MAGNITE, INC. 10-K

Item 8. Financial Statements and Supplementary Data MAGNITE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 64 Consolidated Financial Statements: Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statements of Comprehensive Income (Loss) 69 Consolidated Statements of Stockholders' Equity 70 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 73 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Magnite, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Magnite, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020 and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment of internal control over financial reporting certain elements related to Telaria, Inc., which was acquired on April 1, 2020. The excluded elements of the Telaria business represented 25% of the Company’s revenue and 25% of the Company’s total assets as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting for certain elements related to Telaria, Inc. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud , and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 63 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Business Combinations – Telaria, Inc. Merger – Technology, Customer Relationships, and In-process Research and Development Intangible Assets — Refer to Note 10 to the financial statements Critical Audit Matter Description On April 1, 2020, the Company completed a stock for stock merger with Telaria, Inc. whereby each share of Telaria common stock issued and outstanding was converted into 1.082 shares of the Company’s common stock. This resulted in the issuance of 52,098,945 shares of the Company’s common stock. The Company accounted for the acquisition using the acquisition method of accounting for business combinations and the fair value of the purchase price of $287,417,460 was allocated to the assets acquired and liabilities assumed based on their respective fair values, including the technology, customer relationships, and in-process research and development intangible assets of $58,000,000, $36,300,000, and $8,030,000, respectively. Management estimated the fair value of technology, customer relationships, and in-process research and development intangible assets using a discounted cash flow approach, which included an analysis of future cash flows expected to be generated by each intangible asset. The fair value of the acquired technology and in-process research and development was valued using The Revenue Split Method. The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing Customer Relationships. The fair value determination of these intangible assets required management to make significant, subjective estimates and assumptions related to forecasted future cash flows and the selected discount rate. We identified the aforementioned intangible assets as a critical audit matter because of the significant estimates and assumptions management makes to determine the fair value of these intangible assets. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts of future cash flows and the selection of the discount rate for the technology, customer relationships, and in-process research and development intangible assets included the following, among others: • We tested the effectiveness of controls over the valuation of intangible assets, including management’s controls over forecasts of future cash flows and the determination of the discount rate. • We assessed the reasonableness of management’s forecasts of future cash flows by comparing the revenue and disaggregated cost projections to historical results, certain peer companies, third-party industry forecasts, as well as performing inquiries with certain members of management. • With the assistance of our fair value specialists, we evaluated the valuation methodology used to determined fair value along with the reasonableness of the discount rate, including independently estimating the discount rate using a process consistent with generally accepted valuation practices. • We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit. Revenue — Highly Automated Systems to Process and Record Revenue - Refer to Note 4 to the financial statements . Critical Audit Matter Description The Company’s revenue consists of transaction-based fees and is made up of a significant volume of low-dollar transactions, sourced from multiple systems, databases, and other tools. Due to the fact that revenue transactions do not consist of the transfer of physical goods, but are web- or app-based, the processing and recording of revenue is highly automated and is based on contractual terms with advertisers and publishers. Because of the nature of the Company’s transaction-based fees, the Company uses automated systems to process and record its revenue transactions. 64 Table of Contents We identified revenue as a critical audit matter because the of the information technology (IT)-dependent nature of the Company’s revenue stream and the significant audit effort required in performing our audit procedures, including involvement of professionals with expertise in IT to identify, test, and evaluate the Company’s systems, software applications, and automated controls related to the revenue cycle. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s systems to process revenue transactions included the following, among others: • With the assistance of our IT specialists, we: ◦ Identified the significant systems used to process revenue transactions and tested the effectiveness of general IT controls over the systems, including testing of user access controls, change management controls, and IT operations controls. ◦ We tested the effectiveness of system interface controls and automated controls within the revenue process, as well as controls designed to ensure the accuracy and completeness of revenue. • We tested the effectiveness of controls within the relevant revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger. • We evaluated recorded revenue and revenue trends and used data analytics to analyze transactional revenue data. • We tested revenue for completeness and accuracy by confirming related accounts receivable selections. • We performed a proof of cash reconciliation that reconciled cash to revenue and related revenue accounts. /s/ Deloitte & Touche LLP Los Angeles, California February 24, 2021 We have served as the Company's auditor since 2018. 65 Table of Contents MAGNITE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 117,676 $ 88,888 Accounts receivable, net 471,666 217,571 Prepaid expenses and other current assets 17,729 6,591 TOTAL CURRENT ASSETS 607,071 313,050 Property and equipment, net 23,681 23,667 Right of use lease asset 39,599 21,491 Internal use software development costs, net 16,160 16,053 Intangible assets, net 89,884 11,386 Goodwill 158,125 7,370 Other assets, non-current 4,440 2,103 TOTAL ASSETS $ 938,960 $ 395,120 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 509,315 $ 259,439 Lease liabilities - current portion 9,813 7,282 Other current liabilities 3,070 778 TOTAL CURRENT LIABILITIES 522,198 267,499 Lease liabilities - non-current portion 32,278 15,231 Deferred tax liability, net 199 — Other liabilities, non-current 2,672 454 TOTAL LIABILITIES 557,347 283,184 Commitments and contingencies (Note 17) STOCKHOLDERS' EQUITY Preferred stock, $ 0.00001 par value, 10,000 shares authorized at December 31, 2020 and December 31, 2019; 0 shares issued and outstanding at December 31, 2020 and December 31, 2019 — — Common stock, $ 0.00001 par value; 500,000 shares authorized at December 31, 2020 and December 31, 2019; 114,029 and 53,888 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 2 1 Additional paid-in capital 777,084 453,064 Accumulated other comprehensive income (loss) ( 957 ) ( 45 ) Accumulated deficit ( 394,516 ) ( 341,084 ) TOTAL STOCKHOLDERS' EQUITY 381,613 111,936 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 938,960 $ 395,120 The accompanying notes to consolidated financial statements are an integral part of these statements. 66 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Revenue $ 221,628 $ 156,414 $ 124,685 Expenses: Cost of revenue 77,747 57,391 60,003 Sales and marketing 76,030 44,565 44,556 Technology and development 51,546 40,250 37,863 General and administrative 52,987 39,750 42,431 Merger and restructuring costs 17,552 2,041 3,440 Total expenses 275,862 183,997 188,293 Loss from operations ( 54,234 ) ( 27,583 ) ( 63,608 ) Other (income) expense: Interest (income) expense, net ( 50 ) ( 789 ) ( 988 ) Other income ( 3,665 ) ( 285 ) ( 766 ) Foreign exchange (gain) loss, net 2,220 481 ( 389 ) Total other (income) expense, net ( 1,495 ) ( 593 ) ( 2,143 ) Loss before income taxes ( 52,739 ) ( 26,990 ) ( 61,465 ) Provision (benefit) for income taxes 693 ( 1,512 ) 357 Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 ) Net loss per share: Basic and Diluted $ ( 0.55 ) $ ( 0.48 ) $ ( 1.23 ) Weighted average shares used to compute net loss per share: Basic and Diluted 96,700 52,614 50,259 The accompanying notes to consolidated financial statements are an integral part of these statements. 67 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 ) Other comprehensive income (loss): Unrealized gain (loss) on investments — 2 27 Foreign currency translation adjustments ( 912 ) 212 ( 327 ) Other comprehensive income (loss) ( 912 ) 214 ( 300 ) Comprehensive loss $ ( 54,344 ) $ ( 25,264 ) $ ( 62,122 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 68 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at Balance at December 31, 2017 50,239 $ — $ 418,354 $ 41 $ ( 253,784 ) $ 164,611 Exercise of common stock options 50 — 45 — — 45 Restricted stock awards, net ( 156 ) — — — — — Issuance of common stock related to employee stock purchase plan 174 — 314 — — 314 Issuance of common stock related to RSU vesting 1,367 1 — — — 1 Shares withheld related to net share settlement ( 515 ) — ( 1,638 ) — — ( 1,638 ) Stock-based compensation — — 16,802 — — 16,802 Other comprehensive loss — — — ( 300 ) — ( 300 ) Net loss — — — — ( 61,822 ) ( 61,822 ) Balance at Balance at December 31, 2018 51,159 $ 1 $ 433,877 $ ( 259 ) $ ( 315,606 ) $ 118,013 Exercise of common stock options 285 — 588 — — 588 Restricted stock awards, net ( 182 ) — — — — — Issuance of common stock related to employee stock purchase plan 227 — 1,054 — — 1,054 Issuance of common stock related to RSU vesting 2,858 — — — — — Shares withheld related to net share settlement ( 459 ) — ( 1,847 ) — — ( 1,847 ) Stock-based compensation — — 19,392 — — 19,392 Other comprehensive income — — — 214 — 214 Net loss — — — — ( 25,478 ) ( 25,478 ) Balance at December 31, 2019 53,888 1 453,064 ( 45 ) ( 341,084 ) 111,936 Exercise of common stock options 3,359 — 13,548 — — 13,548 Issuance of common stock related to employee stock purchase plan 381 — 1,660 — — 1,660 Issuance of common stock related to RSU vesting 5,126 — — — — — Shares withheld related to net share settlement ( 824 ) — ( 7,854 ) — — ( 7,854 ) Issuance of common stock associated with the Merger 52,099 1 275,772 — — 275,773 Exchange of stock options and RSU related to Merger — — 11,646 — — 11,646 Stock-based compensation — — 29,248 — — 29,248 Other comprehensive loss — — — ( 912 ) — ( 912 ) Net loss — — — — ( 53,432 ) ( 53,432 ) Balance at December 31, 2020 114,029 $ 2 $ 777,084 $ ( 957 ) $ ( 394,516 ) $ 381,613 The accompanying notes to consolidated financial statements are an integral part of these statements. 69 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 OPERATING ACTIVITIES: Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 49,248 32,126 35,338 Stock-based compensation 28,491 18,825 16,282 (Gain) loss on disposal of property and equipment ( 22 ) 114 243 Provision for doubtful accounts ( 138 ) 2,060 758 Accretion of available for sale securities — 24 ( 412 ) Non-cash lease expense ( 784 ) ( 209 ) — Deferred income taxes 789 ( 595 ) ( 42 ) Unrealized foreign currency gains, net ( 1,161 ) ( 823 ) ( 897 ) Changes in operating assets and liabilities, net of effect of business acquisitions: Accounts receivable ( 103,836 ) ( 10,705 ) ( 40,688 ) Prepaid expenses and other assets ( 10,095 ) ( 51 ) 4,519 Accounts payable and accrued expenses 75,064 16,288 26,612 Other liabilities 3,811 407 ( 2,577 ) Net cash provided by (used in) operating activities ( 12,065 ) 31,983 ( 22,686 ) INVESTING ACTIVITIES: Purchases of property and equipment ( 14,292 ) ( 11,425 ) ( 11,433 ) Capitalized internal use software development costs ( 7,667 ) ( 8,463 ) ( 8,507 ) Acquisitions, net of cash acquired 54,595 ( 11,000 ) — Investments in available-for-sale securities — — ( 23,991 ) Maturities of available-for-sale securities — 7,500 62,650 Sales of available-for-sale securities — — 9,228 Net cash provided by (used in) investing activities 32,636 ( 23,388 ) 27,947 FINANCING ACTIVITIES: Proceeds from exercise of stock options 13,548 588 45 Proceeds from issuance of common stock under employee stock purchase plan 1,660 1,054 314 Taxes paid related to net share settlement ( 7,854 ) ( 1,847 ) ( 1,638 ) Net cash provided by (used in) financing activities 7,354 ( 205 ) ( 1,279 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH 918 46 ( 172 ) CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 28,843 8,436 3,810 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period 88,888 80,452 76,642 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period $ 117,731 $ 88,888 $ 80,452 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO CONSOLIDATED BALANCE SHEETS Cash and cash equivalents $ 117,676 $ 88,888 $ 80,452 Restricted cash included in other asset, non-current 55 — — Total cash, cash equivalents and restricted cash $ 117,731 $ 88,888 $ 80,452 The accompanying notes to consolidated financial statements are an integral part of these statements. 70 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued) (In thousands) Year Ended SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION: December 31, 2020 December 31, 2019 December 31, 2018 Cash paid for income taxes $ 1,614 $ 291 $ 379 Cash paid for interest $ 101 $ 61 $ 46 Capitalized assets financed by accounts payable and accrued expenses $ 42 $ 141 $ 6 Capitalized stock-based compensation $ 757 $ 567 $ 520 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 2,036 $ 13,533 $ — Common stock and options issued for Merger $ 287,418 $ — $ — 71 Table of Contents MAGNITE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1— Nature of Operations Company Overview Magnite, Inc. ("Magnite" or the "Company"), formerly known as The Rubicon Project, Inc., was formed in Delaware and began operations on April 20, 2007. On April 1, 2020, Magnite completed a stock-for-stock merger ("Merger") with Telaria, Inc., ("Telaria"), a leading provider of connected television ("CTV") technology. The Company operates a sell side advertising platform that offers buyers and sellers of digital advertising a single partner for transacting globally across all channels, formats, and auction types. The Company is headquartered in Los Angeles, California. On June 8, 2020, the Company voluntarily delisted its common stock from the New York Stock Exchange ("NYSE") and commenced listing on The Nasdaq Global Select Market of The Nasdaq Stock Market LLC ("Nasdaq"). On June 30, 2020, the Company changed its name from "The Rubicon Project, Inc." to "Magnite, Inc." In connection with the name change, the Company also changed its ticker symbol from "RUBI" to "MGNI." Magnite has its principal offices in Los Angeles, New York City, London, and Sydney, and additional offices in Europe, Asia, North America, and South America. The Company provides a technology solution to automate the purchase and sale of digital advertising inventory for buyers and sellers. The Company's platform features applications and services for sellers of digital advertising inventory, or publishers, that own or operate websites, applications, CTV channels, and other digital media properties, to manage and monetize their inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, and demand side platforms, to buy digital advertising inventory; and a transparent, independent marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution at scale. The Company's clients include many of the world's leading sellers and buyers of digital advertising inventory. Sellers monetize their inventory through the Company’s platform by seamlessly connecting to a global market of integrated buyers that transact through real-time bidding, which includes direct sale of premium inventory to a buyer, referred to as private marketplace, and open auction bidding, where buyers bid against each other in a real-time auction for the right to purchase a publisher’s inventory, referred to as open marketplace. At the same time, buyers leverage the Company’s platform to manage their advertising spending and reach their target audiences, simplify order management and campaign tracking, obtain actionable insights into audiences for their advertising, and access impression-level purchasing from thousands of sellers. Note 2— Organization and Summary of Significant Accounting Policies Basis of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and include the operations of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Reclassifications Amounts for merger and restructuring costs incurred in the year ended December 31, 2019 have been reclassified to conform to the presentation for the year ended December 31, 2020 consolidated statements of operations. Reclassifications consist of $ 2.0 million from general and administrative expenses to merger and restructuring costs in the consolidated statement of operations for the year ended December 31, 2019. These expenses were related to professional services associated with the Merger with Telaria. The Merger with Telaria was announced during December 2019, during which period the Company was incurring such expenses; however, the Company did not separately present the expenses in the 2019 consolidated statement of operations. Segments Management has determined that the Company operates as one segment. The Company’s chief operating decision maker reviews financial information on an aggregated and consolidated basis, together with certain operating and performance measures principally to make decisions about how to allocate resources and to measure the Company’s performance. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed financial statements and accompanying footnotes. Due to the economic 72 Table of Contents uncertainty as a result of the COVID-19 pandemic, it has become more difficult to apply certain assumptions and judgments into these estimates. The extent of the impact of COVID-19 pandemic on the Company's operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to, the duration and spread of the pandemic, its severity, including any resurgence, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, judgments, or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ materially from these estimates. On an ongoing basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (ii) accounts receivable and allowances for doubtful accounts, (iii) the useful lives of intangible assets, internal use software development costs, and property and equipment, (iv) valuation of long-lived assets and their recoverability, including goodwill, (v) the realization of tax assets and estimates of tax liabilities, (vi) assumptions used in valuation models to determine the fair value of stock-based awards, (vii) fair value of financial instruments, (viii) the recognition and disclosure of contingent liabilities, and (ix) the assumptions used in valuing acquired assets and assumed liabilities in business combinations. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates relating to the estimated useful lives of internal-use software development costs, assumptions used in the valuation models to determine the fair value of stock options and stock-based compensation expense, business combinations, estimated useful lives of long-lived assets, recoverability of intangible assets and goodwill, the assumptions used in the valuation of acquired assets and liabilities in business combinations, and income taxes, including the realization of tax assets and estimates of tax liabilities. require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ materially from those estimates under different assumptions or circumstances. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update 2014-09—Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") using a modified retrospective approach applied to all contracts that generated revenue in the preceding year. The adoption of this guidance did not have an impact on the amount or timing of revenue recognized by the Company. The Company generates revenue from transactions where it provides a platform for the purchase and sale of digital advertising inventory. The Company also generates revenue from the fee it charges clients for use of its Demand Manager product, which generally is a percentage of the client's advertising spending on any advertising marketplace. The Company's platform dynamically connects sellers and buyers of advertising inventory in a digital marketplace. The Company's solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a distributed infrastructure. Digital advertising inventory is created when consumers access sellers’ content. Sellers provide digital advertising inventory to the Company's platform in the form of advertising requests, or ad requests. When the Company receives ad requests from sellers, it sends bid requests to buyers, which enable buyers to bid on sellers’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer. The total volume of spending between buyers and sellers on the Company's platform is referred to as advertising spend. The Company keeps a percentage of that advertising spend as a fee, and remits the remainder to the seller. The fee that the Company retains from the gross advertising spend on its platform is recognized as revenue. The fee earned on each transaction is based on the pre-existing agreement between the Company and the seller and the clearing price of the winning bid. The Company recognizes revenue upon fulfillment of its performance obligation to a client, which occurs at the point in time an ad renders and is counted as a paid impression, subject to a contract existing with the client and a fixed or determinable transaction price. The Company does not have arrangements with multiple performance obligations. The Company considers the following when determining if a contract exists (i) contract approval by all parties, (ii) identification of each party’s rights regarding the goods or services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of substantially all of the consideration is probable. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. In determining whether the Company is acting as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Making such determinations involves 73 Table of Contents judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative. Expenses The Company classifies its expenses into the following categories: Cost of Revenue. The Company's cost of revenue consists primarily of data center costs, bandwidth costs, ad protection costs, depreciation and maintenance expense of hardware supporting the Company's revenue-producing platform, amortization of software costs for the development of the Company's revenue-producing platform, amortization expense associated with acquired developed technologies, personnel costs, facilities-related costs, and cloud computing costs. Personnel costs included in cost of revenue include salaries, bonuses, and stock-based compensation, and are primarily attributable to personnel in the Company's network operations group who support the Company's platform. The Company capitalizes costs associated with software that is developed or obtained for internal use and amortizes the costs associated with its revenue-producing platform in cost of revenue over their estimated useful lives. The Company amortizes acquired developed technologies over their estimated useful lives. Sales and Marketing. The Company's sales and marketing expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, as well as marketing expenses such as brand marketing, travel expenses, trade shows and marketing materials, professional services, and amortization expense associated with client relationships and backlog from the Company's business acquisitions and, to a lesser extent, facilities-related costs and depreciation and amortization. The Company's sales organization focuses on increasing the adoption of the Company's solution by existing and new buyers and sellers. The Company amortizes acquired intangibles associated with client relationships and backlog from its business acquisitions over their estimated useful lives. Technology and Development. The Company's technology and development expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, and professional services associated with the ongoing development and maintenance of the Company's solution, depreciation and amortization, and, to a lesser extent, facilities-related costs. These expenses include costs incurred in the development, implementation and maintenance of internal use software, including platform and related infrastructure. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with internal use software development that qualifies for capitalization, which are then recorded as internal use software development costs, net on the Company's consolidated balance sheets. The Company amortizes internal use software development costs that relate to its revenue-producing activities on the Company's platform to cost of revenue and amortizes other internal use software development costs to technology and development costs or general and administrative expenses, depending on the nature of the related project. The Company amortizes acquired intangibles associated with technology and development functions from its business acquisitions over their estimated useful lives. General and Administrative. The Company's general and administrative expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, associated with the Company's executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, facilities-related costs and depreciation and amortization, and other corporate-related expenses. General and administrative expenses also include amortization of internal use software development costs and acquired intangible assets from the Company's business acquisitions over their estimated useful lives that relate to general and administrative functions. Merger and Restructuring Costs. The Company's merger and restructuring costs consist primarily of professional service fees associated with Merger and acquisition activities, and of cash-based employee termination costs and stock-based compensation charges associated with Merger or restructuring activities, and of other restructuring activities, including facility closures and relocation costs. Stock-Based Compensation Compensation expense related to employee stock-based awards is measured and recognized in the consolidated financial statements based on the fair value of the awards granted. The Company granted awards to employees that vest based solely on continued service, or service conditions, awards that vest based on the achievement of performance targets, or performance conditions, and awards that vest based on our stock price exceeding a peer index, or market conditions. The fair value of each option award containing service and/or performance conditions is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of awards containing market conditions is estimated using a Monte-Carlo lattice model. For service condition awards, stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years . For performance condition and market condition awards, stock-based compensation expense is recognized using a graded vesting model over the requisite service period of the awards. For market condition awards, expense recognized is not subsequently reversed if the market conditions are not achieved. 74 Table of Contents Stock-based awards issued to non-employees are accounted for at fair value determined by using the Black-Scholes option-pricing model. We believe that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of each non-employee stock-based compensation award is re-measured each period until a commitment date is reached, which is generally the vesting date. The assumptions and estimates used in the Black-Scholes pricing model are as follows: Fair Value of Common Stock. The fair value of common stock is based on the closing price of the Company's common stock as reported on the NYSE on the grant date. Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option-pricing model on the yields of U.S. Treasury securities with maturities appropriate for the term of stock option awards. Expected Term. For employee options that contain service conditions, the Company applies the simplified approach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. The expected term of employee stock options that contain performance conditions represents the weighted-average period that the stock options are estimated to remain outstanding. Volatility. For grants issued in periods in which the Company did not have significant trading history for the Company’s common stock, the Company determined the price volatility based on the historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the stock option grants. For those grants issued in periods in which the Company has sufficient history, the computation of the expected volatility assumption is based on the historical volatility of the Company’s common stock. Dividend Yield. The dividend yield assumption is based on the Company’s history and current expectations of dividend payouts. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, so the Company used an expected dividend yield of zero . Determining the fair value of stock-based awards using a pricing model requires judgment. The Company’s use of the Black-Scholes option-pricing model requires the input of subjective assumptions such as the expected term of the award, the expected volatility of the price of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in the Company’s valuation model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. Due to the full valuation allowance provided on its net deferred tax assets, the Company has not recorded any tax benefit attributable to stock-based awards for the years ended December 31, 2020, 2019, and 2018. Income Taxes Deferred income tax assets and liabilities are determined based upon the net tax effects of the differences between the Company’s consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed. A valuation allowance is used to reduce some or all of the deferred tax assets if, based upon the weight of available evidence, it is more likely than not that those deferred tax assets will not be realized. The Company has established a full valuation allowance to offset its domestic net deferred tax assets due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interest and penalties accrued related to its uncertain tax positions in its income tax provision (benefit) in the consolidated statements of operations. 75 Table of Contents Capital Stock The Company has authorized capital stock of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Company has issued common stock, which is included in outstanding common stock on the Company's Consolidated Balance Sheets. The Company has not issued any shares of its preferred stock subsequent to the Company's IPO and does not have any preferred stock outstanding. The Company is required to reserve and keep available out of its authorized but unissued shares of common stock such number of shares sufficient to affect the conversion of all shares granted and available for grant under the Company’s stock award plans. The number of shares of the Company's stock reserved for these purposes at December 31, 2020 was 27,882,222 . The board of directors is authorized to establish, from time to time, the number of shares to be included in each series of preferred stock, and to fix the designation, powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each series of preferred stock, and any of its qualifications, limitations or restrictions. Net Income (Loss) Per Share Attributable to Common Stockholders Basic net income (loss) per share of common stock is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding. Diluted income (loss) per share attributable to common stockholders adjusts the basic weighted-average number of shares of common stock outstanding for the effect of potentially dilutive securities during the period. Potentially dilutive securities consist of stock options, restricted stock awards, restricted stock units, potential shares issued under the Company's Employee Stock Purchase Plan ("ESPP"), shares held in escrow and potential shares issuable as part of contingent consideration as a result of business combinations. For purposes of this calculation, potentially dilutive securities are excluded from the calculation of diluted net income (loss) per share if their effect is anti-dilutive. Comprehensive Income (Loss) Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders, and consists of net income (loss), unrealized gains (losses) on investments and foreign currency translation adjustments. Cash, Cash Equivalents, and Marketable Securities The Company invests excess cash primarily in money market funds, corporate debt securities, and highly liquid debt instruments of the U.S. government and its agencies. The Company classifies investments held in money market funds as cash equivalents because the money market funds have weighted-average maturities at the date of purchase of less than 90 days. Investments held in U.S. government and agency bonds and corporate debt securities with stated maturities of less than one year are classified as short-term investments included in marketable securities and prepaid expenses and other current assets. Investments held in U.S. government and agency bonds and corporate debt securities with stated maturities of over a year are classified as long-term investments included in other assets, non-current on the Company’s consolidated balance sheets, as the Company does not expect to redeem or sell these securities within one year from the balance sheet date. The Company determines the appropriate classification of investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company classifies and accounts for the Company’s marketable securities as available-for-sale, and as a result carries the securities at fair value and reports the unrealized gains and losses in the consolidated statements of comprehensive income (loss) and as a component of stockholders’ equity. The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method, and the Company records such gains and losses as a component of other income, net on the Company’s consolidated statements of operations. Restricted Cash The Company classifies certain restricted cash balances within prepaid expenses and other current assets on the consolidated balance sheets based upon the term of the remaining restrictions. At December 31, 2020, the Company had restricted cash of $ 0.1 million, and at December 31, 2019, the Company had no restricted cash. Accounts Receivable Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The allowance for doubtful accounts is determined based on historical collection experience and the review in each period of the status of the then-outstanding accounts receivable, while taking into consideration current client information, subsequent collection history 76 Table of Contents and other relevant data. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. Property and Equipment, Net Property and equipment are recorded at historical cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets. The estimated useful lives of the Company’s property and equipment are as follows: Years Computer equipment and network hardware 3 Furniture, fixtures and office equipment 5 to 7 Leasehold improvements Shorter of useful life or life of lease Computer equipment under right-of-use finance arrangements Shorter of useful life or life of lease Repair and maintenance costs are charged to expense as incurred, while renewals and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Company’s results of operations. Internal Use Software Development Costs The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in technology and development expenses in the results of operations. Software development activities generally consist of three stages, (i) the planning stage, (ii) the application and infrastructure development stage, and (iii) the post implementation stage. Costs incurred in the planning and post implementation stages of software development, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed for internal use when the planning stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and the software and technologies are ready for their intended purpose. Internal use software development costs are amortized using a straight-line method over the estimated useful life of three years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software, or lease its software, to third parties. Capitalized Costs Incurred in Cloud Computing Arrangements Cloud computing arrangements, such as software as a service and other hosting arrangements, are evaluated for capitalized implementation costs in a similar manner as capitalized software development costs. If a cloud computing arrangement includes a software license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the service element of the arrangement is accounted for as a service contract. The Company capitalized certain implementation costs for its cloud computing arrangements that are service contracts, which are included within prepaid expenses and other current assets and other assets, non-current within the consolidated balance sheet. The Company amortizes capitalized implementation costs in a cloud computing arrangement over the life of the service contract. Intangible Assets Intangible assets primarily consist of acquired developed technology, client relationships, and non-compete agreements resulting from business combinations, which are recorded at acquisition-date fair value, less accumulated amortization. The Company determines the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. 77 Table of Contents The Company’s intangible assets are being amortized over their estimated useful lives as follows: Years Developed technology 5 In-process research and development 3 to 5 Customer relationships 2 to 3 Backlog 0.75 Non-compete agreements 2 Other intangible assets 0.25 to 1.5 Intangible assets are reviewed for impairment indicators at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For intangible assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and estimated fair value. Impairment of Long-Lived Assets including Internal Use Capitalized Software Costs The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to operations in the period in which management determines such impairment. Business Combinations The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. The Company allocates the purchase price of a business combination, which is the sum of the consideration provided, which may consist of cash, equity or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates and selection of comparable companies. When the Company issues stock-based or cash awards to an acquired company’s stockholders, the Company evaluates whether the awards are contingent consideration or compensation for post-business combination services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the selling stockholder beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period. The Company estimates the fair value of intangible assets acquired generally using a discounted cash flow approach, which includes an analysis of the future cash flows expected to be generated by the asset and the risk associated with achieving these cash flows. The key assumptions used in the discounted cash flow model include the discount rate that is applied to the forecasted future cash flows to calculate the present value of those cash flows and the estimate of future cash flows attributable to the acquired intangible asset, which include revenue, expenses and taxes. The carrying value of acquired working capital assets and liabilities approximates its fair value, given the short-term nature of these assets and liabilities. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. 78 Table of Contents Goodwill Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to impairment testing conducted annually during the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In accordance with guidance related to impairment testing, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment option is not elected, or if the qualitative assessment indicates that it is more likely than not that the fair value is less than its carrying amount, a quantitative analysis is then performed. The quantitative analysis, if performed, compares the estimated fair value of the Company with its respective carrying amount, including goodwill. If the estimated fair value of the Company exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If the fair value is less than the carrying amount, including goodwill, then an impairment adjustment must be recorded up to the carrying amount of goodwill. The Company operates as a single operating segment and has identified a single reporting unit. Operating and Finance Leases On January 1, 2019, the Company adopted ASU 2016-02— Leases (Topic 842), ( "ASC 842"), which requires the recognition of the right-of-use assets, or ROU assets, and related lease liabilities on the balance sheet using a modified retrospective approach. The consolidated financial statements related to periods prior to January 1, 2019 were not restated, and continue to be reported under ASC Topic 840— Leases ("ASC 840"), which did not require the recognition of operating lease liabilities on the balance sheet. As a result, the consolidated financial statements related to periods prior to January 1, 2019 are not entirely comparative with current and future periods. As permitted under ASC 842, the Company elected several practical expedients that permit the Company to not reassess (1) whether existing contracts are or contain a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. In addition, the Company has elected not to recognize short-term leases on the balance sheet, nor separate lease and non-lease components for data center leases. In addition, the Company utilized the portfolio approach to group leases with similar characteristics and did not use hindsight to determine lease term. The finance lease classification under ASC 842 includes leases previously classified as capital leases under ASC 840. In addition to the leases previously reported under ASC 840, the Company also reviewed its data center agreements to identify non-lease components that should not be included in the lease liability and lease expense under ASC 842. Certain fixed non-lease components of data center leases, primarily fixed minimum power commitments, have been included in the lease liability and ROU asset as the Company has elected the practical expedient for its data centers to not separate the lease and non-lease components; however, variable components have not been included. For identified leases, the Company used its incremental borrowing rate to discount the related future payment obligations as of January 1, 2019 to determine its lease liability as of adoption. As of the adoption date, the Company recognized a lease liability of $ 15.6 million and a corresponding ROU asset of $ 14.3 million; there was no equity impact from the adoption. The difference between the lease liability and the ROU asset primarily represents the existing deferred rent liabilities balances before adoption, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the ROU asset. The Company records rent expense for operating leases, including leases of office locations, data centers, and equipment, on a straight-line basis over the lease term. The straight-line calculation of rent expense includes rent escalations on certain leases, as well as lease incentives provided by the landlords, including payments for leasehold improvements and rent-free periods. The Company begins recognition of rent expense on the commencement date, which is generally the date that the asset is made available for use. The lease liability is included in lease liabilities, current and lease liabilities, non-current within the consolidated balance sheet, which are reduced as lease related payments are made. The ROU asset is amortized on a periodic basis over the expected term of the lease (see Note 16). Prior to January 1, 2019, assets and liabilities under capital lease were recorded at the lesser of present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease. Assets under capital lease were amortized using the straight-line method over the estimated useful lives of the assets. Fair Value of Financial Instruments The carrying amounts of the Company's cash equivalents, accounts receivable, accounts payable, accrued expenses, and seller payables approximate fair value due to the short-term nature of these instruments. Certain assets of the Company are recorded at their fair value, using the fair value hierarchy, on a recurring basis, and other assets and liabilities, including goodwill and intangible assets are subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review (see Note 5). 79 Table of Contents Concentration of Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, restricted cash and accounts receivable. Cash and cash equivalents maintained with financial institutions exceed applicable federally insured limits. Accounts receivable include amounts due from buyers with principal operations primarily in the United States. The Company performs ongoing credit evaluations of its buyers. At December 31, 2020, two buyers accounted for 33 % and 12 % respectively, of consolidated accounts receivable. At December 31, 2019, two buyers accounted for 23 % and 17 %, respectively, of accounts receivable. The Company recognizes revenue from its contracts with sellers. No seller of advertising inventory accounted for 10% or more of revenue during the years ended December 31, 2020, 2019, and 2018. At December 31, 2020 one seller of adverting inventory accounted for 18 % of accounts payable, and at December 31, 2019, no seller of advertising inventory comprised 10.0% or more of accounts payable. Foreign Currency Transactions and Translation Transactions in foreign currencies are translated into the functional currency of the applicable entity at the rates of exchange in effect at the date of the transaction. Foreign exchange gains or losses were included in foreign exchange (gain) loss, net in the accompanying consolidated statements of operations. To the extent that the functional currency is different from the U.S. Dollar, the financial statements have then been translated into U.S. Dollars using period-end exchange rates for assets and liabilities and average exchange rates for the results of operations. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) on the consolidated balance sheet. Recently Adopted Accounting Standards In June 2016, the FASB issued ASU 2016-13— Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (" ASU 2016-13"). This guidance requires entities to use a current expected credit loss methodology to measure impairments of certain financial assets and to recognize an allowance for its estimate of lifetime expected credit losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 as of January 1, 2020. The standard did not have a material impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13— Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), to streamline the disclosure requirements of ASC Topic 820—Fair Value Measurement. ASU 2018 removes certain disclosure requirements, including the valuation process for Level 3 fair value measurements, and adds certain quantitative disclosures around Level 3 fair value measurements. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The provisions of ASU 2018-13 are required to be adopted retrospectively, with the exception of disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 measurements, which can be adopted prospectively. The Company adopted ASU 2018-13 as of January 1, 2020. The standard did not have a material impact on its consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-15— Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 was issued to clarify the requirements of ASC 350-40— Intangibles—Goodwill and Other—Internal-Use Software ("ASC 350-40"). The ASU clarifies that implementation, setup and other upfront costs related to cloud computing agreements ("CCA") should be accounted for under ASC 350-40. ASC 2018-15 will require companies to capitalize certain costs incurred when purchasing a CCA that is a service. Under the new guidance, companies will apply the same criteria for capitalizing implementation costs in a CCA service as they would for internal-use software. The capitalized implementation costs will generally be expensed over the term of the service arrangement and the related assets will be assessed for impairment using the same model applied to long-lived assets. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 as of January 1, 2020 on a prospective basis. The standard did not have a material impact on its consolidated financial statements and related disclosures. 80 Table of Contents Recent Accounting Pronouncements Not Yet Adopted In December 2019, the FASB issued ASU 2019-12— Simplifying the Accounting for Income Taxes ("ASU 2019-12") . ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and clarifies and amends existing guidance for clarity and consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020 including interim reporting periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements and related disclosures but the impact is not expected to be material. In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) ("ASU 2020-01"), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance is effective for fiscal years beginning after December 15, 2020, including interim reporting periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period, The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU "2020-06"), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance is effective for fiscal years beginning after December 15, 2021, including interim reporting periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements. Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on our present or future consolidated financial statements. Note 3— Net Income (Loss) Per Share The following table presents the basic and diluted net loss per share: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Basic and Diluted EPS: Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 ) Weighted-average common shares outstanding 96,700 52,634 50,602 Weighted-average unvested restricted shares — ( 20 ) ( 343 ) Weighted-average common shares outstanding used to compute net loss per share 96,700 52,614 50,259 Basic and diluted net loss per share $ ( 0.55 ) $ ( 0.48 ) $ ( 1.23 ) The following weighted-average shares have been excluded from the calculation of diluted net loss per share attributable to common stockholders for each period presented because they are anti-dilutive: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Options to purchase common stock 2,317 793 128 Unvested restricted stock awards — 13 218 Unvested restricted stock units 4,713 4,211 2,029 Unvested performance awards 40 — — ESPP 50 34 55 Total shares excluded from net loss per share 7,120 5,051 2,430 81 Table of Contents Note 4— Revenues For substantially all transactions on the Company's platform, the Company reports revenue on a net basis as it does not act as the principal in the purchase and sale of digital advertising inventory because it does not have control of the digital advertising inventory and does not set prices agreed upon within the auction marketplace. However, for certain transactions related to revenue streams acquired in connection with the Merger with Telaria, the Company reports revenue on a gross basis, based primarily on its determination that the Company acts as the primary obligor in the delivery of advertising campaigns for buyers with respect to such transactions. For the year ended December 31, 2020, revenue reported on a gross basis was less than 2% of total revenue. The following table presents our revenue by channel for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Channel: CTV $ 34,319 15 % $ — — % $ — — % Desktop 78,956 36 68,302 44 59,039 47 Mobile 108,353 49 88,112 56 65,646 53 Total $ 221,628 100 % $ 156,414 100 % $ 124,685 100 % The following table presents the Company's revenue disaggregated by geographic location, based on the location of the Company's sellers: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) United States $ 161,570 $ 108,385 $ 83,020 International 60,058 48,029 41,665 Total $ 221,628 $ 156,414 $ 124,685 Payment terms are specified in agreements between the Company and the buyers and sellers on its exchange platform. The Company generally bills buyers at the end of each month for the full purchase price of impressions filled in that month. The Company recognizes volume discounts as a reduction of revenue as they are incurred. Specific payment terms may vary by agreement, but are generally seventy-five days or less. The Company's accounts receivable are recorded at the amount of gross billings to buyers, net of allowances for the amounts the Company is responsible to collect. The Company's accounts payable related to amounts due to sellers are recorded at the net amount payable to sellers (see Note 11). Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis. Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is reviewed quarterly, requires judgment, and is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company reviews the status of the then-outstanding accounts receivable on a customer-by-customer basis, taking into consideration the aging schedule of receivables, its historical collection experience, current information regarding the client, subsequent collection history, and other relevant data, in establishing the allowance for doubtful accounts. Accounts receivable is presented net of an allowance for doubtful accounts of $ 2.4 million at December 31, 2020, and $ 3.4 million at December 31, 2019. Accounts receivable are written off against the allowance for doubtful accounts when the Company determines amounts are no longer collectible. The Company reviews the associated payable to sellers for recovery of buyer receivable allowance and write-offs; in some cases, the Company can reduce the payable to sellers. The reduction of seller payables related to recovery of uncollected buyer receivables is netted against allowance expense. The contra seller payables related to recoveries were $ 1.5 million and $ 0.9 million as of December 31, 2020 and December 31, 2019, respectively. The following is a summary of activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019 and 2018, respectively: 82 Table of Contents Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Allowance for doubtful accounts, Beginning Balance $ 3,400 $ 1,340 $ 500 Allowance for doubtful accounts, Merger-assumed 1,033 — — Write-offs ( 3,054 ) ( 3,282 ) ( 815 ) Increase (decrease) in provision for expected credit losses 870 5,328 1,285 Recoveries of previous write-offs 111 14 370 Allowance for doubtful accounts, December 31 $ 2,360 $ 3,400 $ 1,340 During the year ended December 31, 2020, 2019 and 2018, the provision for expected credit losses associated with accounts receivable and the offset by increases of contra seller payables related to recoveries of uncollected buyer receivables resulted in a net amount of bad debt each year. During the year ended December 31, 2020, the provision for expected credit losses associated with accounts receivable of $ 0.9 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $ 1.0 million, which resulted in $ 0.1 million of bad debt recoveries. During the year ended December 31, 2019, the provision for expected credit losses associated with accounts receivable of $ 5.3 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $ 4.1 million, which resulted in bad debt expense of $ 1.2 million. During the year ended December 31, 2018, the provision for expected credit losses associated with accounts receivable of $ 1.3 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $ 0.5 million, which resulted in bad debt expense of $ 0.8 million. Note 5— Fair Value Measurements Recurring Fair Value Measurements Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 – Unobservable inputs. The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2020: Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Cash equivalents $ 7,868 $ 7,868 $ — $ — The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2019: Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Cash equivalents $ 13,501 $ 13,501 $ — $ — 83 Table of Contents At December 31, 2020 and 2019, cash equivalents of $ 7.9 million and $ 13.5 million, respectively, consisted of money market funds and commercial paper, with original maturities of three months or less. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not their fair values are based on quoted market prices for identical securities that are traded in an active market. Corporate debt securities (which are included in marketable securities on the balance sheet) with fair values derived from similar securities rather than based on quoted market prices for identical securities, are classified as Level 2 as well. The fair values of the Company's U.S. treasury, government and agency debt securities are based on quoted market prices and classified as Level 1, and are included within marketable securities. There were no transfers between Level 1 and Level 2 fair value measurements during the years ended December 31, 2020 and 2019. Note 6— Investments The Company had no investments in marketable securities at December 31, 2020 and December 31, 2019. During the year ended December 31, 2019, $ 7.5 million of available-for-sale investments matured, on which the realized gains were de minimis and there were no unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the consolidated statements of operations. The Company had no sales of available-for-sale investments in 2019. During the year ended December 31, 2018, the Company sold $ 9.2 million of available-for-sale investments, on which the realized gains were de minimis and there were no unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the consolidated statements of operations. In addition, during the year ended December 31, 2018, the Company had net maturities of investments in available-for-sale securities of $ 38.7 million. Note 7— Property and Equipment Major classes of property and equipment were as follows: December 31, 2020 December 31, 2019 (in thousands) Purchased software $ 1,255 $ 1,254 Computer equipment and network hardware 115,740 105,491 Furniture, fixtures and office equipment 2,289 1,896 Leasehold improvements 2,738 1,589 Gross property and equipment 122,022 110,230 Accumulated depreciation ( 98,341 ) ( 86,563 ) Net property and equipment $ 23,681 $ 23,667 Depreciation expense on property and equipment totaled $ 16.0 million, $ 21.3 million, and $ 25.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. There were no impairment charges to property and equipment for the years ended December 31, 2020, 2019, and 2018. At December 31, 2020 and 2019, the Company had $ 39.6 million and $ 21.5 million of ROU assets and no property and equipment under finance leases. The Company's property and equipment, net by geographical region was as follows: December 31, 2020 December 31, 2019 (in thousands) United States $ 13,504 $ 14,546 International 10,177 9,121 Total $ 23,681 $ 23,667 Note 8— Internal Use Software Development Costs Internal use software development costs were as follows: 84 Table of Contents December 31, 2020 December 31, 2019 (in thousands) Internal use software development costs, gross 51,277 $ 45,156 Accumulated amortization ( 35,117 ) ( 29,103 ) Internal use software development costs, net $ 16,160 $ 16,053 During the years ended December 31, 2020, 2019, and 2018, the Company capitalized $ 9.2 million, $ 9.0 million, and $ 9.0 million, respectively, of internal use software development costs. Amortization expense was $ 8.3 million, $ 7.5 million, and $ 7.2 million for the years ended December 31, 2020, 2019, and 2018, respectively. In the years ended December 31, 2020, 2019, and 2018, amortization expense included the write-off of software development costs of $ 0.1 million, $ 0.5 million, and $ 0.5 million, in the respective periods, related to the abandonment of the associated projects. Based on the Company’s internal use software development costs at December 31, 2020, excluding projects that are not yet complete and not yet ready for their intended use with a value of $ 0.4 million, estimated amortization expense of $ 7.8 million, $ 5.6 million, $ 2.2 million, and $ 0.1 million is expected to be recognized in 2021, 2022, 2023, and 2024 respectively. There were no impairment charges to internal use software development costs for the year ended December 31, 2020, 2019 and 2018 with the exception of the write-offs mentioned above. Note 9— Goodwill, Intangible Assets, and Capitalized Costs Incurred in Cloud Computing Arrangements Details of the Company’s goodwill were as follows: December 31, 2019 (in thousands) Beginning balance at December 31, 2018 $ — Additions from the acquisition of RTKio (Note 10) 7,370 Ending balance at December 31, 2019 7,370 Additions for Merger with Telaria (Note 10) 150,755 Ending balance at December 31, 2020 $ 158,125 The Company’s intangible assets as of December 31, 2020 and 2019 included the following: December 31, 2020 December 31, 2019 (in thousands) Amortizable intangible assets: Developed technology $ 77,658 $ 19,658 Customer relationships 37,950 1,650 In-process research and development 8,030 — Non-compete agreements 70 70 Trademarks — 20 Total identifiable intangible assets, gross 123,708 21,398 Accumulated amortization—intangible assets: Developed technology ( 21,905 ) ( 9,823 ) Customer relationships ( 11,877 ) ( 162 ) Non-compete agreements ( 42 ) ( 7 ) Trademarks — ( 20 ) Total accumulated amortization—intangible assets ( 33,824 ) ( 10,012 ) Total identifiable intangible assets, net $ 89,884 $ 11,386 Amortization of intangible assets for the years ended December 31, 2020, 2019, and 2018 was $ 24.9 million, $ 3.3 million, and $ 3.2 million, respectively. During the year ended December 31, 2020 and 2019, the Company wrote off fully amortized intangible assets with a historical cost of $ 1.1 million and $ 0.7 million, respectively. During the year ended December 31, 2018, the Company had no write-offs of fully amortized intangible assets. 85 Table of Contents The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of December 31, 2020: Fiscal Year Amount (in thousands) 2021 $ 31,048 2022 26,342 2023 13,941 2024 13,757 2025 4,238 Thereafter 558 Total $ 89,884 The Company adopted ASU 2018-15 as of January 1, 2020 on a prospective basis and as a result, the Company capitalized certain costs associated with cloud computing arrangements and will recognize the costs over the length of the service arrangements, which generally are three years . During the year ended December 31, 2020, the Company capitalized $ 0.9 million related to cloud computing arrangements. These costs are related to arrangements for infrastructure as a service, platform as a service, and software as a service. Capitalized costs associated with these arrangements as of December 31, 2020 are included within prepaid expenses and other current assets and other assets, non-current within the consolidated balance sheet in the amounts of $ 0.7 million and $ 0.2 million, respectively. The amortization of these agreements were insignificant for the year ended December 31, 2020. The Company's qualitative assessment in the fourth quarter of 2020 did not indicate that it is more likely than not that the fair value of its goodwill, intangible assets, and other long-lived assets is less than the aggregate carrying amount. Note 10— Business Combinations 2019 Acquisition—RTK.io On October 21, 2019, the Company completed the acquisition of RTK.io for total purchase consideration of $ 11.4 million, which includes cash paid of $ 11.0 million, cash acquired of $ 0.6 million, and a working capital adjustment of $ 0.2 million. RTK.io is a leading provider of tools and services that bring simplicity and control to header bidding for sellers. RTK’s solution is built on Prebid, the same open source framework as Demand Manager, the header bidding solution the Company launched in May 2019. The primary reason for the acquisition was to acquire technology, know-how, and personnel that will enable the Company to extend its Demand Manager product portfolio and client base. The financial results of RTK.io have been included in the Company's consolidated financial statements since the date of the acquisition. The major classes of assets and liabilities to which the Company allocated the purchase price were as follows as of the acquisition date: Amount (in thousands) Cash and cash equivalents $ 553 Accounts receivable 2,441 Prepaid and other assets 50 Intangible assets 4,520 Goodwill 7,370 Total assets acquired 14,934 Accounts payable and accrued expenses 2,450 Deferred tax liability, net 1,089 Total liabilities assumed 3,539 Total net assets acquired $ 11,395 The following table summarizes the components of the acquired intangible assets and estimated useful lives (in thousands, except for estimated useful life) as of the acquisition date: 86 Table of Contents Amount Estimated Useful Life Developed technology $ 2,780 5 years Customer relationships 1,650 2 years Non-compete agreements 70 2 years Trademark & trade name 20 < 0.5 years Total intangible assets acquired $ 4,520 The intangible assets are amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenue, amortization related to customer relationships is included in sales and marketing, amortization related to non-compete agreements is included in sales and marketing or technology and development, depending on the nature of the employee's job function, and amortization related to trademark and trade name is included in general and administrative. Goodwill resulting from the acquisition was primarily attributable to acquired workforce, an increase in development capabilities, increased offerings to clients, and enhanced opportunities for growth and innovation. The acquired intangibles and goodwill resulting from the RTK.io acquisition are not amortizable for tax purposes. Pro forma results of operations were not significant to the consolidated results of operations. The Company does not track RTK.io's expenses on a stand-alone basis, and as a result, the determination of RTK.io post-acquisition operating results on a stand-alone basis was impracticable. The post-acquisition revenue, expenses, and pro forma results of operations were not significant to the consolidated results of operations for the years ended December 31, 2020 and 2019. 2020 Merger—Telaria On April 1, 2020, (the "Acquisition Date"), the Company completed the Merger with Telaria. Upon completion of the Merger, each share of Telaria common stock issued and outstanding was converted into 1.082 shares of Magnite common stock. As a result, the Company issued 52,098,945 shares of Magnite common stock. In connection with the Merger, Magnite also assumed Telaria’s 2013 Equity Incentive Plan, as amended; 2008 Stock Plan, as amended; and the ScanScout, Inc. 2009 Equity Incentive Plan, as amended. As of the Acquisition Date, former holders of Telaria common stock owned approximately 48 % and pre-merger holders of Magnite common stock owned approximately 52 % of the common stock of the combined company on a fully diluted basis. The Merger was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, referred to as ASC 805, Business Combinations . Magnite management determined that Magnite was the acquiror for financial accounting purposes. In identifying Magnite as the accounting acquiror, management considered the structure of the transaction and other actions contemplated by the merger agreement, relative outstanding share ownership and market values, the composition of the combined company’s board of directors, the relative size of Magnite and Telaria, and the designation of certain senior management positions of the combined company. In accordance with ASC 805, the Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective fair values as of the Acquisition Date. The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill. Any identified definite lived intangible assets will be amortized over their estimated useful lives and any identified intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually or more frequently when certain indicators are present. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and selection of comparable companies. Management's purchase price allocation is preliminary and subject to change pending finalization of tax attributes and tax related liabilities. Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset ("DTA") valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they are related to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment, and the Company will record the offset to goodwill. The Company records all other changes to DTA valuation allowances and liabilities related to uncertain tax positions in current- period income tax expense. During the three months ended December 31, 2020, the Company adjusted the preliminary purchase price allocation for Telaria based on updated fair values associated with the acquired intangibles. Changes in projected revenues and costs increased the technology and customer relationships intangible while lengthened timeline for software development reduced in process research and development projects value. Except for the valuation related changes in intangible assets and adjustments to acquisition related 87 Table of Contents tax accruals and deferred tax liabilities, adjustments to the fair value of opening balance sheet acquired assets and assumed liabilities resulted in minimal changes and refinements by management as of, and for the year-ended, December 31, 2020. For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed, the Company applied the guidance in ASC 820, Fair Value Measurement, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. As part of the Merger, existing outstanding restricted stock units of Telaria common stock and stock options to purchase common stock of Telaria were exchanged for 1.082 restricted stock units of the Company and options to purchase the Company's common stock, respectively. The fair value of stock options exchanged on the date of the Merger attributable to pre-acquisition services was recorded as purchase consideration. The fair value of the restricted stock units and stock options exchanged on the date of the Merger attributable to post-acquisition services will be recorded as additional stock-based compensation expense in the Company's consolidated statements of operations over their remaining requisite service (vesting) periods. The following table summarizes the total purchase consideration (in thousands): Shares of Magnite common stock $ 274,604 Fair value of stock-based awards exchanged 11,646 Acceleration of single trigger equity awards, converted 1,168 Total purchase consideration $ 287,418 The purchase consideration for the acquisition included 52,008,316 shares of the Company's common stock with a fair value of approximately $ 274.6 million, based on the Company's stock price as reported on the NYSE on the Acquisition Date. The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to pre-acquisition services of approximately $ 10.4 million and $ 1.2 million, respectively, have been recorded as purchase consideration. In addition, the Company recorded additional purchase consideration associated with acceleration of 90,629 shares of common stock issued associated with single-trigger equity awards in the amount of $ 1.2 million. The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to post-acquisition services of $ 4.7 million and $ 12.2 million, respectively, will be recorded as additional stock-based compensation expense on the Company's consolidated statement of operations over their remaining requisite service (vesting) periods. The fair value of the purchase price was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below: 88 Table of Contents Cash and cash equivalents $ 51,848 Accounts receivable, net 150,924 Prepaid expenses and other current assets 3,054 Property and equipment, net 1,814 Right-of-use lease asset 26,627 Intangible assets 103,410 Restricted cash 2,747 Other assets, non-current 369 Deferred tax assets, non-current 103 Goodwill 150,755 Total assets acquired 491,651 Accounts payable and accrued expenses 172,751 Lease liabilities - current portion 5,322 Deferred revenue 11 Other current liabilities 365 Lease liabilities - non-current portion 23,323 Other liabilities, non-current 194 Deferred tax liability 2,267 Total liabilities assumed 204,233 Total purchase price $ 287,418 The Company believes the amount of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if certain indicators of impairment are present. In the event that goodwill has become impaired, the Company will record an expense for the amount impaired during the quarter in which the determination is made. The acquired intangibles and goodwill resulting from the Merger are not amortizable for tax purposes. The following table summarizes the components of the intangible assets and estimated useful lives as of the Acquisition Date (dollars in thousands): Estimated Useful Life Technology $ 58,000 5 years In-process research and development 8,030 4.7 years* Customer relationships 36,300 2.5 years Backlog 880 0.75 years Trademarks 200 0.25 years Total intangible assets acquired $ 103,410 * In-process research and development consists of two projects with a weighted-average useful life of 4.7 years. Amortization begins once associated projects are completed and it is determined the projects have alternative future use. The fair value of the acquired technology and in-process research and development was valued using The Revenue Split Method. This methodology included allocating future revenue projections to the existing technologies and applying decay rates and appropriate discount rates that reflect the respective intangible asset's relative risk profile when compared to other intangible assets as well as considering the risk associated with the overall business. At the Acquisition Date, Telaria had existing Customer Relationships. To the extent that future cash flows of the business would be negatively affected in the absence of these relationships, they would be deemed to have economic value. The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing Customer Relationships. This method attempts to quantify the scenario whereby the owner loses the right to the intangible asset and the resulting losses of revenue and income. Under this analysis, the value of the cash flows with the intangible asset is compared to the value of the cash flows without the intangible asset and the difference represents the value of the intangible asset. This methodology included applying a discount rate and the expected timing it would take to further enhance customer relationships. 89 Table of Contents The fair value of the backlog was based on the Excess Earnings Model, taking into consideration the existing contracts as of the Acquisition Date and the respective cost to complete the servicing of the existing agreements. The resulting stream of after tax earnings were discounted to present value by applying an appropriate discount rate for the asset. The discount rate was selected based on the intangible asset’s relative risk profile when compared to the other intangible assets as well as the discount rate for the overall business. Intangible assets are generally amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenues and the amortization of customer relationships, backlog, and trademarks is included in sales and marketing expenses in the consolidated statement of operations. Once the projects associated with acquired in-process research and development are completed, amortization will be included in cost of revenues in the consolidated statement of operations. The intangible assets generated in the Merger are not tax deductible. As such, as part of the Merger, deferred tax liabilities of $ 24.0 million were established related to the acquired intangible assets, which were fully offset by the estimated income tax effect of the partial release of Telaria's valuation allowance. The deferred tax liability was calculated based on an estimated combined tax rate of 23.3 %. The Company recognized approximately $ 17.6 million of acquisition related costs during the year ended December 31, 2020 (see Note 14). In addition, as part of the Merger, the Company acquired Telaria's U.S. federal NOLs of approximately $ 126.1 million and state NOLs of approximately $ 87.6 million. Pursuant to Section 382 of the Internal Revenue Code, Telaria, Inc. underwent an ownership change for tax purposes. As a result, the use of the NOLs will be subject to annual Section 382 use limitations. The Company believes the ownership change will not impact the Company's ability to utilize substantially all of the NOLs to the extent it generates taxable income that can be offset by such losses. Unaudited Pro Forma Information The following table provides unaudited pro forma information as if Telaria had been merged with the Company as of January 1, 2019. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, and transaction expenses as if the Merger occurred on January 1, 2019. The pro forma results do not include any anticipated cost synergies or other effects of the integration merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Year Ended December 31, 2020 December 31, 2019 Pro Forma Revenue $ 236,666 $ 224,452 Pro Forma Net Loss $ ( 64,030 ) $ ( 78,585 ) During the year ended December 31, 2020, post-Merger revenue on a stand-alone basis for Telaria was $ 60.1 million. During the year ended December 31, 2020, due to the process of integrating the operations of Telaria into the operations of the Company, the determination of Telaria's post-Merger operating results on a standalone basis was impracticable. Note 11— Accounts Payable and Accrued Expenses Accounts payable and accrued expenses included the following: December 31, 2020 December 31, 2019 (in thousands) Accounts payable—seller $ 492,605 $ 247,891 Accounts payable—trade 4,268 4,822 Accrued employee-related payables 12,442 6,726 Total $ 509,315 $ 259,439 90 Table of Contents Note 12— Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) were as follows (in thousands): Unrealized Gain (Loss) on Investments, net of tax Foreign Currency Translation Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2017 $ ( 29 ) $ 70 $ 41 Other comprehensive income (loss) 27 ( 327 ) ( 300 ) Balance at December 31, 2018 ( 2 ) ( 257 ) ( 259 ) Other comprehensive income 2 212 214 Balance at December 31, 2019 — ( 45 ) ( 45 ) Other comprehensive loss — ( 912 ) ( 912 ) Balance at December 31, 2020 $ — $ ( 957 ) $ ( 957 ) Note 13— Stock-Based Compensation In connection with its IPO, the Company implemented its 2014 Equity Incentive Plan, which governs equity awards made to employees and directors of the Company since the IPO. Prior to the IPO, the Company granted equity awards under its 2007 Stock Incentive Plan, which governs equity awards made to employees and contractors prior to the IPO. In November 2014, the Company approved the 2014 Inducement Grant Equity Incentive Plan (the "Inducement Plan"), which governs certain equity awards made to certain employees in connection with commencement of employment. In connection with the Company's acquisitions of Chango Inc. ("Chango"), iSocket, Inc. ("iSocket"), and nToggle, Inc. ("nToggle") it assumed the existing employee equity award plans, the 2009 Chango Stock Option Plan (the "Chango Plan"), the iSocket 2009 Equity Incentive Plan (the "iSocket Plan"), and the nToggle 2014 Equity Incentive Plan (the "nToggle Plan"). In connection with the Merger with Telaria, the Company assumed Telaria's 2013 Equity Incentive Plan, as amended (the "Telaria Plan"); 2008 Stock Plan, as amended (the "2008 Stock Plan"); and the ScanScout, Inc. 2009 Equity Incentive Plan, as amended (the "ScanScout Plan"). All compensatory equity awards outstanding at December 31, 2020 were issued pursuant to the 2014 Equity Incentive Plan, the iSocket Plan, the Chango Plan, the nToggle Plan, the Telaria Plan, the 2008 Stock Plan, the ScanScout Plan, the Inducement Plan, or the Company's 2007 Stock Incentive Plan. The Company’s equity incentive plans provide for the grant of equity awards, including non-statutory or incentive stock options, restricted stock awards, and restricted stock units, to the Company's employees, officers, directors, and consultants. The Company's board of directors administers the plans. Options outstanding vest based upon continued service at varying rates, but generally over four years from issuance with 25 % vesting after one year of service and the remainder vesting monthly thereafter. Restricted stock awards and restricted stock units vest at varying rates, typically approximately 25 % vesting after approximately one year of service and the remainder vesting annually, semi-annually, or quarterly thereafter. The restricted stock units granted in 2020, 2019, and 2018, included 0.7 million, 1.8 million, and 2.8 million, respectively, restricted stock units that vest 50 % on each of the first and second anniversaries of the grant date. Options, restricted stock awards, and restricted stock units granted under the plans accelerate under certain circumstances for certain participants upon a change in control, as defined in the governing plan. No further awards were made under the iSocket Plan, the Chango Plan, or the nToggle Plan from the date of acquisition and no further awards were made under the 2007 Stock Incentive Plan since the IPO. Available shares under the iSocket Plan, the Chango Plan, and the nToggle Plan were rolled into the available share pool under the 2014 Equity Incentive Plan at the time of acquisition of each company, and available shares under the 2007 Stock Incentive Plan were rolled into the available share pool under the 2014 Equity Incentive Plan at the time of the IPO. An aggregate of 9,705,530 shares remained available for future issuance at December 31, 2020 under the plans. The 2014 Equity Incentive Plan has an evergreen provision pursuant to which the share reserve will automatically increase on January 1 st of each year in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31 st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, or no increase, in any year. The 2014 Inducement Grant Equity Incentive Plan has a provision pursuant to which the share reserve may be increased at the discretion of the Company's board of directors. 91 Table of Contents Stock Options A summary of stock option activity for the year ended December 31, 2020 is as follows: Shares Under Option Weighted- Average Exercise Price Weighted- Average Contractual Life Aggregate Intrinsic Value (in thousands) (in thousands) Outstanding at December 31, 2019 4,262 $ 6.82 Granted 1,145 $ 5.32 Options assumed in Merger 4,998 $ 3.80 Exercised ( 3,359 ) $ 4.03 Expired ( 150 ) $ 13.22 Forfeited ( 201 ) $ 5.09 Outstanding at December 31, 2020 6,695 $ 5.61 6.4 years $ 168,025 Exercisable at December 31, 2020 4,044 $ 6.03 5.1 years $ 99,803 The total intrinsic value of options exercised during the year ended December 31, 2020 was $ 21.5 million. At December 31, 2020, the Company had unrecognized employee stock-based compensation expense relating to nonvested stock options of approximately $ 7.0 million, which is expected to be recognized over a weighted-average period of 2.4 years. The grant date fair value of options granted and assumed during the year ended December 31, 2020 was $ 3.17 per share. The weighted-average grant date fair value per share of stock options granted during the year ended December 31, 2020 was $ 3.22 per share and the fair value of options assumed in the Merger was $ 3.16 per share. Total fair value of options vested during the year ended December 31, 2020 was $ 4.7 million. The Company estimates the fair value of stock options that contain service and/or performance conditions using the Black-Scholes option pricing model. The weighted-average input assumptions used by the Company were as follows: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Expected term (in years) 6.3 6.1 6.0 Risk-free interest rate 0.45 % 2.55 % 2.67 % Expected volatility 67 % 60 % 57 % Dividend yield — % — % — % Restricted Stock Units A summary of restricted stock unit activity for the year ended December 31, 2020 is as follows: Number of Shares Weighted-Average Grant Date Fair Value (in thousands) Nonvested restricted stock units outstanding at December 31, 2019 8,077 $ 4.46 Granted 4,954 $ 5.52 Restricted stock units assumed in Merger 2,416 $ 5.40 Canceled ( 1,035 ) $ 5.17 Vested ( 5,126 ) $ 4.26 Nonvested restricted stock units outstanding at December 31, 2020 9,286 $ 5.30 The weighted-average grant date fair value per share of restricted stock units granted during the year ended December 31, 2020 was $ 5.52 . The aggregate fair value of restricted stock units that vested during the year ended December 31, 2020 was $ 43.6 million. At December 31, 2020, the intrinsic value of nonvested restricted stock units was $ 285.2 million. At December 31, 2020, the Company had unrecognized stock-based compensation expense relating to nonvested restricted stock units of approximately $ 36.9 million, which is expected to be recognized over a weighted-average period of 2.3 years. 92 Table of Contents Performance Stock Units In April 2020, the Company granted the Company's CEO 146,341 restricted stock units that vest based on certain stock price performance metrics with a fair value of $ 0.9 million. The grant date fair value per share of restricted stock was $ 6.15 , which was estimated using a Monte-Carlo lattice model. During the year ended December 31, 2020, the Company recognized $ 0.2 million of stock-based compensation related to these performance stock units based on a performance measurement of 150 %. At December 31, 2020, the Company had unrecognized employee stock-based compensation expense of approximately $ 0.7 million, which is expected to be recognized over the remaining 2.25 years. Between 0 % and 150 % of the performance stock units will vest on the third anniversary of its grant date. The compensation expense will not be reversed if the performance metrics are not met. Employee Stock Purchase Plan In November 2013, the Company adopted the Company's 2014 Employee Stock Purchase Plan ("ESPP"). The ESPP is designed to enable eligible employees to periodically purchase shares of the Company's common stock at a discount through payroll deductions of up to 10 % of their eligible compensation, subject to any plan limitations. At the end of each six-month offering period, employees are able to purchase shares at a price per share equal to 85 % of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the last trading day of the offering period. Offering periods generally commence and end in May and November of each year. As of December 31, 2020, the Company has reserved 2,049,164 shares of its common stock for issuance under the ESPP. The ESPP has an evergreen provision pursuant to which the share reserve will automatically increase on January 1 st of each year in an amount equal to 1 % of the total number of shares of capital stock outstanding on December 31 st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, or no increase, in any year. Stock-Based Compensation Expense Total stock-based compensation expense recorded in the consolidated statements of operations was as follows: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Cost of revenue $ 525 $ 421 $ 321 Sales and marketing 8,229 5,638 4,557 Technology and development 7,451 4,757 2,867 General and administrative 10,416 8,009 8,139 Merger and restructuring costs 1,870 — 398 Total stock-based compensation expense $ 28,491 $ 18,825 $ 16,282 Note 14— Merger and Restructuring, Costs Merger and restructuring costs consist primarily of professional services fees and employee termination costs, including stock-based compensation charges, associated with the Merger and restructuring activities. For the year ended December 31, 2018, Merger and restructuring costs also included relocation costs. The following table summarizes Merger and restructuring cost activity (in thousands): Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Professional Service (investment banking advisory, legal and other professional services) $ 9,935 $ 2,041 $ — Personnel related (severance and one-time termination benefit costs) 5,747 $ — $ 3,042 Non-cash stock-based compensation (double-trigger acceleration and severance) 1,870 $ — $ 398 Total merger and restructuring costs $ 17,552 $ 2,041 $ 3,440 93 Table of Contents During the years ended December 31, 2020 and December 31, 2019, the Company incurred costs of $ 17.6 million and $ 2.0 million, respectively, primarily related to the Merger with Telaria. All of the expenses incurred in the year ended December 31, 2019 were incurred during the fourth quarter (refer to "reclassification" note within Note 2). In the first quarter of 2018, the Company announced its restructuring plan to reduce headcount to bring the Company's general and administrative operation s into better alignment with the current size of the business and de-layer certain functions, and to reduce its investment in unprofitable projects (the "2018 Restructuring Events"). During the year ended December 31, 2018, the Company incurred restructuring co sts of $ 3.4 million for severance and one-time termination benefits. Accrued restructuring costs related to the Merger were $ 2.9 million at December 31, 2020. Accrued restructuring costs associated with personnel costs are included within accounts payable and accrued expenses and accruals related to Merger assumed loss contracts are included within other current liabilities and other liabilities, non-current on the Company's consolidated balance sheet. Year Ended (in thousands) December 31, 2020 December 31, 2019 December 31, 2018 Accrued Merger and restructuring costs at beginning of period $ — $ 67 $ — Restructuring costs (personnel related and non-cash stock-based compensation) 7,617 — 3,440 Restructuring costs (Merger assumed loss contracts) 3,543 — — Cash paid for restructuring costs ( 6,355 ) ( 67 ) ( 2,975 ) Non-cash stock-based compensation ( 1,870 ) — ( 398 ) Accrued Merger and restructuring costs at end of period $ 2,935 $ — $ 67 The accrued balance as of December 31, 2020 does not include an additional $ 0.1 million of personnel related expenses expected to be incurred in 2021 associated with the 2020 restructuring activities as a result of the Merger. Note 15— Income Taxes The following are the domestic and foreign components of the Company’s income (loss) before income taxes for the years ended December 31, 2020, 2019, and 2018: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Domestic $ ( 57,253 ) $ ( 28,063 ) $ ( 62,292 ) International 4,514 1,073 827 Loss before income taxes $ ( 52,739 ) $ ( 26,990 ) $ ( 61,465 ) 94 Table of Contents The following are the components of the provision (benefit) for income taxes for the years ended December 31, 2020, 2019, and 2018: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) Current: Federal $ ( 144 ) $ ( 153 ) $ ( 23 ) State 15 28 41 Foreign 1,117 281 388 Total current provision 988 156 406 Deferred: Federal 9 ( 762 ) — State ( 12 ) ( 174 ) 2 Foreign ( 292 ) ( 732 ) ( 51 ) Total deferred benefit ( 295 ) ( 1,668 ) ( 49 ) Total provision (benefit) for income taxes $ 693 $ ( 1,512 ) $ 357 The Company recorded an income tax expense of $ 0.7 million for the year ended December 31, 2020 compared to an income tax benefit of $ 1.5 million and income tax expense of $ 0.4 million for the years ended December 31, 2019 and 2018, respectively. The tax expense for the years ended December 31, 2020 and December 31, 2018 was primarily the result of the domestic valuation allowance and the tax liability associated with the foreign subsidiaries. The tax benefit for the year ended December 31, 2019 was the result of a deferred tax liability associated with the RTKio acquisition, the release of a foreign valuation allowance resulting from a change to a cost-plus arrangement for a foreign subsidiary, the domestic valuation allowance, and the tax liability associated with foreign subsidiaries. Set forth below is a reconciliation of the components that caused the Company’s provision (benefit) for income taxes to differ from amounts computed by applying the U.S. Federal statutory rate of 21% for the years ended December 31, 2020, 2019, and 2018: Year Ended December 31, 2020 December 31, 2019 December 31, 2018 U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit ( 0.2 ) % ( 0.1 ) % ( 0.1 ) % Foreign income (loss) at other than U.S. rates ( 0.5 ) % ( 4.3 ) % — % Stock-based compensation expense 11.4 % 3.5 % ( 5.3 ) % Meals and entertainment ( 0.1 ) % ( 0.9 ) % ( 0.4 ) % Debt cancellation — % — % ( 1.2 ) % Other permanent items ( 1.1 ) % ( 1.2 ) % ( 0.5 ) % Change in valuation allowance ( 19.5 ) % ( 7.5 ) % ( 14.1 ) % Sec 162(m) officers compensation ( 12.7 ) % ( 6.3 ) % — % Provision to return adjustments 0.4 % 1.4 % — % Effective income tax rate ( 1.3 ) % 5.6 % ( 0.6 ) % 95 Table of Contents Set forth below are the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 (in thousands) Deferred Tax Assets: Accrued liabilities $ 1,568 $ 1,396 Lease liabilities 8,943 — Stock-based compensation 3,559 3,666 Net operating loss carryovers 117,707 75,853 Tax credit carryovers 4,882 13,055 Other 1,263 1,537 Total deferred tax assets 137,922 95,507 Less valuation allowance ( 109,992 ) ( 93,611 ) Deferred tax assets, net of valuation allowance 27,930 1,896 Deferred Tax Liabilities: Fixed assets ( 824 ) ( 570 ) Intangible assets ( 18,584 ) ( 298 ) Right of use lease asset ( 8,283 ) — Total deferred tax liabilities ( 27,691 ) ( 868 ) Net deferred tax assets (liability) $ 239 $ 1,028 The change in valuation allowance for the years ended December 31, 2020, 2019, and 2018 was $ 16.4 million, $ 2.7 million, and $ 9.2 million, respectively. At December 31, 2020, the Company had U.S. federal net operating loss carryforwards, or NOLs, of approximately $ 453.2 million, which will begin to expire in 2027. At December 31, 2020, the Company had state NOLs of approximately $ 280.0 million, which will begin to expire in 2027. At December 31, 2020, the Company had foreign NOLs of approximately $ 25.0 million, which will begin to expire in 2026. At December 31, 2020, the Company had state research and development tax credits of approximately $ 8.0 million, which carry forward indefinitely. No amounts for any federal or state research and development tax credits for the year ended December 31, 2019 or December 31, 2020 are included herein. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), in response to the COVID-19 pandemic. The CARES Act is meant to infuse negatively affected companies with various tax cash benefits to ease the impact of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, and net operating loss carryback periods. The Company has determined the tax implications of the CARES Act will not be material. To date, the Company has not taken advantage of any relief under the Cares Act. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 ("CAA"). The CAA is meant to provide additional relief and support to those impacted by the COVID-19 pandemic. The CAA includes provisions relating to payroll tax deferrals, family leave, and a five-year extension of a myriad of tax provisions that were set to expire. The company is evaluating the potential tax implications of the CAA on the Company for 2021. In addition, various foreign jurisdictions where the Company has activity have enacted or are considering enacting a variety of measures. The Company has not received any relief that will impact its tax liabilities. The Company is monitoring new legislation and evaluating the potential tax implications of these measures globally. Pursuant to Section 382 of the Internal Revenue Code, the Company and Telaria, Inc. both underwent ownership changes for tax purposes (i.e. a more than 50% change in stock ownership in aggregated 5% shareholders) on April 1, 2020 due to the Merger. As a result, the use of the Company’s total domestic NOL carryforwards and tax credits generated prior to the ownership change will be subject to annual use limitations under Section 382 and 383 of the Code and comparable state income tax laws. The Company believes that the ownership change will not impact its ability to utilize substantially all of its NOLs and state research and development carryforward tax credits to the extent it will generate taxable income that can be offset by such losses. The Company reasonably expects its federal research and development carryforward tax credits will not be recovered prior to expiration. Additionally, for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the NOL deduction to 80% of taxable income, repeals carryback of all NOLs arising in a tax year ending after 2017, and permits indefinite carryforward for all such NOLs. NOL’s arising in a tax year ending in or before 2017 can offset 100% of taxable income, are available for carryback, and expire 20 years after they arise. 96 Table of Contents At December 31, 2020, unremitted earnings of the subsidiaries outside of the United States were approximately $ 22.1 million, on which the Company previously recorded a transition tax of $ 3.3 million. The Company’s intention is to indefinitely reinvest these earnings outside the United States. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subject to withholding taxes payable to various foreign countries and, potentially, various state taxes. The amounts of such tax liabilities that might be payable upon actual repatriation of foreign earnings, after consideration of corresponding foreign tax credits, are not material. The following table summarizes the activity related to the unrecognized tax benefits (in thousands): Amount (in thousands) Balance as of December 31, 2018 $ 4,717 Increases related to current year tax positions — Decreases related to current year tax positions — Increases related to prior year tax positions 3 Balance as of December 31, 2019 4,720 Decreases related to prior year tax positions ( 2,294 ) Increases related to prior year tax positions 788 Balance as of December 31, 2020 $ 3,214 Interest and penalties related to the Company’s unrecognized tax benefits accrued at December 31, 2020, 2019, and 2018 were not material. Due to the net operating loss carryforwards, the Company's United States federal and a majority of its state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. For Canada, Japan, the Netherlands, and the United Kingdom, all tax years remain open for examination by the local country tax authorities, for France only 2017 forward are open for examination, for Singapore 2016 and forward are open for examination, and for Australia, Brazil, and Germany, tax years 2015 and forward are open for examination. The Company does not expect its uncertain income tax positions to have a material impact on its consolidated financial statements within the next twelve months. Note 16— Leases The Company adopted ASC 842 as of January 1, 2019. As part of the implementation, the Company recognized its lease liabilities, including the current and non-current portions, within its consolidated balance sheet as of the adoption date, which represents the present value of the Company’s obligation related to the estimated future lease payments. The Company also recognized a right-of-use asset, or ROU asset, which represents the right to use the leased asset over the period of the lease. The ROU asset was calculated as the lease liability less any asset or liability balances that existed at the time of adoption. The lease term is generally specified in the lease agreement, however certain agreements provide for lease term extensions or early termination options. To determine the period for the estimated future lease payments, the Company evaluates whether it is reasonably certain that it will exercise the option at the commencement date and periodically thereafter. Certain data center lease agreements include one year extension options or month-to-month extension options, and one or more of these extensions have been assumed for each lease that the Company believes to be an integral part of the business in the near term. The lease terms of the Company’s operating leases generally range from 1.0 year to 10.0 years, and the weighted average remaining lease term of leases included in the lease liability is 6.2 years as of December 31, 2020. To determine the estimated future lease payments, the Company reviews each of its lease agreements to identify the various payment components. For real estate and equipment leases, the Company includes only the actual lease components in its determination of future lease payments, and for its data center leases, includes both the fixed lease and non-lease components in the estimated future lease payments. This typically includes a fixed minimum power commitment that is included in the data center agreements, but it does not include any variable or usage-based additional charges. Once the estimated future lease payments are determined, the Company uses a discount rate to calculate the present value of the future lease payments. Because most of the Company's leases do not provide an implicit rate of return, the Company uses the incremental borrowing rate it would be subject to on borrowings from its available revolving debt agreement based on the information available at the lease commencement date in determining the present value of lease payments. As of December 31, 2020, a weighted average discount rate of 5.00 % has been applied to the remaining lease payments to calculate the lease liabilities included within the consolidated balance sheet. 97 Table of Contents For the year ended December 31, 2020, the Company recognized $ 13.4 million of lease expense under ASC 842, which included operating lease expenses associated with leases included in the lease liability and ROU asset on the consolidated balance sheet. In addition, for the year ended December 31, 2020, the Company recognized expenses of $ 20.4 million of cloud-based services related to data centers and $ 1.0 million of lease expense related to short-term leases that are not included in the ROU asset or lease liability balances. For the year ended December 31, 2019, the Company recognized $ 7.8 million of lease expense under ASC 842, which included operating lease expenses associated with leases included in the lease liability and ROU asset on the consolidated balance sheet. In addition, for the year ended December 31, 2019, the Company recognized expenses of $ 10.0 million of cloud-based services related to data centers and $ 1.2 million of lease expense related to short-term leases that are not included in the ROU asset or lease liability balances. For the year ended December 31, 2018, the Company recognized rental expenses of $ 19.7 million under ASC 840, which included expenses related to short-term leases, and also included certain non-lease components including variable capacity related expenses for cloud-based services related to data centers of $ 7.1 million. The maturity of the Company's lease liabilities associated with leases included in the lease liability and ROU asset were as follows as of December 31, 2020 (in thousands): Fiscal Year 2021 $ 11,653 2022 8,392 2023 7,428 2024 6,740 2025 3,551 Thereafter 11,403 Total lease payments (undiscounted) 49,167 Less: imputed interest ( 7,076 ) Lease liabilities—total (discounted) $ 42,091 The Company also received rental income of $ 3.7 million, $ 0.3 million, and $ 0.8 million for real estate leases for which it subleases the property to a third party during the year ended December 31, 2020, 2019, and 2018, respectively. Rental income is included in other income in the consolidated statement of operations. In addition to the lease liabilities included in these consolidated financial statements at December 31, 2020, during the three months ended December 31, 2020, the Company entered into agreements for an office lease for its corporate headquarters in Los Angeles and a data center in Singapore which have not commenced as of December 31, 2020, therefore, not included in the lease liability on the balance sheet. The Company has future commitments totaling $ 23.2 million over the course of 10 years for the office lease and $ 5.6 million over the course of four years for the data center in Singapore. Note 17— Commitments and Contingencies Commitments The Company has commitments under non-cancelable operating leases for facilities, certain equipment, and its managed data center facilities (Note 16). In addition, during the year ended December 31, 2020, the Company entered into an agreement for third-party cloud-managed services. As part of the agreement, the Company has a minimum commitment to pay $ 20.0 million over the course of five years , with no annual minimum commitment. As of December 31, 2020, the Company's commitment is $ 18.0 million. As of December 31, 2020 and 2019, the Company had $ 6.3 million and $ 2.5 million, respectively, of letters of credit associated with office leases available for borrowing, on which there were no outstanding borrowings as of either date. Guarantees and Indemnification The Company’s agreements with sellers, buyers, and other third parties typically obligate the Company to provide indemnity and defense for losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to the Company’s own business 98 Table of Contents operations, obligations, and acts or omissions. However, under some circumstances, the Company agrees to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations, and acts or omissions, or the business operations, obligations, and acts or omissions of third parties. For example, because the Company’s business interposes the Company between buyers and sellers in various ways, buyers often require the Company to indemnify them against acts and omissions of sellers, and sellers often require the Company to indemnify them against acts and omissions of buyers. In addition, the Company’s agreements with sellers, buyers, and other third parties typically include provisions limiting the Company’s liability to the counterparty, and the counterparty’s liability to the Company. These limits sometimes do not apply to certain liabilities, including indemnity obligations. These indemnity and limitation of liability provisions generally survive termination or expiration of the agreements in which they appear. The Company has also entered into indemnification agreements with its directors, executive officers and certain other officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No material demands have been made upon the Company to provide indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on the Company’s consolidated financial statements. Litigation The Company and its subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to their business activities and to the Company’s status as a public company. Such matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of the Company’s business, regulatory investigations or enforcement proceedings, and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to such matters as of December 31, 2020. However, based on management’s knowledge as of December 31, 2020, management believes that the final resolution of these matters known at such date, individually and in the aggregate, will not have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows. Employment Contracts The Company has entered into severance agreements with certain employees and officers. The Company may be required to pay severance and accelerate the vesting of certain equity awards in the event of involuntary terminations. Note 18— Debt On September 25, 2020, the Company amended and restated its loan and security agreement with Silicon Valley Bank ("SVB") (the "Loan Agreement"), which was scheduled to expire on September 26, 2020. The Loan Agreement provides a senior secured revolving credit facility of up to the lesser of $ 60.0 million and 85 % of eligible accounts receivable, with a maturity date of September 25, 2022. The Loan Agreement includes a letter of credit, foreign exchange and cash management facility with a sublimit up to $ 10.0 million, of which $ 6.3 million was utilized for letters of credit related to leases as of December 31, 2020 (see Note 17). As of December 31, 2020, the amount available for borrowing is $ 53.7 million. The Company incurred $ 0.1 million of debt issuance fees that were capitalized and are being amortized over the term of the Loan Agreement. An unused revolver fee in the amount of 0.15 % per annum of the average unused portion of the revolver line is charged and is payable monthly in arrears. The Company may elect for advances to bear interest calculated by reference to prime or LIBOR. If the Company elects LIBOR, amounts outstanding under the amended credit facility bear interest at a rate per annum equal to LIBOR plus 2.25 %, with LIBOR having a floor of 3.5 %. If the Company elects prime, advances bear interest at a rate of prime plus 0.25 %, with prime having a floor of 3.5 %. The Loan Agreement is collateralized by security interests in substantially all of the Company's assets. Subject to certain exceptions, the Loan Agreement restricts the Company's ability to, among other things, pay dividends, sell assets, make changes to the nature of the business, engage in mergers or acquisitions, incur, assume or permit to exist, additional indebtedness and guarantees, create or permit to exist, liens, make distributions or redeem or repurchase capital stock, or make other investments, engage in transactions with affiliates, make payments with respect to subordinated debt, and enter into certain transactions without the consent of the financial institution. The Company is required to maintain a lockbox arrangement where clients payments received in the lockbox will be deposited daily into the Company's operating bank accounts. The Loan Agreement requires the Company to comply with financial covenants, measured quarterly, with respect to a minimum liquidity ratio and maximum quarterly cash burn. The Company is required to maintain a minimum liquidity ratio of at least 1.25 on the last day of each quarter and not exceed, on an absolute basis, a maximum quarterly cash burn for specific periods, as defined in the Loan Agreement. The Liquidity Ratio is defined as Cash and Cash Equivalents, plus Accounts Receivable, less Accounts Payable - Seller, divided by all obligations the Company has to pay to SVB, including all debt balances, interest, service 99 Table of Contents fees, and unused credit line fees, net of outstanding letters of credit as of the balance sheet date. Cash Burn is defined as Adjusted EBITDA less Capital Expenditures during the trailing periods as outlined in the Loan Agreement. The Loan Agreement defines Capital Expenditures as the current period unfinanced cash expenditures that are capitalized and amortized, including but not limited to property and equipment and capitalized labor costs as they relate to internal use software development costs. As of December 31, 2020, the Company was in compliance with its financial covenants. The Loan Agreement also includes customary representations and warranties, affirmative covenants, and events of default, including events of default upon a change of control and material adverse change (as defined in the Loan Agreement). Following an event of default, SVB would be entitled to, among other things, accelerate payment of amounts due under the credit facility and exercise all rights of a secured creditor. As of December 31, 2020, there were no amounts outstanding under the Loan Agreement (other than with respect to the letters of credit). Future availability under the credit facility is dependent on several factors including the available borrowing base and compliance with future covenant requirements. Note 19— Related Party Transactions During the years ended December 31, 2020, 2019, and 2018, the Company did not enter into any transactions with its related parties or affiliates of its related parties requiring disclosure pursuant to the applicable rules of the Financial Accounting Standards Boards or the U.S. Securities and Exchange Commission. Note 20— Quarterly Financial Data (Unaudited) The following tables set forth the Company's quarterly consolidated statements of operations data for each of the eight quarters in the two-year period ended December 31, 2020. The Company has prepared the quarterly unaudited consolidated statements of operations data on a basis consistent with the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the opinion of management, the financial information in these tables reflects all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results for any future period. Three Months Ended Mar. 31, 2019 June 30, 2019 Sept. 30, 2019 Dec. 31, 2019 Mar. 31, 2020 June 30, 2020 Sept. 30, 2020 Dec. 31, 2020 (in thousands, except per share amounts) Revenue $ 32,416 $ 37,870 $ 37,642 $ 48,486 $ 36,295 $ 42,348 $ 60,982 $ 82,003 Expenses: Cost of revenue 15,116 15,085 13,869 13,321 14,003 21,545 $ 21,031 21,168 Sales and marketing 10,592 11,519 11,040 11,414 11,269 20,029 $ 21,761 22,971 Technology and development 9,716 9,839 10,293 10,402 10,693 13,063 $ 13,562 14,228 General and administrative 10,280 10,027 9,121 10,322 9,127 15,780 $ 13,314 14,766 Merger and restructuring costs — — — 2,041 1,930 12,493 $ 2,254 875 Total expenses 45,704 46,470 44,323 47,500 47,022 82,910 $ 71,922 74,008 Income (loss) from operations ( 13,288 ) ( 8,600 ) ( 6,681 ) 986 ( 10,727 ) ( 40,562 ) $ ( 10,940 ) 7,995 Other (income) expense, net ( 34 ) ( 403 ) ( 562 ) 406 ( 851 ) ( 1,722 ) $ ( 871 ) 1,949 Income (loss) before income taxes ( 13,254 ) ( 8,197 ) ( 6,119 ) 580 ( 9,876 ) ( 38,840 ) $ ( 10,069 ) 6,046 Provision (benefit) for income taxes ( 708 ) 84 55 ( 943 ) ( 201 ) 288 $ 446 160 Net income (loss) $ ( 12,546 ) $ ( 8,281 ) $ ( 6,174 ) $ 1,523 $ ( 9,675 ) $ ( 39,128 ) $ ( 10,515 ) $ 5,886 Net income (loss) per share: Basic $ ( 0.24 ) $ ( 0.16 ) $ ( 0.12 ) $ 0.03 $ ( 0.18 ) $ ( 0.36 ) $ ( 0.10 ) $ 0.05 Diluted $ ( 0.24 ) $ ( 0.16 ) $ ( 0.12 ) $ 0.03 $ ( 0.18 ) $ ( 0.36 ) $ ( 0.10 ) $ 0.05 Weighted-average shares used to compute net income (loss) per share: Basic 51,577 52,358 53,023 53,473 54,866 108,530 110,416 112,746 Diluted 51,577 52,358 53,023 59,595 54,866 108,530 110,416 124,376 100 Table of Contents Note 21— Subsequent Events On February 4, 2021, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with RTL to purchase all of the issued and outstanding shares of capital stock of SpotX, Inc., (SpotX"), a Delaware corporation and wholly owned subsidiary of RTL, for a purchase price equal to $ 560 million in cash ("Cash Consideration") and 14 million shares of the Company's common stock. The Cash Consideration is subject to customary working capital and other adjustments. The board of directors of the Company has approved the transactions contemplated by the Purchase Agreement. The transactions are not subject to approval by the stockholders of the Company. The Purchase Agreement includes customary representations, warranties and covenants of the parties, including covenants with respect to actions taken prior to the closing and cooperation with respect to seeking regulatory approvals. The Company intends to finance the Cash Consideration in part from cash on its balance sheet and in part through borrowings under certain proposed new credit facilities. In connection with entering into the Purchase Agreement, the Company entered into the Commitment letter, dated as of February 4, 2021, with Goldman Sachs Bank USA (the "Commitment Party"), pursuant to which, subject to the terms and conditions set forth therein, the Commitment Party has committed to provide a senior secured term loan facility in an aggregate principal amount of up to $ 560 million. The funding of the Term Loan Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including the execution and delivery of definitive documentation with respect to credit facilities in accordance with the terms set forth in the Commitment Letter and the consummation of the SpotX acquisition in accordance with the Purchase Agreement. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.