What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-25 · 654 added, 393 removed, 864 unchanged (55% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 64

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Financial Statements:

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Consolidated Statements of Operations 70

Consolidated Statements of Comprehensive Income (Loss) 69

Consolidated Statements of Comprehensive Loss 71

Consolidated Statements of Stockholders' Equity 72

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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.

which was acquired on April 30, 2021.

The excluded elements of the SpotX business represented approximately 34% of the Company’s revenues and 10% of the Company’s total assets as of and for the year ended December 31, 2021.

Accordingly, our audit did not include the internal control over financial reporting for certain elements related to SpotX, Inc.

Basis for Opinions

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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

Business Combinations – SpotX, Inc.

Acquisition– Technology, Customer Relationships, and Backlog 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.

On April 30, 2021, the Company completed its acquisition of SpotX, Inc.

for a purchase price of $1.2 billion, consisting of $640.0 million in cash plus 12,374,315 shares of the Company’s common stock ($495.6 million based on the fair value of the Company's common stock on April 30, 2021).

The Company accounted for the acquisition using the acquisition method of accounting for business combinations and the fair value of the purchase price of $1.2 billion was allocated to the assets acquired and liabilities assumed based on their respective fair values, including the technology, customer relationships, and backlog intangible assets of $280.4 million, $130.3 million, and $11.1 million, respectively.

Management estimated the fair value of the technology, customer relationships, and backlog 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 backlog was valued using The Excess Earnings Method.

The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing Customer Relationships.

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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:

Our audit procedures related to the forecasts of future cash flows and the selection of the discount rate for the technology, customer relationships, and backlog 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.

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• We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.

Business Combinations – SpringServe, LLC Acquisition– Technology Intangible Asset — Refer to Note 10 to the financial statements

Critical Audit Matter Description

On July 1, 2021, the Company completed its acquisition of SpringServe, LLC through the Company's wholly-owned subsidiary, SpotX, pursuant to a definitive agreement entered into on July 1, 2021.

As a result of the acquisition, SpringServe has become a wholly-owned subsidiary of SpotX, and a wholly-owned indirect subsidiary of the Company.

The purchase price was approximately $31.1 million in cash, pursuant to a previously negotiated option agreement that the Company secured as part of the SpotX Acquisition.

At the time of the Company’s acquisition of SpotX, the fair value of SpotX's minority investment and purchase right were valued at a combined $9.5 million.

In connection with the SpringServe Acquisition, approximately $1.4 million of the purchase price was held back to cover possible indemnification claims, which is expected to be paid in cash one year after the

The Company accounted for the acquisition using the acquisition method of accounting for business combinations and the fair value of the total purchase price of $42.1 million was allocated to the assets acquired and liabilities assumed based on their respective fair values, including the technology intangible asset of $15.5 million.

Management estimated the fair value of the technology intangible asset using a discounted cash flow approach, which included an analysis of future cash flows expected to be generated by the intangible asset.

The fair value of the acquired technology was valued using the Excess Earnings Method.

The fair value determination of this intangible asset 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 asset as a critical audit matter because of the significant estimates and assumptions management makes to determine the fair value of this intangible asset.

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 intangible asset 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 .

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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.

Due to the fact that revenue transactions do not consist of the transfer of physical goods but are derived from the purchase and sale of digital advertising inventory through their platform and related systems, 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.

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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:

Our audit procedures related to certain of the Company’s systems to process revenue transactions included the following, among others:

• With the assistance of our IT specialists, we:

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◦ 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.

◦ For the relevant platform systems, in order to test that transactions are being processed and recorded completely and accurately, we independently created test impressions and traced them through the systems to final output for financial reporting.

• We tested the effectiveness of certain controls within the relevant revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger.

• We tested revenue through the use of data analytics in order to:

◦ Evaluate recorded revenue and revenue trends

◦ Identify significant relationships in the revenue population

◦ Sufficiently understand identified significant relationships and related accounts affecting revenue.

• We performed audit procedures on those related accounts determined to have a significant relationship with revenue.

Such procedures included sending confirmations to customers for a selection of accounts receivable and making selections of cash receipts subsequent to year end and tracing them back to their associated invoices included in accounts receivable as of the balance sheet date.

We also performed a combination of audit procedures on publisher payables, which included subsequent disbursements testing, recalculations of selected publisher payable amounts, and substantive analytical procedure over publisher payables balances as of the balance sheet date.

Debt and Additional Paid-In Capital –Accounting for Convertible Senior Notes and Capped Call Transactions — Refer to Note 18 to the financial statements

Critical Audit Matter Description

In March 2021, the Company issued $400.0 million aggregate principal amount of 0.25% convertible senior notes in a private placement, including $50.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “Convertible Senior Notes”).

The Convertible Senior Notes will mature on March 15, 2026, unless earlier repurchased, redeemed or converted.

The Company used approximately $39.0 million of the net proceeds from the offering to pay for the Capped Call Transactions.

We identified the accounting for the Convertible Senior Notes and Capped Call Transactions as a critical audit matter due to the complexity involved and the management judgment necessary to determine the accounting for the Convertible Senior Notes and Capped Call Transactions within the financial statements.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals having expertise in accounting for complex financial instruments, when performing audit procedures to evaluate management’s judgments and conclusions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the Convertible Senior Notes and Capped Call Transactions included the following, among others:

We tested the effectiveness of controls over management’s accounting treatment for the Convertible Senior Notes and Capped Call Transactions.

We read and analyzed the Convertible Senior Notes and Capped Call agreements to evaluate the accounting treatment for the convertible senior notes and capped call transactions.

With the assistance of professionals having expertise in accounting for complex financial instruments, we evaluated management’s conclusion that the Convertible Senior Notes should be recorded in debt and the Capped Call Transactions should be recorded in additional paid-in capital.

/s/ Deloitte & Touche LLP

Los Angeles, California February 24, 2021

Los Angeles, California

February 23, 2022

We have served as the Company's auditor since 2018.

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CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(In thousands, except par values)

December 31, 2021 December 31, 2020

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Lease liabilities - current portion 19,142 9,813

Debt, current 3,600 —

Other current liabilities 5,697 3,070

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1,029,395 522,198

Lease liabilities - non-current portion 32,278 15,231

Debt, non-current, net of debt issuance costs 720,023 —

Lease liabilities, non-current 66,487 32,278

Deferred tax liability, net

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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

500,000 shares authorized;

132,553 and 114,029 shares issued at December 31, 2021 and December 31, 2020, respectively, and 132,204 and 114,029 shares outstanding at December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,282,589 777,084

Accumulated other comprehensive income (loss) ( 957 ) ( 45 )

Accumulated other comprehensive loss ( 1,376 ) ( 957 )

Treasury stock at cost, 349 and 0 shares outstanding at December 31, 2021 and December 31, 2020, respectively

Accumulated deficit ( 394,451 ) ( 394,516 )

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General and administrative 64,789 52,987 39,750

Merger and restructuring costs 17,552 2,041 3,440

Merger, acquisition, and restructuring costs 38,177 17,552 2,041

Total expenses 549,483 275,862 183,997

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Provision (benefit) for income taxes ( 95,053 ) 693 ( 1,512 )

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

Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 )

Net income (loss) per share:

Basic $ — $ ( 0.55 ) $ ( 0.48 )

Diluted $ — $ ( 0.55 ) $ ( 0.48 )

Weighted average shares used to compute net income (loss) per share:

Basic 126,294 96,700 52,614

Diluted 136,261 96,700 52,614

The accompanying notes to consolidated financial statements are an integral part of these statements.

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December 31, 2021 December 31, 2020 December 31, 2019

Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 )

Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 )

Other comprehensive income (loss):

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Income (Loss) Accumulated

Deficit Total

Deficit Treasury Stock Total

Stockholders’

Balance at Balance at December 31, 2017

Shares Amount

Balance at December 31, 2018

51,159 $ 1 $ 433,877 $ ( 259 ) $ ( 315,606 ) — $ — $ 118,013

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— — — — ( 25,478 ) — — ( 25,478 )

Balance at Balance at December 31, 2018 51,159 $ 1 $ 433,877 $ ( 259 ) $ ( 315,606 ) $ 118,013

Exercise of common stock options

Balance at December 31, 2019

53,888 1 453,064 ( 45 ) ( 341,084 ) — — 111,936

Restricted stock awards, net

Exercise of common stock options

3,359 — 13,548 — — — — 13,548

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( 824 ) — ( 7,854 ) — — — — ( 7,854 )

Issuance of common stock associated with the Telaria Merger 52,099 1 275,772 — — — — 275,773

Exchange of stock options and RSU related to Telaria Merger — — 11,646 — — — — 11,646

Stock-based compensation

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Shares withheld related to net share settlement ( 289 ) — ( 6,496 ) — — — — ( 6,496 )

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

Issuance of common stock associated with SpotX Acquisition 12,374 — 495,591 — — — — 495,591

Purchase of treasury stock — — — — — ( 349 ) ( 6,007 ) ( 6,007 )

Capped call options — — ( 38,960 ) — — — — ( 38,960 )

Stock-based compensation — — 42,231 — — — — 42,231

Other comprehensive loss — — — ( 419 ) — — — ( 419 )

Net loss — — — — ( 53,432 ) ( 53,432 )

Net income — — — — 65 — — 65

Balance at December 31, 2021 132,553

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OPERATING ACTIVITIES:

Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 146,886 49,248 32,126

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Provision for doubtful accounts 49 ( 138 ) 2,060

Amortization of debt discount and issuance costs 4,925 — —

Accretion of available for sale securities — — 24

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Unrealized foreign currency gains, net ( 2,259 ) ( 1,161 ) ( 823 )

Other items, net 3,292 — —

Changes in operating assets and liabilities, net of effect of business acquisitions:

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Capitalized internal use software development costs ( 11,431 ) ( 7,667 ) ( 8,463 )

Acquisitions, net of cash acquired 54,595 ( 11,000 ) —

Investments in available-for-sale securities — — ( 23,991 )

Mergers and acquisitions, net of cash acquired ( 661,869 ) 54,595 ( 11,000 )

Maturities of available-for-sale securities — — 7,500

Sales of available-for-sale securities — — 9,228

Net cash provided by (used in) investing activities ( 690,997 ) 32,636 ( 23,388 )

FINANCING ACTIVITIES:

Proceeds from Convertible Senior Notes offering 400,000 — —

Proceeds from issuance of debt, net of debt discount 349,200 — —

Payment for capped call options ( 38,960 ) — —

Payment for debt issuance costs ( 30,378 ) — —

Proceeds from exercise of stock options 9,425 13,548 588

Proceeds from issuance of common stock under employee stock purchase plan 3,714 1,660 1,054

Repayment of debt ( 1,800 ) — —

Repayment of financing lease ( 645 ) — —

Purchase of treasury stock ( 6,007 ) — —

Taxes paid related to net share settlement ( 6,496 ) ( 7,854 ) ( 1,847 )

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CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period $ 230,693 $ 117,731 $ 88,888

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.

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(In thousands)

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

December 31, 2021 December 31, 2020 December 31, 2019

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO CONSOLIDATED BALANCE SHEETS:

Cash and cash equivalents $ 230,401 $ 117,676 $ 88,888

Restricted cash included in prepaid expenses and other current assets 240 — —

Restricted cash included in other assets, non-current 52 55 —

Total cash, cash equivalents and restricted cash $ 230,693 $ 117,731 $ 88,888

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

Cash paid for income taxes $ 2,141 $ 1,614 $ 291

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Capitalized stock-based compensation $ 1,496 $ 757 $ 567

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 $ — $ —

Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 42,013 $ 2,036 $ 13,533

Purchase consideration - indemnification claims holdback $ 1,602 $ — $ —

Common stock and options issued for mergers and acquisitions $ 495,591 $ 287,418 $ —

Debt discount, non-cash $ 10,800 $ — $ —

The accompanying notes to consolidated financial statements are an integral part of these statements.

MAGNITE, INC.

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("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.

On April 1, 2020, Magnite completed a stock-for-stock merger with Telaria, Inc., ("Telaria" and such merger the "Telaria Merger"), a leading sell side advertising platform and provider of connected television ("CTV") technology.

On April 30, 2021, the Company completed its acquisition of SpotX, Inc.

("SpotX" and such acquisition the "SpotX Acquisition"), a leading CTV and video advertising platform.

On July 1, 2021, the Company completed its acquisition of SpringServe, LLC ("SpringServe" and such acquisition the "SpringServe Acquisition"), a leading ad serving platform for CTV.

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.

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 New York City, Los Angeles, 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.

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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.

Management has determined that the Company operates as one segment.

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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

uncertainty as a result of the COVID-19 pandemic, it has become more difficult to apply certain assumptions and judgments into these estimates.

Due to the economic 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.

During the year ended December 31, 2021, this uncertainty continued to result in a higher level of judgement related to its estimates and assumptions.

As of the date of issuance of

the consolidated 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.

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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.

Generally, our revenue is based on a percentage of the ad spend that runs through our platform, although for certain clients or transaction types we may receive a fixed CPM for each impression sold, and for advertising campaigns that are transacted through insertion orders we earn revenue based on the full amount of ad spend that runs through our platform.

The Company also generates revenue from the fee it charges clients for use of its Demand Manager header-bidding product and SpringServe ad server product, which we acquired on July 1, 2021.

The Company's platform dynamically connects sellers and buyers of advertising inventory in a digital marketplace.

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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

judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative.

Making such determinations involves judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative.

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.

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.

In addition, for revenue booked on a gross basis, cost of revenue includes traffic acquisition 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.

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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.

Merger, Acquisition, and Restructuring Costs.

The Company's merger, acquisition, and restructuring costs consist primarily of professional service fees associated with merger and acquisition activities, cash-based employee termination costs and stock-based compensation charges associated with mergers, acquisitions, or restructuring activities, and 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.

Compensation expense related to employee and non-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.

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For market condition awards, expense recognized is not subsequently reversed if the market conditions are not achieved.

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.

The fair value of common stock is based on the closing price of the Company's common stock as reported on the NASDAQ on the grant date.

Risk-Free Interest Rate.

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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.

For employee stock options in which the Company did not have significant history and 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.

For employee stock options issued in the periods in which the Company did have significant history and that contain service conditions, the expected term is determined based on historical trends.

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.

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.

For 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.

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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.

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.

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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.

During 2021, the Company also repurchased shares of common stock, which was recorded as treasury stock on the Company's consolidated balance sheets.

The Company has not issued any shares of its preferred stock subsequent to the Company's initial public offering ("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.

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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.

Potentially dilutive securities consist of stock options, restricted stock awards, restricted stock units, potential shares issuable under the Company's Employee Stock Purchase Plan ("ESPP"), shares held in escrow, potential shares issuable as part of contingent consideration as a result of business combinations, and potential shares issuable as part of the Convertible Senior Notes.

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.

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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

Cash and Cash Equivalents

The Company invests excess cash primarily in money market funds, corporate debt securities, and highly liquid debt instruments of the U.S.

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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.

The Company classifies certain restricted cash balances within prepaid expenses and other current assets and other assets, non-current on the consolidated balance sheets based upon the term of the remaining restrictions.

At December 31, 2021 and 2020, the Company had restricted cash of $ 0.3 million and $ 0.1 million, respectively.

Accounts Receivable Allowance for Doubtful Accounts

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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

and other relevant data.

The Company reviews the allowance for doubtful accounts on a quarterly basis.

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Property and Equipment, Net

Property and equipment are recorded at historical cost, less accumulated depreciation and amortization.

Property and equipment, which includes amounts recorded under finance leases, 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.

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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

Network hardware 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.

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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.

The Company amortizes capitalized implementation costs in a cloud computing arrangement over the life of the service contract, which generally is three years .

Intangible Assets

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Customer relationships 2 to 4

Non-compete agreements 2

Non-compete agreements 1 to 2

Other intangible assets 0.25 to 1.5

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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 determines if an arrangement is a lease at inception.

A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company's classes of assets that are leased include office facilities, data centers, and equipment.

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 together.

For identified leases, the Company used its incremental borrowing rate to discount the related future payment obligations, which represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

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.

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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.

Lease liability, which represents the present value of the Company's obligation related to the estimated future lease payments, is included in lease liabilities, current and lease liabilities, non-current within the consolidated balance sheets.

These liability balances are reduced as lease related payments are made.

For operating leases, the right of use ("ROU") asset is amortized on a periodic basis over the expected term of the lease (see Note 16).

Finance leases are included in property and equipment, net on the consolidated balance sheets.

Fair Value of Financial Instruments

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No seller of advertising inventory accounted for 10% or more of revenue during the years ended December 31, 2021, 2020, and 2019.

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.

At December 31, 2021, one seller of advertising inventory accounted for 21 % of accounts payable and at December 31, 2020, one seller of advertising inventory accounted for 18 % of accounts payable.

Foreign Currency Transactions and Translation

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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.

Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) on the consolidated balance sheets.

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.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12— Simplifying the Accounting for Income Taxes ("ASU 2019-12").

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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.

The Company adopted ASU 2019-12 as of January 1, 2021.

The standard did not have a material impact on its consolidated financial statements and related disclosures.

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.

The Company adopted ASU 2020-01 as of January 1, 2021.

The standard did not have a material impact on its consolidated financial statements and related disclosures.

On January 1, 2021, the Company adopted 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") on a prospective basis, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments that require separating embedded conversion features from convertible 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.

The adoption of this standard is included in the financial statements as of and for the year ended December 31, 2021.

Refer to Note 18—"Debt" for additional information related to accounting for convertible debt issued during the year.

Recent Accounting Pronouncements Not Yet Adopted

In July 2021, the FASB issued Update No.

2021-05, Leases (Topic 842)— Lessors – Certain Leases with Variable Lease Payments ("ASU 2021-05").

ASU 2021-05 requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease if specified criteria are met.

This guidance will be effective on January 1, 2022, either retrospectively to leases that commenced or were modified on or after our adoption of ASU 2016-02 on January 1, 2019, or on a prospective basis, with early adoption permitted.

The Company will adopt this standard prospectively and does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08").

ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers .

Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception.

ASU 2021-08 is effective for the Company beginning in the first quarter of 2023.

ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments.

Early adoption of the proposed amendments would be permitted, including adoption in an interim period.

The Company is currently assessing the impact this standard will have 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:

The following table presents the basic and diluted net income (loss) per share:

December 31, 2021 December 31, 2020 December 31, 2019

Basic and Diluted EPS:

Net loss $ ( 53,432 ) $ ( 25,478 ) $ ( 61,822 )

(in thousands, except per share amounts)

Basic Income (Loss) Per Share:

Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 )

Weighted-average common shares outstanding 126,294 96,700 52,634

Weighted-average unvested restricted shares — — ( 20 )

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:

Weighted-average common shares outstanding used to compute net income (loss) per share 126,294 96,700 52,614

Basic net income (loss) per share $ — $ ( 0.55 ) $ ( 0.48 )

Diluted Income (Loss) Per Share:

Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 )

Denominator adjustment:

Weighted-average common shares used in basic EPS 126,294 96,700 52,614

Dilutive effect of weighted-average common stock options 4,435 — —

Dilutive effect of weighted-average performance stock units 197 — —

Dilutive effect of weighted-average restricted stock units 5,294 — —

Dilutive effect of weighted-average ESPP shares 41 — —

Weighted-average shares used to compute diluted net income (loss) per share 136,261 96,700 52,614

Diluted net income (loss) per share $ — $ ( 0.55 ) $ ( 0.48 )

The following weighted-average shares have been excluded from the calculation of diluted net income (loss) per share attributable to common stockholders for each period presented because they are anti-dilutive:

December 31, 2021 December 31, 2020 December 31, 2019

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Unvested performance awards — 40 —

ESPP 50 34 55

Total shares excluded from net loss per share 7,120 5,051 2,430

ESPP shares — 50 34

Convertible Senior Notes 4,940 — —

Total shares excluded from net income (loss) per share 4,940 7,120 5,051

For the year ended December 31, 2021, diluted shares used to compute diluted earnings per share included outstanding performance stock units granted during April 2020, April 2021, and August 2021 based on a current achievement level of 150 %, 0 %, and 0 %, respectively.

Refer to Note 13 —"Stock-Based Compensation" for additional information related to performance stock units.

For the year ended December 31, 2021, diluted shares used to compute diluted earnings per share excluded the shares that would be issuable assuming conversion of all of the Convertible Senior Notes (as defined in Note 18) because they are anti-dilutive.

Diluted earnings per share for the Convertible Senior Notes is calculated under the if-converted method in accordance with ASC 260, Earnings Per Share .

The Convertible Senior Notes have an initial conversion rate of 15.6539 shares of common stock per $1,000 principal amount of the Convertible Senior Notes, which will be subject to anti-dilution adjustments in certain circumstances.

As of December 31, 2021, the number of shares that would be issuable assuming conversion of all of the Convertible

Senior Notes is approximately 6,261,560 .

Refer to Note 18—"Debt" for additional information related to accounting for Convertible Senior Notes issued and associated Capped Call Transactions.

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:

For the majority of 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.

For certain advertising campaigns that are transacted through insertion orders, 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 periods prior to the SpotX Acquisition, revenue reported on a gross basis was generally less than 3 % of the Company's total revenue.

As a result of the SpotX Acquisition, an increased percentage of the Company's revenue is reported on a gross basis.

The following table presents our revenue recognized on a net basis and on a gross basis for the years ended December 31, 2021, 2020, and 2019:

December 31, 2021 December 31, 2020 December 31, 2019

(in thousands, except percentages)

Net basis $ 389,358 83 % $ 218,222 98 % $ 156,414 100 %

Gross basis 79,055 17 3,406 2 — —

Total $ 468,413 100 % $ 221,628 100 % $ 156,414 100 %

The following table presents our revenue by channel for the years ended December 31, 2021, 2020, 2019:

December 31, 2021 December 31, 2020 December 31, 2019

(in thousands, except percentages)

CTV $ 185,254 40 % $ 34,319 15 % $ — — %

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Total $ 468,413 $ 221,628 $ 156,414

Payment terms are specified in agreements between the Company and the buyers and sellers on its exchange platform.

Payment terms are specified in agreements between the Company and the buyers and sellers on its platform.

The Company generally bills buyers at the end of each month for the full purchase price of impressions filled in that month.

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Allowance for doubtful accounts, Beginning Balance $ 2,360 $ 3,400 $ 1,340

Allowance for doubtful accounts, Merger-assumed 1,033 — —

Allowance for doubtful accounts, assumed from mergers or acquisitions 835 1,033 —

Write-offs ( 337 ) ( 3,054 ) ( 3,282 )

Increase (decrease) in provision for expected credit losses 870 5,328 1,285

Increase in provision for expected credit losses 597 870 5,328

Recoveries of previous write-offs 20 111 14

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During the year ended December 31, 2021, 2020, and 2019, 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, 2021, the provision for expected credit losses associated with accounts receivable of $ 0.6 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $ 0.5 million, which resulted in an immaterial amount of bad debt expense.

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

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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.

At December 31, 2021, the Company had Convertible Senior Notes (as defined in Note 18) included in its balance sheet.

The estimated fair value of the Company's Convertible Senior Notes was $ 315.5 million as of December 31, 2021.

The estimated fair value of Convertible Senior Notes is based on market rates and the closing trading price of the Convertible Senior Notes as of December 31, 2021 and is classified as Level 2 in the fair value hierarchy.

There were no transfers between Level 1 and Level 2 fair value measurements during the years ended December 31, 2021 and 2020.

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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

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There were no impairment charges to property and equipment for the years ended December 31, 2021, 2020, and 2019.

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.

As part of the April 30, 2021 acquisition of SpotX, the Company acquired finance leases related primarily to network hardware.

The accumulated depreciation related to assets under finance leases was approximately $ 0.5 million as of December 31,

2021, and was included in depreciation expense when recognized.

See Note 16 for more information regarding the related finance lease obligation.

The Company's property and equipment, net by geographical region was as follows:

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In the years ended December 31, 2021, 2020, and 2019, amortization expense included the write-off of software development costs of $ 0.1 million, $ 0.1 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.

Based on the Company’s internal use software development costs at December 31, 2021, excluding projects that are not ready for their intended use with a value of $ 4.7 million, estimated amortization expense of $ 8.4 million, $ 5.0 million, and $ 2.0 million is expected to be recognized in 2022, 2023, and 2024, respectively.

There were no impairment charges to internal use software development costs for the years ended December 31, 2021, 2020 and 2019 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)

Details of the Company’s goodwill were as follows (in thousands):

Beginning balance at December 31, 2019

Additions from the acquisition of RTKio (Note 10) 7,370

Ending balance at December 31, 2019

Additions for Merger with Telaria (Note 10) 150,755

Ending balance at December 31, 2020

Additions for Acquisition of SpotX (Note 10) 782,831

Additions for Acquisition of SpringServe (Note 10) 24,156

Additions for Acquisition of Nth Party (Note 10) 4,761

Ending balance at December 31, 2021

The Company’s intangible assets as of December 31, 2021 and 2020 included the following:

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Customer relationships

173,950 37,950

In-process research and development 14,630 8,030

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( 65,702 ) ( 11,877 )

In-process research and development ( 1,250 ) —

Non-compete agreements

( 1,197 ) ( 42 )

Total accumulated amortization—intangible assets

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Amortization of intangible assets for the years ended December 31, 2021, 2020, and 2019 was $ 121.9 million, $ 24.9 million, and $ 3.3 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.

For the years ended December 31, 2021, 2020, and 2019 the Company wrote off fully amortized intangible assets with a historical cost of $ 11.1 million, $ 1.1 million and $ 0.7 million, respectively.

The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of December 31, 2021:

2 unchanged sentences

2022 $ 148,541

Thereafter 558

Total $ 426,615

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.

During the years ended December 31, 2021 and 2020, the Company capitalized $ 0.8 million and $ 0.9 million, respectively, 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.

As of December 31, 2021 and 2020, capitalized costs associated with these arrangements are included within prepaid expenses and other current assets in the amounts of $ 0.5 million and $ 0.7 million, respectively, and within other assets, non-current in the amounts of $ 0.7 million and $ 0.2 million, respectively.

The amortization of these agreements was $ 0.4 million for the year ended December 31, 2021 and an insignificant amount for the year ended December 31, 2020.

The Company's qualitative assessment in the fourth quarter of 2021 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:

(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:

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.

Upon completion of the Telaria 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;

In connection with the Telaria Merger,

Magnite also assumed Telaria’s 2013 Equity Incentive Plan, as amended;

2008 Stock Plan, as amended;

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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

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.

As part of the Telaria 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 Telaria 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 Telaria 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):

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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:

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 statements of operations over their remaining requisite service (vesting) periods.

Cash and cash equivalents $ 51,848

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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 acquired intangibles and goodwill resulting from the Telaria 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):

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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 %.

Once the projects associated with acquired in-process research and development are completed, amortization will be included in cost of revenues in the consolidated statements of operations.

The intangible assets generated in the Telaria Merger are not tax deductible.

As such, as part of the Telaria Merger, deferred tax liabilities were established, which were fully offset by the estimated income tax effect of the partial release of Telaria's valuation allowance.

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.

In addition, as part of the Telaria Merger, the Company acquired Telaria's U.S.

federal NOLs of approximately $ 126.1 million and state NOLs of approximately $ 87.6 million.

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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.

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December 31, 2020 December 31, 2019

(in thousands)

Pro Forma Revenue $ 236,666 $ 224,452

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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.

2021 Acquisition—SpotX

On April 30, 2021, the Company completed the SpotX Acquisition, pursuant to a Stock Purchase Agreement, dated as of February 4, 2021 (the "Purchase Agreement"), by and between the Company and RTL US Holdings, Inc.

The initial purchase price for the SpotX Acquisition was $ 560 million in cash ("Cash Consideration") and 14,000,000 shares of the Company's common stock.

Per the terms of the Purchase Agreement, at the completion of the Company’s offering of its Convertible Senior Notes, RTL elected to increase the Cash Consideration by an amount equal to 20 % of the gross proceeds of the Convertible Senior Notes (which amount was equal to $ 80 million) and to reduce the number of shares of common stock it would otherwise receive by a number of shares of common stock equal to 20 % of the gross proceeds of the proposed offering of notes ($ 80 million) divided by the closing price of a share of our common stock on the trading day immediately prior to the date of pricing of the proposed offering of notes ($ 49.21 ).

As a result of this election, the adjusted purchase price was $ 1.1 billion, prior to customary working capital adjustments and other adjustments, consisting of $ 640.0 million in cash plus 12,374,315 shares of common stock (based on the fair value of the Company's common stock on April 30, 2021).

The Cash Consideration is subject to customary working capital and other adjustments.

The working capital was approximately $ 65.2 million, including cash balances acquired and other working capital adjustments, resulting in a total purchase price of $ 1.2 billion.

The Company financed the Cash Consideration through borrowings under the Term Loan B Facility and the Convertible Senior Notes (Note 18).

The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill.

All intangible assets and goodwill will be tested for impairment when certain indicators are present.

Management's purchase price allocation is preliminary and subject to change pending finalization of the valuation, including finalization of tax attributes and tax related liabilities.

The Company records all other changes to DTA valuation allowances and liabilities related to uncertain tax positions in current- period income tax expense.

For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed, the Company has applied the guidance in ASC 820, Fair Value Measurement, which establishes a framework for measuring fair value.

The following table summarizes the total purchase consideration (in thousands):

Cash Consideration $ 640,000

Stock Consideration (Fair Value of Shares of Magnite common stock) 495,591

Working capital adjustment 65,152

Total purchase consideration $ 1,200,743

The purchase consideration for the SpotX Acquisition included 12,374,315 shares of the Company's common stock with a fair value of approximately $ 495.6 million, based on the close price of the Company's common stock at closing on April 30, 2021, which was $ 40.05 per share, and working capital adjustment of $ 65.2 million, mainly consisting of cash balances acquired on the date of the SpotX Acquisition and other opening balance sheet adjustments.

During the three months ended December 31, 2021, the Company adjusted the preliminary purchase price allocation for SpotX based on updated fair values associated with the acquired assets and liabilities.

Adjustments primarily impacted acquisition related tax accruals, deferred tax liabilities and classification of lease assets.

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 SpotX Acquisition as set forth below (in thousands):

Cash $ 81,967

Restricted cash 199

Accounts receivable 199,649

Prepaid and other assets, current 12,308

Fixed assets 6,823

Intangible assets 429,600

Right-of-use lease asset 10,055

Goodwill 782,831

Total assets to be acquired 1,523,432

Accounts payable and accrued expenses 205,913

Other current liabilities 1,112

Lease liabilities 12,625

Deferred tax liability, net 103,039

Total liabilities to be assumed 322,689

Total purchase price $ 1,200,743

The Company believes the amount of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from the 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 SpotX Acquisition are not amortizable for tax purposes.

The following table summarizes the components of the intangible assets and estimated useful lives as of the date of the SpotX Acquisition (dollars in thousands):

Estimated Useful Life

Technology $ 280,400 5 years

Customer relationships 130,300 2 to 4 years

Backlog 11,100 < 1 year

In-process research and development 5,800 3 years*

Non-compete agreements 1,500 1 year

Trademarks 500 < 1 year

Total intangible assets acquired $ 429,600

* In-process research and development consists of six projects with a weighted-average useful life of 3 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 Excess Earnings 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 the discount rate for the overall business.

The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing customer relationships and non-compete agreements.

To the extent that future cash flows of the business would be negatively affected in the absence of these relationships and non-compete agreements, they would be deemed to have economic value.

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.

The fair value of the backlog was based on the Excess Earnings Method, taking into consideration the existing contracts as of the date of the SpotX Acquisition 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.

The fair value of the trademarks was based on the Income Approach, specifically the Relief‐from‐Royalty Method.

Under this method, data is obtained regarding actual royalty payments made for similar intangible assets.

After the appropriate royalty rate is determined, the reasonable royalty savings is then discounted to its present value over the remaining technological, economic, or legal life of the intangible asset.

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, non-compete agreements, and trademarks is included in sales and marketing expenses in the consolidated statements 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 statements of operations.

The intangible assets generated in the SpotX Acquisition are not tax deductible.

As part of the SpotX Acquisition, deferred tax liabilities were established.

As a result of the deferred tax liability balance created by the acquisition, the Company reduced its deferred tax asset valuation allowance by $ 56.2 million.

Such reduction was recognized as an income tax benefit in the consolidated statements of operations for the year ended December 31, 2021.

The Company recognized approximately $ 27.9 million of acquisition related costs included in the "Merger, acquisition, and restructuring costs" in the Company's consolidated statements of operations during the year ended December 31, 2021 related to the SpotX Acquisition.

2021 Acquisition—SpringServe

On July 1, 2021, the Company completed the acquisition of ServeMotion, Inc., a Delaware corporation (including its wholly owned subsidiary, SpringServe, LLC, "SpringServe"), through the Company's wholly-owned subsidiary, SpotX, pursuant to a definitive agreement entered into on July 1, 2021.

As a result of the SpringServe Acquisition, SpringServe has become a wholly-owned subsidiary of SpotX, and a wholly-owned indirect subsidiary of the Company.

The following table summarizes the total estimated purchase consideration (in thousands):

Cash Consideration $ 31,136

SpotX initial cash investment in SpringServe 2,075

Fair value appreciation of SpotX purchase right 7,450

Indemnification claims - holdback 1,409

Total purchase consideration $ 42,070

In 2020, SpotX made a minority investment of $ 2.1 million in SpringServe in conjunction with a strategic partnership agreement between the two companies, which included an option agreement to purchase SpringServe.

At the time of Magnite's acquisition of SpotX, the fair value of SpotX's minority investment and purchase right were valued at a combined $ 7.5 million for a total minority investment and purchase right of $ 9.5 million.

In connection with the SpringServe Acquisition, approximately $ 1.4 million of the purchase price was held back to cover possible indemnification claims, which is expected to be paid in cash one year after the acquisition.

The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill.

All intangible assets and goodwill will be tested for impairment when certain indicators are present.

Management's purchase price allocation is preliminary and subject to change pending finalization of the valuation, including finalization of tax attributes and tax related liabilities.

Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired 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.

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 SpringServe Acquisition as set forth below (in thousands):

Accounts receivable 3,234

Prepaid and other assets, current 157

Fixed assets 25

Intangible assets 23,400

Right-of-use lease asset 1,879

Goodwill 24,156

Total assets to be acquired 53,913

Accounts payable and accrued expenses 2,475

Other current liabilities 35

Lease liabilities 3,179

Deferred tax liability, net 6,154

Total liabilities to be assumed 11,843

Total preliminary purchase price $ 42,070

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 following table summarizes the components of the intangible assets and estimated useful lives as of the date of the SpringServe Acquisition (dollars in thousands):

Estimated Useful Life

Technology 15,500 5 years

Customer relationships 5,700 2 years

Trademarks and Trade Names 900 3 years

In-process research and development 800 3 years*

Non-compete agreements 500 2 years

Total intangible assets acquired $ 23,400

* In-process research and development consists of two projects with a weighted-average useful life of 3 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 Excess Earnings Method.

At the Acquisition Date, SpringServe 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.

In addition, certain employees of SpringServe signed two year non-compete agreements.

The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing Customer Relationships and non-compete agreements.

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.

This methodology included applying a discount rate and the expected timing it would take to further enhance customer relationships.

The fair value of the trademarks and trade names were based on the Income Approach, specifically the Relief‐from‐Royalty Method.

Under this method, data is obtained regarding actual royalty payments made for similar intangible assets.

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, non-compete agreements, and trademarks is included in sales and marketing expenses in the consolidated statements 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 statements of operations.

The acquired intangibles and goodwill resulting from the SpringServe Acquisition are not tax deductible.

As part of the SpringServe Acquisition, deferred tax liabilities were established.

As a result of this and the SpotX deferred tax liability balance, the Company recognized an income tax benefit in the consolidated statements of operations for the year ended December 31, 2021.

SpringServe Acquisition related costs included in the "Merger, acquisition, and restructuring costs" in the Company's consolidated statements of operations during the year ended December 31, 2021 were immaterial .

The Company completed the acquisition of Nth Party in December 2021 by acquiring all outstanding shares for a total purchase price of $ 9.0 million, consisting of cash consideration.

The Company acquired Nth Party, Ltd.

(“Nth Party”), developer of cryptographic software for secure audience data sharing and analysis, to reinforce the Company’s ongoing commitment to build leading identity and audience solutions for sellers and buyers.

The allocation of purchase consideration resulted in approximately $ 5.4 million of developed technology intangible assets with an estimated useful life of five years , approximately $ 0.2 million non-compete intangible assets with an estimated useful life of two years , approximately $ 1.3 million of deferred tax liability, and goodwill of approximately $ 4.8 million, which is attributable to the workforce of Nth Party and revenue growth from the acquisition.

Goodwill was not considered deductible for income tax purposes.

Unaudited Pro Forma Information

The following table provides unaudited pro forma information as if the SpotX and SpringServe Acquisitions had been acquired by the Company as of January 1, 2020.

The pro forma results do not include any anticipated cost synergies or other effects of the combined companies.

Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the SpotX and SpringServe Acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.

December 31, 2021 December 31, 2020

(in thousands)

Pro Forma Revenue $ 540,466 $ 400,039

Pro Forma Net Income (Loss) $ ( 86,621 ) $ ( 156,638 )

During the year ended December 31, 2021, due to the process of integrating the operations of SpotX into the operations of the Company, the determination of SpotX's post-acquisition revenue and operating results on a standalone basis was impracticable.

The SpringServe post-acquisition revenue and operating results on a standalone basis were immaterial.

Note 11— Accounts Payable and Accrued Expenses

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Accrued employee-related payables 16,230 12,442

Accrued holdback - indemnification claims 1,602 —

Total $ 1,000,956 $ 509,315

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Balance at December 31, 2018 $ ( 2 ) $ ( 257 ) $ ( 259 )

Other comprehensive income (loss) 27 ( 327 ) ( 300 )

Balance at December 31, 2018 ( 2 ) ( 257 ) ( 259 )

Other comprehensive income 2 212 214

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Balance at December 31, 2020 — ( 957 ) ( 957 )

Other comprehensive loss — ( 419 ) ( 419 )

Balance at December 31, 2021 $ — $ ( 1,376 ) $ ( 1,376 )

Note 13— Stock-Based Compensation

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All compensatory equity awards outstanding at December 31, 2021 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 equity incentive plans provide for the grant of equity awards, including non-statutory or incentive stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs"), 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.

RSAs and RSUs 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 2021, 2020, and 2019, included 0.4 million, 0.7 million, and 1.8 million, respectively, of restricted stock units that vest 50 % on each of the first and second anniversaries of the grant date.

Options, RSAs, and RSUs 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 granted under the iSocket Plan, the Chango Plan, or the nToggle Plan from the date of acquisition and no further awards were granted 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.

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Granted 302 $ 38.99

Options assumed in Merger 4,998 $ 3.80

Exercised ( 1,560 ) $ 6.04

Expired ( 150 ) $ 13.22

Forfeited ( 308 ) $ 8.85

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At December 31, 2021, the Company had unrecognized employee stock-based compensation expense relating to nonvested stock options of approximately $ 8.5 million, which is expected to be recognized over a weighted-average period of 2.0 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, 2021 was $ 3.9 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 grant date fair value of options granted during the year ended December 31, 2021 was $ 24.57 per share.

The weighted-average input assumptions used by the Company were as follows:

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(in thousands)

Nonvested restricted stock units outstanding at December 31, 2019 8,077 $ 4.46

Restricted stock units outstanding at December 31, 2020 9,286 $ 5.30

Granted 3,040 $ 37.37

Restricted stock units assumed in Merger 2,416 $ 5.40

Canceled ( 1,068 ) $ 15.33

Vested ( 5,126 ) $ 4.26

Nonvested restricted stock units outstanding at December 31, 2020 9,286 $ 5.30

Vested and released ( 4,624 ) $ 5.29

Restricted stock units outstanding at December 31, 2021 6,634 $ 18.39

Restricted stock units outstanding and unvested at December 31, 2021* 6,597 * $ 18.46

*At December 31, 2021, outstanding restricted stock units included 37,318 units that were vested but deferred.

The weighted-average grant date fair value per share of restricted stock units granted during the year ended December 31, 2021 was $ 37.37 .

The aggregate fair value of restricted stock units that vested during the year ended December 31, 2021 was $ 142.8 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.

At December 31, 2021, the intrinsic value of unvested restricted stock units was $ 115.5 million.

At December 31, 2021, the Company had unrecognized stock-based compensation expense relating to unvested restricted stock units of approximately $ 100.4 million, which is expected to be recognized over a weighted-average period of 2.3 years.

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.

In April 2020 and April 2021, the Company granted the Company's CEO 146,341 and 26,291 restricted stock units that vest based on certain stock price performance metrics with a fair value of $ 0.9 million and $ 1.4 million, respectively.

The grant date fair value per share of restricted stock was $ 6.15 and $ 52.49 , respectively, which was estimated using a Monte-Carlo lattice model.

At December 31, 2021, the Company had unrecognized employee stock-based compensation expense for the April 2020 and April 2021 grants of approximately $ 0.4 million and $ 1.0 million, which is expected to be recognized over the remaining 1.3 years and 2.3 years, respectively.

Between 0 % and 150 % of the performance stock units will vest on the third anniversary of its grant date.

In August 2021, the Company granted the Company's CEO 379,635 restricted stock units, which are subject to both time-based and performance-based vesting conditions.

The performance stock units consist of three equal tranches (each, a "Performance Tranche"), based on achievement of a share price condition if the Company achieves share price targets of $ 60.00 , $ 80.00 , and $ 100.00 over 60 consecutive trading days during a performance period commencing on August 26, 2022 and ending on August 26, 2026.

To the extent any of the performance-based requirements are met, the Company's CEO must also provide continued service to the Company through at least August 26, 2024 to receive any shares of common stock underlying the grant and through August 26, 2026 to receive all of the shares of common stock underlying the performance units that have satisfied the applicable performance-based requirement.

The fair value of each of the Performance Tranches was $ 3.0 million, $ 2.8 million, and $ 2.6 million, respectively, and have a grant date fair value per share of restricted stock of $ 23.94 , $ 21.93 , and $ 20.30 , respectively, which was estimated using a Monte-Carlo lattice model.

At December 31, 2021, the Company had unrecognized employee stock-based compensation expense of approximately $ 2.7 million, $ 2.5 million, and $ 2.4 million, which is expected to be recognized over the remaining 2.7 years, 3.7 years, and 4.7 years, respectively.

Between 0 % and 100 % of the performance stock units will vest on each of the tranche dates.

During the years ended December 31, 2021 and December 31, 2020, the Company recognized $ 1.4 million and $ 0.2 million, respectively, of stock-based compensation related to these performance stock units based on a performance measurement of 100 %.

The compensation expense will not be reversed if the performance metrics are not met.

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General and administrative 11,297 10,416 8,009

Merger and restructuring costs 1,870 — 398

Merger, acquisition, and restructuring costs 1,071 1,870 —

Total stock-based compensation expense $ 40,735 $ 28,491 $ 18,825

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):

For the year ended December 31, 2021, the Company recognized $ 151.6 million of tax benefit on stock-based compensation expense related to 2021 and years prior, which was reflected in the provision (benefit) for income taxes in the consolidated statements of operations.

For the year ended December 31, 2021, tax benefit realized related to awards vested or exercised during 2021 and years prior was $ 40.5 million.

Due to the full valuation allowance provided on its net deferred tax assets, the Company had no t recorded any tax benefit attributable to stock-based awards for the years ended December 31, 2020 and 2019.

Note 14— Merger, Acquisition, and Restructuring Costs

Merger, acquisition, and restructuring costs consist primarily of professional services fees and employee termination costs, including stock-based compensation charges, associated with the Telaria Merger, the SpotX Acquisition, and restructuring activities.

The following table summarizes merger, acquisition, and restructuring cost activity (in thousands):

December 31, 2021 December 31, 2020 December 31, 2019

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Non-cash stock-based compensation (double-trigger acceleration and severance) 1,071 1,870 —

Total merger and restructuring costs $ 17,552 $ 2,041 $ 3,440

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.

(in thousands)

Loss contracts (lease related) 2,500 — —

Total merger, acquisition, and restructuring costs $ 38,177 $ 17,552 $ 2,041

During the years ended December 31, 2021, 2020 and 2019, the Company incurred costs of $ 38.2 million, $ 17.6 million and $ 2.0 million, respectively, primarily related to the acquisitions of SpotX and SpringServe and the merger with Telaria.

All of the expenses incurred in the year ended December 31, 2019 were incurred during the fourth quarter.

Accrued restructuring costs related to mergers and acquisitions were $ 2.7 million and $ 2.9 million at December 31, 2021 and December 31, 2020, respectively and were primarily related to the SpotX Acquisition, the SpringServe Acquisition, and the Telaria Merger.

Accrued restructuring costs associated with personnel costs are included within accounts payable and accrued expenses and accruals related to assumed loss contracts are included within other current liabilities and other liabilities, non-current on the Company's consolidated balance sheets.

December 31, 2021 December 31, 2020 December 31, 2019

Accrued Merger and restructuring costs at beginning of period $ — $ 67 $ —

(in thousands)

Accrued merger.

acquisition, and restructuring costs at beginning of period $ 2,935 $ — $ 67

Restructuring costs (personnel related and non-cash stock-based compensation) 7,255 7,617 —

Restructuring costs (Merger assumed loss contracts) 3,543 — —

Restructuring activity, merger and acquisition loss contracts 2,500 3,543 —

Cash paid for restructuring costs ( 6,377 ) ( 6,355 ) ( 67 )

Non-cash loss contracts (lease related) ( 2,500 ) — —

Non-cash stock-based compensation ( 1,071 ) ( 1,870 ) —

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.

Accrued merger, acquisition, and restructuring costs at end of period $ 2,742 $ 2,935 $ —

Note 15— Income Taxes

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Total provision (benefit) for income taxes $ ( 95,053 ) $ 693 $ ( 1,512 )

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.

The Company recorded an income tax benefit of $ 95.1 million for the year ended December 31, 2021 compared to an income tax expense of $ 0.7 million and income tax benefit of $ 1.5 million for the years ended December 31, 2020 and 2019, respectively.

The tax benefit for the year ended December 31, 2021 was primarily the result of the deferred tax liability associated with acquisitions that occurred during the year and the tax liability associated with foreign subsidiaries.

The tax expense for the year ended December 31, 2020 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 RTK.io 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.

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State income taxes, net of federal benefit 5.6 % ( 0.2 ) % ( 0.1 ) %

Foreign income (loss) at other than U.S.

Foreign loss at other than U.S.

rates ( 0.5 ) % ( 0.5 ) % ( 4.3 ) %

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Meals and entertainment ( 0.1 ) % ( 0.1 ) % ( 0.9 ) %

Debt cancellation — % — % ( 1.2 ) %

Other permanent items ( 1.6 ) % ( 1.1 ) % ( 1.2 ) %

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Net deferred tax assets (liability) $ ( 11,496 ) $ 239

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.

As of December 31, 2021, the net deferred tax liability of $ 11.5 million is presented in the Company's consolidated balance sheets as deferred tax liabilities, net of $ 13.3 million and other assets, non-current of $ 1.8 million.

As of December 31, 2020, the net deferred tax asset of $ 0.2 million is presented in the Company's consolidated balance sheets as other assets, non-current of $ 0.4 million and deferred tax liability, net of $ 0.2 million.

The valuation allowance was reduced by $ 53.9 million for the year ended December 31, 2021, and increased by $ 16.4 million, and $ 2.7 million for the years ended December 31, 2020 and 2019, respectively.

At December 31, 2021, the Company had U.S.

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At December 31, 2021, the Company had foreign NOLs of approximately $ 30.2 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.

At December 31, 2021, the Company had acquired federal research and development tax credit carryforwards of approximately $ 0.4 million, and state research and development tax credits of approximately $ 8.0 million, both of which carry forward indefinitely.

No amounts for any federal or state research and development tax credits for the years ended December 31, 2019, 2020, or 2021 related to business operations are included herein.

On March 11, 2021, the U.S.

President signed into law the American Rescue Plan Act of 2021 ("ARP Act")—a $1.9 trillion coronavirus disease 2019 ("COVID-19") relief package.

The ARP Act had limited income tax provisions.

The Company has determined that the ARP Act did not have a material impact on the Company for the year ended December 31, 2021.

On December 27, 2020, the U.S.

President signed into law the Consolidated Appropriations Act, 2021 ("CAA").

The CAA was meant to provide additional relief and support to those impacted by the COVID-19 pandemic.

The CAA included 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 has determined that the tax implications of the CAA will not be material.

On March 27, 2020, the U.S.

President 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.

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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.

In addition, various foreign jurisdictions where the Company has activity have enacted or are considering enacting a variety of measures that could impact our tax liabilities.

The Company is monitoring new legislation and evaluating the potential tax implications of these measures globally.

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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.

a more than 50% change in stock ownership in aggregated 5% shareholders) on April 1, 2020 due to the Telaria 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 Section 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.

1 unchanged sentence

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.

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.

At December 31, 2021, unremitted earnings of the subsidiaries outside of the United States were approximately $ 29.3 million, on which the Company recorded a provisional transition tax of $ 5.0 million.

The Company’s intention is to indefinitely reinvest these earnings outside the United States.

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The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

(in thousands)

Balance as of December 31, 2019

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Balance as of December 31, 2020

Increases related to current year tax positions 200

Decreases related to prior year tax positions ( 41 )

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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 2017 U.S.

Income Tax Return for Telaria was under examination by the IRS, which was closed during the period ended June 30, 2021 with no change to tax as reported.

The IRS is currently conducting a Form 1042 Withholding Tax Audit for Telaria for 2017.

The Company has not received IRS findings related to this audit.

For the Netherlands, New Zealand, Malaysia, and the United Kingdom, all tax years remain open for examination by the local country tax authorities, for France only 2019 forward are open for examination, for Singapore 2018 and forward are open for examination, for Australia, Brazil, and Germany 2017 and forward are open for examination, for Canada 2016 and forward are open for examination, and for Japan and Italy 2015 and forward remain 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.

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 Company has operating and finance leases for office facilities, data centers, and equipment.

The lease terms of the Company’s 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 6.3 years as of December 31, 2021.

As of December 31, 2021, a weighted average discount rate of 5.09 % has been applied to the remaining lease payments to calculate the lease liabilities included within the consolidated balance sheets.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 20.7 million, $ 13.4 million and $ 7.8 million of lease expense, respectively, which included operating lease expenses associated with leases included in the lease liability and ROU asset on the consolidated balance sheets.

In addition, for the years ended December 31, 2021, 2020 and 2019, the Company recognized expenses of $ 35.1 million, $ 20.4 million and $ 10.0 million, respectively, for cloud-based services and other lease costs related to data centers and $ 1.2 million, $ 1.0 million and $ 1.2 million, respectively, of lease expense related to short-term leases that are not included in the ROU asset or lease liability balances.

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, 2021 (in thousands):

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Lease liabilities—total (discounted) $ 85,629

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.

The Company also received rental income of $ 4.4 million, $ 3.7 million, and $ 0.3 million for real estate leases for which it subleases the property to a third party during the years ended December 31, 2021, 2020, and 2019, respectively.

Rental income is included in other income in the consolidated statements of operations.

In addition to the lease liabilities included in these consolidated financial statements at December 31, 2021, during the three months ended December 31, 2021, the Company entered into an agreement for an office lease in Canada which has not commenced as of December 31, 2021, and is therefore, not included in the lease liability on the balance sheet.

The Company has future commitments totaling $ 0.7 million over the course of 5.0 years for this office lease.

As part of the April 30, 2021 acquisition of SpotX, the Company acquired finance leases related primarily to computer equipment and network hardware.

These finance leases are included within lease liabilities - current portion and lease liabilities, non-current in the amounts of $ 0.8 million and $ 0.3 million, respectively, as of December 31, 2021.

Note 17— Commitments and Contingencies

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, 2021 and 2020, the Company had $ 5.1 million and $ 6.3 million, respectively, of letters of credit associated with office leases available for borrowing, on which there were no outstanding borrowings as of either date.

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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

operations, obligations, and acts or omissions.

Generally, these indemnity and defense obligations relate to the Company’s own business 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.

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Note 18— Debt

Long term debt as of December 31, 2021 consisted of the following:

December 31, 2021

(in thousands)

Convertible Senior Notes $ 400,000

Unamortized debt issuance cost ( 9,643 )

Term Loan B Facility 358,200

Unamortized discount and debt issuance cost ( 24,934 )

Current portion ( 3,600 )

Total non-current debt $ 720,023

The Company did not have any debt outstanding as of December 31, 2020.

Maturities of the principal amount of the Company's long-term debt as of December 31, 2021 are as follows (in thousands):

Thereafter 340,200

Total (discounted) $ 758,200

Amortization of the debt issuance cost and the discount associated with our indebtedness totaled $ 4.9 million for the year ended December 31, 2021 and were immaterial for the years ended December 31, 2020 and 2019.

Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense.

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

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

31, 2019 June 30, 2019 Sept.

30, 2019 Dec.

31, 2019 Mar.

31, 2020 June 30, 2020 Sept.

30, 2020 Dec.

(in thousands, except per share amounts)

Revenue $ 32,416 $ 37,870 $ 37,642 $ 48,486 $ 36,295 $ 42,348 $ 60,982 $ 82,003

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:

The Loan Agreement includes a letter of credit, foreign exchange and cash management facility with a sublimit

up to $ 10.0 million.

On April 30, 2021, the Company entered into the Credit Agreement.

In connection with entering into the Credit Agreement, the Loan Agreement with SVB was terminated on April 30, 2021.

As of the termination date, there were no amounts outstanding under the Loan Agreement.

Convertible Senior Notes and Capped Call Transactions

In March 2021, the Company issued $ 400.0 million aggregate principal amount of 0.25 % convertible senior notes in a private placement, including $ 50.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the "Convertible Senior Notes").

The Convertible Senior Notes will mature on March 15, 2026, unless earlier repurchased, redeemed or converted.

The total net proceeds from the offering, after deducting debt issuance costs paid by the Company, were approximately $ 388.6 million.

The Company used approximately $ 39.0 million of the net proceeds from the offering to pay for the Capped Call Transactions (as described below).

The Convertible Senior Notes are senior, unsecured obligations and (i) will be equal in right of payment with the existing and future senior, unsecured indebtedness;

(ii) senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the Convertible Senior Notes;

(iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, including amounts outstanding under our Loan Agreement or our new Credit Agreement (see section below);

and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of the Company’s subsidiaries that do not guarantee the Convertible Senior Notes.

The Convertible Senior Notes accrue interest at 0.25 % per annum payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021.

The Convertible Senior Notes will mature on March 15, 2026 unless they are redeemed, repurchased or converted prior to such date.

The Convertible Senior Notes are convertible at the option of holders only during certain periods and upon satisfaction of certain conditions.

Holders will have the right to convert their notes (or any portion of a note in an authorized denomination), in the following circumstances:

(i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(ii) during the five consecutive business days immediately after any ten consecutive trading day period (such ten consecutive trading day period, the "measurement period") in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

(iii) upon the occurrence of certain corporate events or distributions on the Company’s common stock;

(iv) if the Company calls such Convertible Senior Notes for redemption;

and (v) on or after September 15, 2025, until the close of business on the second scheduled trading day immediately before the maturity date, holders of the Convertible Senior Notes may, at their option, convert all or a portion of their Convertible Senior Notes regardless of the foregoing conditions at any time from, and including, September 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date.

Upon conversion, the Convertible Senior Notes may be settled in shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock, at the Company’s election.

All conversions with a conversion date that occurs on or after September 15, 2025 will be settled using the same settlement method, and the Company will send notice of such settlement method to noteholders no later than the open of business on September 15, 2025.

The Company may not redeem the Convertible Senior Notes at their option at any time before March 20, 2024.

Subject to the terms of the indenture agreement, the Company has the right, at its election, to redeem all, or any portion (subject to the partial redemption limitation) in an authorized denomination, of the Convertible Senior Notes, at any time, and from time to time, on a redemption date on or after March 20, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, for cash, but only if the "last reported sale price," as defined under the Offering Memorandum, per share of common stock exceeds 130 % of the “conversion price” on (i) each of at least 20 trading days, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice;

and (ii) the trading day immediately before the date we send such notice.

In addition, calling any note for redemption will constitute a "make-whole fundamental change" (as defined below) with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if it is converted after it is called for redemption.

If the Company elects to redeem less than all of the outstanding notes, then the redemption will not constitute a make-whole fundamental change with respect to the notes not called for redemption, and holders of the notes not called for redemption will not be entitled to an increased conversion rate for such notes as described above on account of the redemption, except to the limited extent described further

No sinking fund is provided for the Convertible Senior Notes, which means that the Company is not required to redeem or retire the Convertible Senior Notes periodically.

If a fundamental change occurs, then each noteholder will have the right to require the Company to repurchase its notes (or any portion thereof in an authorized denomination) for cash on a date (the "fundamental change repurchase date") of the Company’s choosing, which must be a business day that is no more than 45 , nor less than 20 , business days after the date Magnite distributes the related fundamental change notice.

If an event of default, other than a reporting default remedied by special interest as defined in the indenture agreement, occurs with respect to the Company or any guarantor, then the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding will immediately become due and payable without any further action or notice by any person.

If an event of default (other than a reporting event of default described above with respect to Magnite or any guarantor and not solely with respect to a significant subsidiary of the Company’s or a guarantor, other than the Company or such guarantor) occurs and is continuing, then the trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of notes then outstanding, by written notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding to become due and payable immediately.

The Convertible Senior Notes have an initial conversion rate of 15.6539 shares of common stock per $1,000 principal amount of the Convertible Senior Notes, which will be subject to customary anti-dilution adjustments in certain circumstances.

In connection with the pricing of the Convertible Senior Notes, the Company entered into privately negotiated capped call transactions with various financial institutions (the "Capped Call Transactions").

The Capped Call Transactions were entered into with third party broker-dealers to limit the potential dilution that would occur if the Company has to settle the conversion value in excess of the principal in shares.

This exposure will be covered (i.e., the Company will receive as many shares as are required to be issued between the conversion price of $ 63.8818 and the maximum price of $ 91.2600 ).

Any shares required to be issued by the Company over this amount would have net earnings per share dilution impact.

By entering into the Capped Call Transactions, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Convertible Senior Notes.

The Company paid $ 39.0 million for the Capped Call Transactions, which was recorded as additional paid-in capital, using a portion of the gross proceeds from the sale of the Convertible Senior Notes.

The cost of the Capped Call Transactions is not expected to be tax deductible as the Company did not elect to integrate the capped call into the Convertible Senior Notes for tax purposes.

The cost of the Capped Call Transaction was recorded as a reduction of the Company’s additional paid-in capital in the accompanying consolidated financial statements.

As noted in Note 2, the Company early adopted ASU 2020-06 effective January 1, 2021.

The Company has not elected the fair value option, the embedded conversion features are not required to be bifurcated under the accounting guidance, and the convertible debt was not issued with a substantial premium.

As such, the Company accounted for the Convertible Senior Notes as a liability in its entirety.

Under the guidance, all the embedded features of the Convertible Senior Notes met the definition of a derivative.

These features included a contingent call option, contingent put options, and conversion features.

The contingent call option and contingent put options are clearly and closely related to the debt host and, therefore, do not require bifurcation.

As the conversion features are indexed to the Company’s own equity and would be equity classified if they were freestanding instruments, the scope exception in ASC 815-10-15-74(a) applies and these conversion features will not be bifurcated under ASC 815.

The new accounting guidance also eliminated the bifurcation models of ASC 470-20 and eliminated the treasury method approach to earnings per share.

Accordingly, earnings per share on convertible debt instruments should only be calculated under the If-Converted method.

Under the guidance above, the Company will assume settlement in shares.

The Company incurred debt issuance costs of $ 11.4 million in March 2021.

The Convertible Senior Notes are presented net of issuance costs on the Company's consolidated balance sheets.

The debt issuance costs are amortized on an effective interest basis over the term of the Convertible Senior Notes and are included in interest expense and amortization of debt discount in the accompanying consolidated statements of operations.

The following table sets forth interest expense related to the Convertible Senior Notes for the year ended December 31, 2021:

December 31, 2021

(in thousands)

Contractual interest expense $ 786

Amortization of debt issuance costs 1,798

Total interest expense $ 2,584

Effective interest rate 0.82 %

Amortization expense for the Company's debt issuance costs for fiscal years 2022 through 2026 is as follows (in thousands):

Fiscal Year Debt Issuance Costs

Total $ 9,643

Credit Agreement

On April 30, 2021, the Company entered into a credit agreement (the "Credit Agreement") with Goldman Sachs Bank USA as administrative agent and collateral agent, and other lender parties thereto.

The Credit Agreement provides for a $ 360.0 million seven-year senior secured term loan facility ("Term Loan B Facility") and a $ 52.5 million senior secured revolving credit facility (the "Revolving Credit Facility").

As part of the Term Loan B Facility, the Company received $ 325 million in proceeds, net of discounts and fees, which were used to finance the SpotX Acquisition and related transactions, and for general corporate purposes.

Loans, if any, under the Revolving Credit Facility are expected to be used for general corporate purposes.

The obligations under the Credit Agreement are secured by substantially all of the assets of the Company and those of its subsidiaries that are guarantors under the Credit Agreement.

Amounts outstanding under the Credit Agreement accrue interest at a rate equal to either, (1) for the Term Loan B Facility, at the Company’s election, the Eurodollar Rate (as defined in the Credit Agreement) plus a margin of 5.00 % per annum, or ABR (as defined in the Credit Agreement) plus a margin of 4.00 %, and (2) for the Revolving Credit Facility, at the Company’s election, the Eurodollar Rate plus a margin of 4.25 % to 4.75 %, or ABR plus a margin of 3.25 % to 3.75 %, in each case, depending on the Company’s first lien net leverage ratio.

As of December 31, 2021, the contractual interest rate related to the Term Loan B Facility was 5.75 %.

The covenants of the Credit Agreement include customary negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens and make certain acquisitions, investments, asset dispositions and restricted payments.

In addition, the Credit Agreement contains a financial covenant, tested on the last day of any fiscal quarter if utilization of the Revolving Credit Facility exceeds 35 % of the total revolving commitments, that requires the Company to maintain a first lien net leverage ratio not greater than 3.25 to 1.00.

As of December 31, 2021, the Company was in compliance with its debt covenants.

The Credit Agreement includes customary events of default, and customary rights and remedies upon the occurrence of any event of default thereunder, including rights to accelerate the loans, terminate the commitments thereunder and realize upon the collateral securing the obligations under the Credit Agreement.

The Credit Agreement calls for customary scheduled loan amortization payments of 0.25 % of the initial principal balance payable quarterly (i.e.

1 % in aggregate per year) as well as a provision that requires the Company to prepay the Term Loan B based on an annual calculation of cumulative free cash flow ("Excess Cash Flow") generated by the company as defined within the terms of the Agreement.

The Company was not required to make any such mandatory prepayment required by the Excess Cash Flow provision for the period ended December 31, 2021.

On June 28, 2021, the Company entered into an Incremental Assumption Agreement (the "Incremental Agreement") to the Credit Agreement.

Pursuant to the terms of the Incremental Agreement, the Company’s existing revolving credit facility under the Credit Agreement was increased by $ 12.5 million (the "Incremental Revolver"), and the letter of credit sublimit under the Credit Agreement was increased by $ 5.0 million.

The Incremental Revolver bears the same interest rate as the existing revolving credit facility and has the same maturity date as the existing revolving credit facility.

No other terms of the Credit Agreement were amended.

As a result, amounts available under the Revolving Credit Facility were $ 65.0 million.

At December 31, 2021, amounts available under the Revolving Credit Facility were $ 59.9 million, net of letters of credit outstanding in the amount of $ 5.1 million.

The following table summarizes the Term Loan B Facility at December 31, 2021:

December 31, 2021

(in thousands)

Term Loan B Facility $ 358,200

Unamortized debt discounts ( 9,738 )

Unamortized debt issuance costs ( 15,196 )

Debt, net of debt discounts and issuance costs $ 333,266

The Company incurred debt issuance costs of $ 27.7 million in April 2021, of which $ 10.8 million were associated with debt discount netted against the proceeds and $ 16.9 million were associated with other deferred financing costs associated with the Term Loan B Facility.

Debt outstanding under the Term Loan B Facility are presented net of issuance costs on the Company's consolidated balance sheets.

The debt issuance costs are amortized on an effective interest basis over the term of the Term Loan B Facility and are included in interest expense and amortization of debt discount in the accompanying consolidated statements of operations.

The following table sets forth interest expense related to the Term Loan B Facility for the year ended December 31, 2021:

December 31, 2021

(in thousands)

Contractual interest expense 14,074

Amortization of debt discount 1,062

Amortization of debt issuance costs 1,657

Total interest expense 16,793

Effective interest rate 7.00 %

Amortization expense for the Term Loan B Facility debt discount and debt issuance costs for fiscal years 2022 through 2028 is as follows (in thousands):

Fiscal Year Debt Discount Debt Issuance Costs

2022 $ 1,580 $ 2,466

2023 1,564 2,441

Weighted-average shares used to compute net income (loss) per share:

2024 1,548 2,416

2025 1,532 2,391

2026 1,516 2,366

Thereafter 1,998 3,116

Total $ 9,738 $ 15,196

Note 19— Stockholders' Equity

On December 13, 2021, the Board of Directors approved a share repurchase program, under which the Company is authorized to purchase up to $ 50.0 million of its common stock over the twelve month period commencing December 10, 2021.

The repurchase program allows the Company to repurchase its common stock using open market stock purchases, privately negotiated transactions, block trades or other means in accordance with U.S.

securities laws.

The number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, share price, trading volume and general market conditions, along with working capital requirements, general business conditions, other opportunities that the Company may have for the use or investment of its capital and other factors.

The share repurchase program does not obligate the Company to repurchase any particular amount of common stock and may be suspended, modified or discontinued at any time at the Company’s discretion.

The Company intends to finance the share repurchase program through cash on hand.

Under the share repurchase program, 349,245 shares were purchased in open market purchases through December 31, 2021 for a total of approximately $ 6.0 million at an average of $ 17.20 per share.

Approximately $ 44.0 million worth of shares may yet be purchased under the plan.

For accounting purposes, common stock repurchases under our stock repurchase program are recorded based upon the purchase date of the applicable trade.

Repurchased shares are accounted for as treasury stock in the consolidated balance sheets.

Note 20— Related Party Transactions

During the years ended December 31, 2021, 2020, and 2019, 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 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.

In January 2022, the Company retired 349,245 shares of treasury stock, which was recorded as a reduction in additional paid in capital.

Additionally in January 2022, the Company repurchased and retired 377,000 shares of common stock through open market purchases under the share repurchase program for $ 5.6 million at an average price of $ 14.94 , which was also recorded as a reduction in additional paid in capital.

On February 1, 2022, the Company granted 5,918,007 restricted stock units, 699,194 stock options, and 86,806 performance stock units to the Company's employees.

The options granted will vest over four years from grant date, with 25 % vesting after one year and the remainder vesting monthly thereafter.

The RSUs granted will generally vest over four years from issuance with 25 % after one year , and the remainder vesting quarterly thereafter.

Between 0 % and 150 % of the performance stock units will vest on the third anniversary of its grant date based on certain stock price performance metrics.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data