisers have long been aware that there are quite a few hops in the advertising supply chain and neither the price nor the value of each hop has ever been completely clear. We share this concern. And in this way, OpenPath, is very consistent with our long-term commitment to make supply chain optimization and efficiency a reality. Advertisers’ eagerness for more transparency came at a time when publishers were becoming increasingly frustrated in their ability to manage yield in the complex world of programmatic. Indeed, many of them were starting to do it themselves, with some even launching their own ad servers. And why were they frustrated? It really has a lot to do with Google’s dominance of the supply side and the draconian measures they’ve taken that hurt publisher revenues.

The recent Department of Justice lawsuit against Google does a remarkably thorough job of outlining these dynamics. We have long asked the supply side to do a better job of yield management. It’s not something we will ever do. We see the impact that Google is having and we believe DoubleClick for Publishers or DFP should have more and better competition from SSPs just as we try to provide on the demand side. But given the state of the supply chain in programmatic which is one where either companies have the power to create change and don’t want to or they are too small to have the power to create the change, advertisers want direct integrations and publishers are welcoming them. Many publishers representing thousands of media properties across CTV, mobile and display have already integrated with OpenPath.

And our advertisers are increasingly prioritizing direct channels, where they have a clear view of value. For all of the publishers that have integrated, we have a multiple of that number going through the process of getting on board right now. So let me bring this all to a close by highlighting that our work in these areas is made possible by our focus on profitability. In the first quarter, once again, The Trade Desk generated strong adjusted EBITDA and free cash flow. We remain one of the very few high-growth technology companies to consistently do so year after year. Our strong profitability allows us to invest in emerging technologies such as OpenPath and UID2 and deliver them to market, even if development resources are in short supply across our clients and partners.

It means we can continue to invest in innovations such as our retail media marketplace, enabling our clients to more effectively measure how specific campaigns drive in-store or online purchases. Just a couple of days ago, we announced a new retail partnership with Macy’s here in the United States. In Europe, we recently announced a new partnership with Ocado, a joint venture involving Marks & Spencer and one of U.K.’s fastest-growing grocery groups. We now work with many of the world’s leading retailers to activate their data for our advertisers and our clients are embracing the opportunity to apply more performance and measurement precision to their retail campaigns. In many cases, this is incremental market opportunity for us. It also means we continue to advance our industry leadership in AI which I mentioned earlier and which we will talk about more on June 6 with the launch of Kokai.

Our commitment to industry-leading innovation underpins everything we do. In the first quarter, we once again outperformed the market with 21% revenue growth, meaning we continue to gain market share at an impressive pace because we consistently bring innovation value to our clients every single day. The innovation acceleration in programmatic will only continue in 2023 and as more advertisers embrace breakthroughs in CTV, retail, identity and so many other areas. The Trade Desk will stay at the believing edge of this innovation curve. And in doing so, I’m optimistic that we will continue to outperform the market, deliver more value to our clients than we extract and gain share. As I hand over the microphone to Blake Grayson, I’d like to underscore an announcement that we made in our press release.

I’m so thrilled to announce the promotion of Laura Schenkein to become our new Chief Financial Officer succeeding Blake, who will be leaving the company for a senior finance role outside of the ad tech industry. First, I’d like to thank Blake for the amazing contribution that he’s made to this company during his time here in the last few years. I can’t imagine having been through this with anyone else, never expected to experience the effects of the pandemic, some very difficult decisions in the middle of 2020 around resource allocation as we were looking into uncharted territories and lots of uncertainty. But I am extremely excited to announce Laura as our new CFO. Laura and I have worked together for about the last 10 years. I’ve seen Laura grow as a leader.

I think it’s fair to say that one of the most significant achievements of Blake during his time here is how much he has mentored and helped Laura to grow. Laura understands our business and on a personal note because I worked with Laura for a decade. I’ve come to trust for strategic counsel and her recommendations. I’m very proud to call her my partner and our new CFO. And with that, I’ll hand it over to Blake to say a few words and cover our financials.

Blake Grayson: Thank you, Jeff, for the kind words. And good afternoon, everyone. I am immensely proud of our achievements as a company and it has been an honor to work with Jeff and the leadership team as well as so many talented individuals at The Trade Desk. I’m leaving for a new challenge knowing the company is well positioned for the future. Laura is an extremely well-respected and accomplished colleague and has my full confidence as she assumes her new role. Now on to our results; Q1 was an exceptional quarter of financial performance and execution for The Trade Desk. Q1 revenue was $383 million, a 21% increase year-over-year. Our Q1 performance was bolstered by the growing trend toward unbiased, data-driven advertising on the open Internet.

This shift has played to the strength of our platform as marketers become more agile and deliberate with their digital advertising. While some macro uncertainty in the market has led to relatively uneven ad budgets, we are seeing increasing numbers of marketers embrace our platform to take advantage of our flexible and data-driven approach. Our success in Q1 was demonstrated by several key achievements. Our performance in the CTV space remains robust and we continue to achieve strong momentum in retail media, further solidifying our position as a leading player in the industry. Strong growth returned to many of our key international offices. The growing adoption of UID2 by major advertisers and publishers speaks to the value that is placed on identity in the open Internet ecosystem.

In addition, we deepened our partnerships with clients by expanding our joint business plans on a global level, a testament to our unwavering commitment to providing outstanding value and results for our customers. In addition to strong top line performance, in Q1, we generated $109 million in adjusted EBITDA or 28% of revenue, exceeding our own expectations. As it typically occurs, when we outperform on the top line, it generally flows through to our bottom line results as it did in this quarter. This outperformance led to record free cash flow of $177 million in Q1, marking nearly $500 million in free cash flow on a trailing 12-month basis which is nearly 10x the free cash flow we generated just 3 years ago. In the current environment, our consistent ability to grow our top line revenue while generating meaningfully positive adjusted EBITDA and cash flow puts us in a strong position to continue investing for growth and grabbing land while others are forced to pull back.

Additionally, I am proud that our robust cash generation allowed us to return excess capital to shareholders for the first time via our share repurchase program. In Q1, growth was broad-based across channels. The shift of advertising dollars from linear to connected TV continued to be a core driver of our business. From a scaled channel perspective, video which includes CTV represented a mid-40s percentage share of our business and continues to grow rapidly as a percentage of our mix. Mobile represented a mid-30s percentage share of spend as growth was again solid across in-app and mobile video. Display represented a low double-digit percent share of our business and audio represented around 5%. Geographically, North America accounted for 88% of our Q1 spend, with international representing the remaining 12%.

We’re pleased to report that international growth slightly outpaced North America during this period, with particularly strong performance in EMEA. Our CTV business in Europe grew well into the triple digits year-over-year in Q1. While CTV growth in North Asia also showed encouraging momentum, with year-over-year CTV spend growth in both regions improving each month. Looking ahead, we see significant opportunities to capture share in international markets as operating conditions continue to improve. As customers seek to optimize their ad spend, The Trade Desk is well positioned to deliver value and drive ROI as we demonstrated in late 2020. In terms of the verticals that represent at least 1% of our spend, travel nearly tripled in spend in Q1 compared with a year ago as the sector continues to recover from the pandemic.

Food and drink, automotive and home and garden were also among our strongest performing verticals, while shopping in business were below the average. We continue to believe there is still potential for us to gain share within most of our verticals. Turning now to expenses; excluding stock-based compensation, operating expenses in Q1 were $293 million, up 41% year-over-year. We continue to invest prudently in our team during the quarter to support our long-term growth objectives. The year-over-year increase in operating expenses, excluding stock-based compensation, was partly due to in-person events and travel that did not take place in Q1 of the prior year as we had not yet fully resumed back to office work or in-person events. Unlike many ad-funded and technology peers, we have responsibly managed headcount and operating expenses over the past few years, maintaining a focus on profitable growth.

As a result, we are well positioned to capture market share and increase spend while generating significant adjusted EBITDA. Our income tax benefit was $19 million in the quarter, mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. Adjusted net income for the quarter was $114 million or $0.23 per fully diluted share. Net cash provided by operating activities was a record $188 million and free cash flow was a record $177 million in Q1. DSOs exited in the quarter were 88 days and DPOs were 72 days. We exited Q1 with a strong cash and liquidity position. Cash, cash equivalents and short-term investments ended the quarter at $1.3 billion. We have no debt on the balance sheet. In February, upon review of our capital allocation strategy, we announced a $700 million share repurchase program.

In Q1, we repurchased 5.1 million shares of Class A common stock for an aggregate amount of $293 million. The company will continue to approach the repurchase program opportunistically depending on market conditions and capital priorities. Before I pass the microphone to Laura to cover the outlook for Q2, I’ll summarize by saying The Trade Desk is off to a fantastic start in 2023 with strong momentum across the business. Our robust business model and solid balance sheet have positioned us well to succeed in the current environment with powerful secular trends such as the shift from linear to CTV the growing use of data and marketing campaigns and significant long-term growth drivers such as CTV, retail media, joint business plans and gaining share in international markets, we are highly optimistic about the potential to continue growing and capturing market share in the years ahead.

And with that, I’ll hand it over to Laura.

Laura Schenkein: Thank you, Blake. And thank you, Jeff, for the kind words. I’m incredibly excited to be taking on the CFO role starting next month. I feel fortunate to have worked with Blake these last 3.5 years. It’s because of his and Jeff’s mentorship that I feel well prepared to take the baton and build upon the strong foundation they’ve set for CTV’s future. Turning now to our outlook for the second quarter. While macro conditions remain uncertain, visibility has improved slightly since the beginning of the year. We are cautiously optimistic and estimate Q2 revenue to be at least $452 million which would represent growth of 20% on a year-over-year basis. Excluding U.S. political election spend which represented a low single-digit percent of spend in Q2 2022, our estimated revenue growth rate in Q2 of this year would be about 21% on a year-over-year basis.

We estimate adjusted EBITDA to be approximately $160 million in Q2. As Jeff has outlined, with the large addressable market in front of us, we see significant growth opportunities and continue to invest thoughtfully in the business. We continue to be one of the few technology companies capable of consistently generating high top line growth, significant adjusted EBITDA margins and free cash flow. This enables us to continue distancing ourselves from the competition in areas such as platform renovation, customer service identity and supply chain optimization. In addition, this year, we remain focused on hiring to support future growth, although at about half the rate of 2022 as we expect our year-over-year headcount growth to continue to decelerate as we progress throughout the year.

That concludes our prepared remarks. And with that, operator, let’s open up the call for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Shyam Patil with Susquehanna.

Operator: Next question comes from Justin Patterson with KeyBanc.

Operator: Okay. The next question comes from Vasily Karasyov with Cannonball Research.

Operator: The next question comes from Youssef Squali with Truist.

Operator: Next, we have Jason Helfstein with Oppenheimer.

Operator: The next question is from Tim Nollen with Macquarie.

Operator: Next question is from Matthew Cost [ph] with Morgan Stanley.

Chris Toth: John, you can close out the call.

Operator: Thank you. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.