MAGNITE, INC. 10-K

Item 8. Financial Statements and Supplementary Data MAGNITE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 65 Consolidated Financial Statements: Consolidated Balance Sheets 69 Consolidated Statements of Operations 70 Consolidated Statements of Comprehensive Loss 71 Consolidated Statements of Stockholders' Equity 72 Consolidated Statements of Cash Flows 73 Notes to Consolidated Financial Statements 75 64 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Magnite, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Magnite, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021 and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 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 SpotX, 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 The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 65 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Business Combinations – SpotX, Inc. Acquisition– Technology, Customer Relationships, and Backlog Intangible Assets — Refer to Note 10 to the financial statements Critical Audit Matter Description 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. The fair value determination of these intangible assets required management to make significant, subjective estimates and assumptions related to forecasted future cash flows and the selected discount rate. We identified the aforementioned intangible assets as a critical audit matter because of the significant estimates and assumptions management makes to determine the fair value of these intangible assets. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts of future cash flows and the selection of the discount rate for the technology, customer relationships, and 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. • 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. 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 66 Table of Contents acquisition. 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 . Critical Audit Matter Description The Company’s revenue consists of transaction-based fees and is made up of a significant volume of low-dollar transactions, sourced from multiple systems, databases, and other tools. Due to the fact that revenue transactions do not consist of the transfer of physical goods but are 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. We identified revenue as a critical audit matter because the of the information technology (IT) -dependent nature of the Company’s revenue stream and the significant audit effort required in performing our audit procedures, including involvement of professionals with expertise in IT to identify, test, and evaluate the Company’s systems, software applications, and automated controls related to the revenue cycle. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to certain of the Company’s systems to process revenue transactions included the following, among others: • With the assistance of our IT specialists, we: ◦ Identified the significant systems used to process revenue transactions and tested the effectiveness of general IT controls over the systems, including testing of user access controls, change management controls, and IT operations controls. ◦ We tested the effectiveness of system interface controls and automated controls within the revenue process, as well as controls designed to ensure the accuracy and completeness of revenue. ◦ 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. 67 Table of Contents • 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: a. We tested the effectiveness of controls over management’s accounting treatment for the Convertible Senior Notes and Capped Call Transactions. b. 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. c. 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 23, 2022 We have served as the Company's auditor since 2018. 68 Table of Contents MAGNITE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par values) December 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 230,401 $ 117,676 Accounts receivable, net 927,781 471,666 Prepaid expenses and other current assets 19,934 17,729 TOTAL CURRENT ASSETS 1,178,116 607,071 Property and equipment, net 34,067 23,681 Right of use lease asset 76,986 39,599 Internal use software development costs, net 20,093 16,160 Intangible assets, net 426,615 89,884 Goodwill 969,873 158,125 Other assets, non-current 6,862 4,440 TOTAL ASSETS $ 2,712,612 $ 938,960 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,000,956 $ 509,315 Lease liabilities - current portion 19,142 9,813 Debt, current 3,600 — Other current liabilities 5,697 3,070 TOTAL CURRENT LIABILITIES 1,029,395 522,198 Debt, non-current, net of debt issuance costs 720,023 — Lease liabilities, non-current 66,487 32,278 Deferred tax liability, net 13,303 199 Other liabilities, non-current 2,647 2,672 TOTAL LIABILITIES 1,831,855 557,347 Commitments and contingencies (Note 17) STOCKHOLDERS' EQUITY Preferred stock, $ 0.00001 par value, 10,000 shares authorized at December 31, 2021 and December 31, 2020; 0 shares issued and outstanding at December 31, 2021 and December 31, 2020 — — Common stock, $ 0.00001 par value; 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 2 2 Additional paid-in capital 1,282,589 777,084 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 ( 6,007 ) — Accumulated deficit ( 394,451 ) ( 394,516 ) TOTAL STOCKHOLDERS' EQUITY 880,757 381,613 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,712,612 $ 938,960 The accompanying notes to consolidated financial statements are an integral part of these statements. 69 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Revenue $ 468,413 $ 221,628 $ 156,414 Expenses: Cost of revenue 201,662 77,747 57,391 Sales and marketing 170,406 76,030 44,565 Technology and development 74,449 51,546 40,250 General and administrative 64,789 52,987 39,750 Merger, acquisition, and restructuring costs 38,177 17,552 2,041 Total expenses 549,483 275,862 183,997 Loss from operations ( 81,070 ) ( 54,234 ) ( 27,583 ) Other (income) expense: Interest (income) expense, net 19,848 ( 50 ) ( 789 ) Other income ( 4,450 ) ( 3,665 ) ( 285 ) Foreign exchange (gain) loss, net ( 1,480 ) 2,220 481 Total other (income) expense, net 13,918 ( 1,495 ) ( 593 ) Loss before income taxes ( 94,988 ) ( 52,739 ) ( 26,990 ) Provision (benefit) for income taxes ( 95,053 ) 693 ( 1,512 ) 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. 70 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Net income (loss) $ 65 $ ( 53,432 ) $ ( 25,478 ) Other comprehensive income (loss): Unrealized gain (loss) on investments — — 2 Foreign currency translation adjustments ( 419 ) ( 912 ) 212 Other comprehensive income (loss) ( 419 ) ( 912 ) 214 Comprehensive loss $ ( 354 ) $ ( 54,344 ) $ ( 25,264 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 71 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balance at December 31, 2018 51,159 $ 1 $ 433,877 $ ( 259 ) $ ( 315,606 ) — $ — $ 118,013 Exercise of common stock options 285 — 588 — — — — 588 Restricted stock awards, net ( 182 ) — — — — — — — Issuance of common stock related to employee stock purchase plan 227 — 1,054 — — — — 1,054 Issuance of common stock related to RSU vesting 2,858 — — — — — — — Shares withheld related to net share settlement ( 459 ) — ( 1,847 ) — — — — ( 1,847 ) Stock-based compensation — — 19,392 — — — — 19,392 Other comprehensive loss — — — 214 — — — 214 Net loss — — — — ( 25,478 ) — — ( 25,478 ) Balance at December 31, 2019 53,888 1 453,064 ( 45 ) ( 341,084 ) — — 111,936 Exercise of common stock options 3,359 — 13,548 — — — — 13,548 Issuance of common stock related to employee stock purchase plan 381 — 1,660 — — — — 1,660 Issuance of common stock related to RSU vesting 5,126 — — — — — — — Shares withheld related to net share settlement ( 824 ) — ( 7,854 ) — — — — ( 7,854 ) Issuance of common stock associated with the 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 — — 29,248 — — — — 29,248 Other comprehensive income — — — ( 912 ) — — — ( 912 ) Net loss — — — — ( 53,432 ) — — ( 53,432 ) Balance at December 31, 2020 114,029 2 777,084 ( 957 ) ( 394,516 ) — — 381,613 Exercise of common stock options 1,560 — 9,425 — — — — 9,425 Issuance of common stock related to employee stock purchase plan 255 — 3,714 — — — — 3,714 Issuance of common stock related to RSU vesting 4,624 — — — — — — — Shares withheld related to net share settlement ( 289 ) — ( 6,496 ) — — — — ( 6,496 ) 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 income — — — — 65 — — 65 Balance at December 31, 2021 132,553 $ 2 $ 1,282,589 $ ( 1,376 ) $ ( 394,451 ) ( 349 ) $ ( 6,007 ) $ 880,757 The accompanying notes to consolidated financial statements are an integral part of these statements. 72 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 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 Stock-based compensation 40,735 28,491 18,825 (Gain) loss on disposal of property and equipment 130 ( 22 ) 114 Provision for doubtful accounts 49 ( 138 ) 2,060 Amortization of debt discount and issuance costs 4,925 — — Accretion of available for sale securities — — 24 Non-cash lease expense ( 350 ) ( 784 ) ( 209 ) Deferred income taxes ( 98,770 ) 789 ( 595 ) 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: Accounts receivable ( 254,368 ) ( 103,836 ) ( 10,705 ) Prepaid expenses and other assets 1,324 ( 10,095 ) ( 51 ) Accounts payable and accrued expenses 284,905 75,064 16,288 Other liabilities 25 3,811 407 Net cash provided by (used in) operating activities 126,589 ( 12,065 ) 31,983 INVESTING ACTIVITIES: Purchases of property and equipment ( 17,697 ) ( 14,292 ) ( 11,425 ) Capitalized internal use software development costs ( 11,431 ) ( 7,667 ) ( 8,463 ) Mergers and acquisitions, net of cash acquired ( 661,869 ) 54,595 ( 11,000 ) Maturities of available-for-sale securities — — 7,500 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 ) Net cash provided by (used in) financing activities 678,053 7,354 ( 205 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 683 ) 918 46 CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 112,962 28,843 8,436 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period 117,731 88,888 80,452 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period $ 230,693 $ 117,731 $ 88,888 The accompanying notes to consolidated financial statements are an integral part of these statements. 73 Table of Contents MAGNITE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued) (In thousands) Year Ended 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 Cash paid for interest $ 12,908 $ 101 $ 61 Capitalized assets financed by accounts payable and accrued expenses $ 2,171 $ 42 $ 141 Capitalized stock-based compensation $ 1,496 $ 757 $ 567 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. 74 Table of Contents MAGNITE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1— Nature of Operations Company Overview Magnite, Inc. ("Magnite" or the "Company"), formerly known as The Rubicon Project, Inc., was formed in Delaware and began operations on April 20, 2007. On April 1, 2020, Magnite completed a stock-for-stock merger 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. 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 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. The Company's platform features applications and services for sellers of digital advertising inventory, or publishers, that own or operate websites, applications, CTV channels, and other digital media properties, to manage and monetize their inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, and demand side platforms, to buy digital advertising inventory; and a transparent, independent marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution at scale. The Company's clients include many of the world's leading sellers and buyers of digital advertising inventory. Sellers monetize their inventory through the Company’s platform by seamlessly connecting to a global market of integrated buyers that transact through real-time bidding, which includes direct sale of premium inventory to a buyer, referred to as private marketplace, and open auction bidding, where buyers bid against each other in a real-time auction for the right to purchase a publisher’s inventory, referred to as open marketplace. At the same time, buyers leverage the Company’s platform to manage their advertising spending and reach their target audiences, simplify order management and campaign tracking, obtain actionable insights into audiences for their advertising, and access impression-level purchasing from thousands of sellers. Note 2— Organization and Summary of Significant Accounting Policies Basis of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and include the operations of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Segments Management has determined that the Company operates as one segment. The Company’s chief operating decision maker reviews financial information on an aggregated and consolidated basis, together with certain operating and performance measures principally to make decisions about how to allocate resources and to measure the Company’s performance. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed financial statements and accompanying footnotes. Due to the economic 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. 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 75 Table of Contents 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. Actual results could differ materially from these estimates. On an ongoing basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (ii) accounts receivable and allowances for doubtful accounts, (iii) the useful lives of intangible assets, internal use software development costs, and property and equipment, (iv) valuation of long-lived assets and their recoverability, including goodwill, (v) the realization of tax assets and estimates of tax liabilities, (vi) assumptions used in valuation models to determine the fair value of stock-based awards, (vii) fair value of financial instruments, (viii) the recognition and disclosure of contingent liabilities, and (ix) the assumptions used in valuing acquired assets and assumed liabilities in business combinations. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates relating to the estimated useful lives of internal-use software development costs, assumptions used in the valuation models to determine the fair value of stock options and stock-based compensation expense, business combinations, estimated useful lives of long-lived assets, recoverability of intangible assets and goodwill, the assumptions used in the valuation of acquired assets and liabilities in business combinations, and income taxes, including the realization of tax assets and estimates of tax liabilities. require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ materially from those estimates under different assumptions or circumstances. Revenue Recognition The Company generates revenue from transactions where it provides a platform for the purchase and sale of digital advertising inventory. 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. The Company's solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a distributed infrastructure. Digital advertising inventory is created when consumers access sellers’ content. Sellers provide digital advertising inventory to the Company's platform in the form of advertising requests, or ad requests. When the Company receives ad requests from sellers, it sends bid requests to buyers, which enable buyers to bid on sellers’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer. The total volume of spending between buyers and sellers on the Company's platform is referred to as advertising spend. The Company keeps a percentage of that advertising spend as a fee, and remits the remainder to the seller. The fee that the Company retains from the gross advertising spend on its platform is recognized as revenue. The fee earned on each transaction is based on the pre-existing agreement between the Company and the seller and the clearing price of the winning bid. The Company recognizes revenue upon fulfillment of its performance obligation to a client, which occurs at the point in time an ad renders and is counted as a paid impression, subject to a contract existing with the client and a fixed or determinable transaction price. The Company does not have arrangements with multiple performance obligations. The Company considers the following when determining if a contract exists (i) contract approval by all parties, (ii) identification of each party’s rights regarding the goods or services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of substantially all of the consideration is probable. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. In determining whether the Company is acting as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Making such determinations involves judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative. Expenses The Company classifies its expenses into the following categories: Cost of Revenue. The Company's cost of revenue consists primarily of data center costs, bandwidth costs, ad protection 76 Table of Contents 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. The Company capitalizes costs associated with software that is developed or obtained for internal use and amortizes the costs associated with its revenue-producing platform in cost of revenue over their estimated useful lives. The Company amortizes acquired developed technologies over their estimated useful lives. Sales and Marketing. The Company's sales and marketing expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, as well as marketing expenses such as brand marketing, travel expenses, trade shows and marketing materials, professional services, and amortization expense associated with client relationships and backlog from the Company's business acquisitions and, to a lesser extent, facilities-related costs and depreciation and amortization. The Company's sales organization focuses on increasing the adoption of the Company's solution by existing and new buyers and sellers. The Company amortizes acquired intangibles associated with client relationships and backlog from its business acquisitions over their estimated useful lives. Technology and Development. The Company's technology and development expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, and professional services associated with the ongoing development and maintenance of the Company's solution, depreciation and amortization, and, to a lesser extent, facilities-related costs. These expenses include costs incurred in the development, implementation and maintenance of internal use software, including platform and related infrastructure. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with internal use software development that qualifies for capitalization, which are then recorded as internal use software development costs, net on the Company's consolidated balance sheets. The Company amortizes internal use software development costs that relate to its revenue-producing activities on the Company's platform to cost of revenue and amortizes other internal use software development costs to technology and development costs or general and administrative expenses, depending on the nature of the related project. The Company amortizes acquired intangibles associated with technology and development functions from its business acquisitions over their estimated useful lives. General and Administrative. The Company's general and administrative expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, associated with the Company's executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, facilities-related costs and depreciation and amortization, and other corporate-related expenses. General and administrative expenses also include amortization of internal use software development costs and acquired intangible assets from the Company's business acquisitions over their estimated useful lives that relate to general and administrative functions. Merger, 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 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. The fair value of each option award containing service and/or performance conditions is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of awards containing market conditions is estimated using a Monte-Carlo lattice model. For service condition awards, stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years . For performance condition and market condition awards, stock-based compensation expense is recognized using a graded vesting model over the requisite service period of the awards. For market condition awards, expense recognized is not subsequently reversed if the market conditions are not achieved. 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 NASDAQ on the grant date. 77 Table of Contents Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option-pricing model on the yields of U.S. Treasury securities with maturities appropriate for the term of stock option awards. Expected Term. For employee 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. Volatility. For grants issued in periods in which the Company did not have significant trading history for the Company’s common stock, the Company determined the price volatility based on the historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the stock option grants. For grants issued in periods in which the Company has sufficient history, the computation of the expected volatility assumption is based on the historical volatility of the Company’s common stock. Dividend Yield. The dividend yield assumption is based on the Company’s history and current expectations of dividend payouts. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, so the Company used an expected dividend yield of zero . Determining the fair value of stock-based awards using a pricing model requires judgment. The Company’s use of the Black-Scholes option-pricing model requires the input of subjective assumptions such as the expected term of the award, the expected volatility of the price of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in the Company’s valuation model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. Income Taxes Deferred income tax assets and liabilities are determined based upon the net tax effects of the differences between the Company’s consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed. A valuation allowance is used to reduce some or all of the deferred tax assets if, based upon the weight of available evidence, it is more likely than not that those deferred tax assets will not be realized. The Company has established a full valuation allowance to offset its domestic net deferred tax assets due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interest and penalties accrued related to its uncertain tax positions in its income tax provision (benefit) in the consolidated statements of operations. Capital Stock The Company has authorized capital stock of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Company has issued common stock, which is included in outstanding common stock on the Company's consolidated balance sheets. 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. The number of shares of the Company's stock reserved for these purposes at December 31, 2021 was 28,574,088 . 78 Table of Contents The board of directors is authorized to establish, from time to time, the number of shares to be included in each series of preferred stock, and to fix the designation, powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each series of preferred stock, and any of its qualifications, limitations or restrictions. Net Income (Loss) Per Share Attributable to Common Stockholders Basic net income (loss) per share of common stock is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding. Diluted income (loss) per share attributable to common stockholders adjusts the basic weighted-average number of shares of common stock outstanding for the effect of potentially dilutive securities during the period. Potentially dilutive securities consist of stock options, restricted stock awards, restricted stock units, potential shares 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. Comprehensive Income (Loss) Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders, and consists of net income (loss), unrealized gains (losses) on investments and foreign currency translation adjustments. Cash 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. government and its agencies. The Company classifies investments held in money market funds as cash equivalents because the money market funds have weighted-average maturities at the date of purchase of less than 90 days. Investments held in U.S. government and agency bonds and corporate debt securities with stated maturities of less than one year are classified as short-term investments included in marketable securities and prepaid expenses and other current assets. Investments held in U.S. government and agency bonds and corporate debt securities with stated maturities of over a year are classified as long-term investments included in other assets, non-current on the Company’s consolidated balance sheets, as the Company does not expect to redeem or sell these securities within one year from the balance sheet date. The Company determines the appropriate classification of investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company classifies and accounts for the Company’s marketable securities as available-for-sale, and as a result carries the securities at fair value and reports the unrealized gains and losses in the consolidated statements of comprehensive income (loss) and as a component of stockholders’ equity. The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method, and the Company records such gains and losses as a component of other income, net on the Company’s consolidated statements of operations. Restricted Cash The Company classifies certain restricted cash balances within prepaid expenses and other current assets 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 Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The allowance for doubtful accounts is determined based on historical collection experience and the review in each period of the status of the then-outstanding accounts receivable, while taking into consideration current client information, subsequent collection history and other relevant data. The Company reviews the allowance for doubtful accounts on a quarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. 79 Table of Contents Property and Equipment, Net 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. The estimated useful lives of the Company’s property and equipment are as follows: Years Computer equipment and network hardware 3 Furniture, fixtures and office equipment 5 to 7 Leasehold improvements Shorter of useful life or life of lease 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. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Company’s results of operations. Internal Use Software Development Costs The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in technology and development expenses in the results of operations. Software development activities generally consist of three stages, (i) the planning stage, (ii) the application and infrastructure development stage, and (iii) the post implementation stage. Costs incurred in the planning and post implementation stages of software development, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed for internal use when the planning stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and the software and technologies are ready for their intended purpose. Internal use software development costs are amortized using a straight-line method over the estimated useful life of three years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software, or lease its software, to third parties. Capitalized Costs Incurred in Cloud Computing Arrangements Cloud computing arrangements, such as software as a service and other hosting arrangements, are evaluated for capitalized implementation costs in a similar manner as capitalized software development costs. If a cloud computing arrangement includes a software license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the service element of the arrangement is accounted for as a service contract. The Company capitalized certain implementation costs for its cloud computing arrangements that are service contracts, which are included within prepaid expenses and other current assets and other assets, non-current within the consolidated balance sheets. 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 Intangible assets primarily consist of acquired developed technology, client relationships, and non-compete agreements resulting from business combinations, which are recorded at acquisition-date fair value, less accumulated amortization. The Company determines the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. The Company’s intangible assets are being amortized over their estimated useful lives as follows: 80 Table of Contents Years Developed technology 5 In-process research and development 3 to 5 Customer relationships 2 to 4 Backlog 0.75 Non-compete agreements 1 to 2 Other intangible assets 0.25 to 1.5 Intangible assets are reviewed for impairment indicators at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For intangible assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and estimated fair value. Impairment of Long-Lived Assets including Internal Use Capitalized Software Costs The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to operations in the period in which management determines such impairment. Business Combinations The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. The Company allocates the purchase price of a business combination, which is the sum of the consideration provided, which may consist of cash, equity or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates and selection of comparable companies. When the Company issues stock-based or cash awards to an acquired company’s stockholders, the Company evaluates whether the awards are contingent consideration or compensation for post-business combination services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the selling stockholder beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period. The Company estimates the fair value of intangible assets acquired generally using a discounted cash flow approach, which includes an analysis of the future cash flows expected to be generated by the asset and the risk associated with achieving these cash flows. The key assumptions used in the discounted cash flow model include the discount rate that is applied to the forecasted future cash flows to calculate the present value of those cash flows and the estimate of future cash flows attributable to the acquired intangible asset, which include revenue, expenses and taxes. The carrying value of acquired working capital assets and liabilities approximates its fair value, given the short-term nature of these assets and liabilities. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. 81 Table of Contents Goodwill Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to impairment testing conducted annually during the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In accordance with guidance related to impairment testing, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment option is not elected, or if the qualitative assessment indicates that it is more likely than not that the fair value is less than its carrying amount, a quantitative analysis is then performed. The quantitative analysis, if performed, compares the estimated fair value of the Company with its respective carrying amount, including goodwill. If the estimated fair value of the Company exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If the fair value is less than the carrying amount, including goodwill, then an impairment adjustment must be recorded up to the carrying amount of goodwill. The Company operates as a single operating segment and has identified a single reporting unit. Operating and Finance Leases 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. The straight-line calculation of rent expense includes rent escalations on certain leases, as well as lease incentives provided by the landlords, including payments for leasehold improvements and rent-free periods. The Company begins recognition of rent expense on the commencement date, which is generally the date that the asset is made available for use. 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 The carrying amounts of the Company's cash equivalents, accounts receivable, accounts payable, accrued expenses, and seller payables approximate fair value due to the short-term nature of these instruments. Certain assets of the Company are recorded at their fair value, using the fair value hierarchy, on a recurring basis, and other assets and liabilities, including goodwill and intangible assets are subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review (see Note 5). Concentration of Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, restricted cash and accounts receivable. Cash and cash equivalents maintained with financial institutions exceed applicable federally insured limits. Accounts receivable include amounts due from buyers with principal operations primarily in the United States. The Company performs ongoing credit evaluations of its buyers. At December 31, 2021, two buyers accounted for 44 % and 10 % respectively, of consolidated accounts receivable. At December 31, 2020, two buyers accounted for 33 % and 12 %, respectively, of accounts receivable. The Company recognizes revenue from its contracts with sellers. No seller of advertising inventory accounted for 10% or more of revenue during the years ended December 31, 2021, 2020, and 2019. 82 Table of Contents 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 Transactions in foreign currencies are translated into the functional currency of the applicable entity at the rates of exchange in effect at the date of the transaction. Foreign exchange gains or losses were included in foreign exchange (gain) loss, net in the accompanying consolidated statements of operations. To the extent that the functional currency is different from the U.S. Dollar, the financial statements have then been translated into U.S. Dollars using period-end exchange rates for assets and liabilities and average exchange rates for the results of operations. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) on the consolidated balance sheets. Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12— Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and clarifies and amends existing guidance for clarity and consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020 including interim reporting periods within those fiscal years. 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. 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. 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. 83 Table of Contents Note 3— Net Income (Loss) Per Share The following table presents the basic and diluted net income (loss) per share: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (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 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: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Options to purchase common stock — 2,317 793 Unvested restricted stock awards — — 13 Unvested restricted stock units — 4,713 4,211 Unvested performance awards — 40 — 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 84 Table of Contents 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 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: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands, except percentages) Revenue: 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: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands, except percentages) Channel: CTV $ 185,254 40 % $ 34,319 15 % $ — — % Desktop 118,182 25 78,956 36 68,302 44 Mobile 164,977 35 108,353 49 88,112 56 Total $ 468,413 100 % $ 221,628 100 % $ 156,414 100 % The following table presents the Company's revenue disaggregated by geographic location, based on the location of the Company's sellers: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) United States $ 365,161 $ 161,570 $ 108,385 International 103,252 60,058 48,029 Total $ 468,413 $ 221,628 $ 156,414 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. The Company recognizes volume discounts as a reduction of revenue as they are incurred. Specific payment terms may vary by agreement, but are generally seventy-five days or less. The Company's accounts receivable are recorded at the amount of gross billings to buyers, net of allowances for the amounts the Company is responsible to collect. The Company's accounts payable related to amounts due to sellers are recorded at the net amount payable to sellers (see Note 11). Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis. 85 Table of Contents Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is reviewed quarterly, requires judgment, and is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company reviews the status of the then-outstanding accounts receivable on a customer-by-customer basis, taking into consideration the aging schedule of receivables, its historical collection experience, current information regarding the client, subsequent collection history, and other relevant data, in establishing the allowance for doubtful accounts. Accounts receivable is presented net of an allowance for doubtful accounts of $ 3.5 million at December 31, 2021, and $ 2.4 million at December 31, 2020. Accounts receivable are written off against the allowance for doubtful accounts when the Company determines amounts are no longer collectible. The Company reviews the associated payable to sellers for recovery of buyer receivable allowance and write-offs; in some cases, the Company can reduce the payable to sellers. The reduction of seller payables related to recovery of uncollected buyer receivables is netted against allowance expense. The contra seller payables related to recoveries were $ 2.1 million and $ 1.5 million as of December 31, 2021 and December 31, 2020, respectively. The following is a summary of activity in the allowance for doubtful accounts for the years ended December 31, 2021, 2020, and 2019, respectively: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Allowance for doubtful accounts, Beginning Balance $ 2,360 $ 3,400 $ 1,340 Allowance for doubtful accounts, assumed from mergers or acquisitions 835 1,033 — Write-offs ( 337 ) ( 3,054 ) ( 3,282 ) Increase in provision for expected credit losses 597 870 5,328 Recoveries of previous write-offs 20 111 14 Allowance for doubtful accounts, December 31 $ 3,475 $ 2,360 $ 3,400 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. Note 5— Fair Value Measurements Recurring Fair Value Measurements Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 – Unobservable inputs. 86 Table of Contents The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2021: Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Cash equivalents $ 7,869 $ 7,869 $ — $ — The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2020: Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Cash equivalents $ 7,868 $ 7,868 $ — $ — At December 31, 2021 and 2020, cash equivalents of $ 7.9 million and $ 7.9 million, respectively, consisted of money market funds and commercial paper, with original maturities of three months or less. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not their fair values are based on quoted market prices for identical securities that are traded in an active market. 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. Note 6— Investments The Company had no investments in marketable securities at December 31, 2021 and December 31, 2020. During the year ended December 31, 2019, $ 7.5 million of available-for-sale investments matured, on which the realized gains were de minimis and there were no unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the consolidated statements of operations. The Company had no sales of available-for-sale investments in 2019. Note 7— Property and Equipment Major classes of property and equipment were as follows: December 31, 2021 December 31, 2020 (in thousands) Purchased software $ 1,214 $ 1,255 Computer equipment and network hardware 124,907 115,740 Furniture, fixtures and office equipment 3,476 2,289 Leasehold improvements 3,307 2,738 Gross property and equipment 132,904 122,022 Accumulated depreciation ( 98,837 ) ( 98,341 ) Net property and equipment $ 34,067 $ 23,681 Depreciation expense on property and equipment totaled $ 16.1 million, $ 16.0 million, and $ 21.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. There were no impairment charges to property and equipment for the years ended December 31, 2021, 2020, and 2019. 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, 87 Table of Contents 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: December 31, 2021 December 31, 2020 (in thousands) United States $ 23,495 $ 13,504 International 10,572 10,177 Total $ 34,067 $ 23,681 Note 8— Internal Use Software Development Costs Internal use software development costs were as follows: December 31, 2021 December 31, 2020 (in thousands) Internal use software development costs, gross 62,490 $ 51,277 Accumulated amortization ( 42,397 ) ( 35,117 ) Internal use software development costs, net $ 20,093 $ 16,160 During the years ended December 31, 2021, 2020, and 2019, the Company capitalized $ 12.9 million, $ 9.2 million, and $ 9.0 million, respectively, of internal use software development costs. Amortization expense was $ 9.0 million, $ 8.3 million, and $ 7.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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, 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 (in thousands): Total Beginning balance at December 31, 2019 $ 7,370 Additions for Merger with Telaria (Note 10) 150,755 Ending balance at December 31, 2020 158,125 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 $ 969,873 88 Table of Contents The Company’s intangible assets as of December 31, 2021 and 2020 included the following: December 31, 2021 December 31, 2020 (in thousands) Amortizable intangible assets: Developed technology $ 378,958 $ 77,658 Customer relationships 173,950 37,950 In-process research and development 14,630 8,030 Non-compete agreements 2,270 70 Trademarks 1,400 — Total identifiable intangible assets, gross 571,208 123,708 Accumulated amortization—intangible assets: Developed technology ( 75,850 ) ( 21,905 ) Customer relationships ( 65,702 ) ( 11,877 ) In-process research and development ( 1,250 ) — Non-compete agreements ( 1,197 ) ( 42 ) Trademarks ( 594 ) — Total accumulated amortization—intangible assets ( 144,593 ) ( 33,824 ) Total identifiable intangible assets, net $ 426,615 $ 89,884 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. 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: Fiscal Year Amount (in thousands) 2022 $ 148,541 2023 103,173 2024 85,298 2025 67,748 2026 21,855 Thereafter — Total $ 426,615 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. 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 2020 Merger—Telaria On April 1, 2020, (the "Acquisition Date"), the Company completed the merger with Telaria. 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 Telaria Merger, 89 Table of Contents Magnite also assumed Telaria’s 2013 Equity Incentive Plan, as amended; 2008 Stock Plan, as amended; and the ScanScout, Inc. 2009 Equity Incentive Plan, as amended. As of the Acquisition Date, former holders of Telaria common stock owned approximately 48 % and pre-merger holders of Magnite common stock owned approximately 52 % of the common stock of the combined company on a fully diluted basis. 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): Shares of Magnite common stock $ 274,604 Fair value of stock-based awards exchanged 11,646 Acceleration of single trigger equity awards, converted 1,168 Total purchase consideration $ 287,418 The purchase consideration for the acquisition included 52,008,316 shares of the Company's common stock with a fair value of approximately $ 274.6 million, based on the Company's stock price as reported on the NYSE on the Acquisition Date. The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to pre-acquisition services of approximately $ 10.4 million and $ 1.2 million, respectively, have been recorded as purchase consideration. In addition, the Company recorded additional purchase consideration associated with acceleration of 90,629 shares of common stock issued associated with single-trigger equity awards in the amount of $ 1.2 million. The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to post-acquisition services of $ 4.7 million and $ 12.2 million, respectively, will be recorded as additional stock-based compensation expense on the Company's consolidated statements 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 (in thousands): Cash and cash equivalents $ 51,848 Accounts receivable, net 150,924 Prepaid expenses and other current assets 3,054 Property and equipment, net 1,814 Right-of-use lease asset 26,627 Intangible assets 103,410 Restricted cash 2,747 Other assets, non-current 369 Deferred tax assets, non-current 103 Goodwill 150,755 Total assets acquired 491,651 Accounts payable and accrued expenses 172,751 Lease liabilities - current portion 5,322 Deferred revenue 11 Other current liabilities 365 Lease liabilities - non-current portion 23,323 Other liabilities, non-current 194 Deferred tax liability 2,267 Total liabilities assumed 204,233 Total purchase price $ 287,418 90 Table of Contents The Company believes the amount of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if certain indicators of impairment are present. In the event that goodwill has become impaired, the Company will record an expense for the amount impaired during the quarter in which the determination is made. The acquired intangibles and goodwill resulting from the 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): Estimated Useful Life Technology $ 58,000 5 years In-process research and development 8,030 4.7 years* Customer relationships 36,300 2.5 years Backlog 880 0.75 years Trademarks 200 0.25 years Total intangible assets acquired $ 103,410 * In-process research and development consists of two projects with a weighted-average useful life of 4.7 years. Amortization begins once associated projects are completed and it is determined the projects have alternative future use. The fair value of the acquired technology and in-process research and development was valued using The Revenue Split Method. This methodology included allocating future revenue projections to the existing technologies and applying decay rates and appropriate discount rates that reflect the respective intangible asset's relative risk profile when compared to other intangible assets as well as considering the risk associated with the overall business. At the Acquisition Date, Telaria had existing Customer Relationships. To the extent that future cash flows of the business would be negatively affected in the absence of these relationships, they would be deemed to have economic value. The Company used the Loss‐of‐Revenue and Income Method in its valuation of the existing Customer Relationships. This method attempts to quantify the scenario whereby the owner loses the right to the intangible asset and the resulting losses of revenue and income. Under this analysis, the value of the cash flows with the intangible asset is compared to the value of the cash flows without the intangible asset and the difference represents the value of the intangible asset. This methodology included applying a discount rate and the expected timing it would take to further enhance customer relationships. The fair value of the backlog was based on the Excess Earnings Model, taking into consideration the existing contracts as of the Acquisition Date and the respective cost to complete the servicing of the existing agreements. The resulting stream of after tax earnings were discounted to present value by applying an appropriate discount rate for the asset. The discount rate was selected based on the intangible asset’s relative risk profile when compared to the other intangible assets as well as the discount rate for the overall business. Intangible assets are generally amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenues and the amortization of customer relationships, backlog, and trademarks is included in sales and marketing expenses in the consolidated 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 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 Telaria Merger, the Company acquired Telaria's U.S. federal NOLs of approximately $ 126.1 million and state NOLs of approximately $ 87.6 million. Pursuant to Section 382 of the Internal Revenue Code, Telaria, Inc. underwent an ownership change for tax purposes. As a result, the use of the NOLs will be subject to annual Section 382 use limitations. The Company believes the ownership change will not impact the Company's ability to utilize substantially all of the NOLs to the extent it generates taxable income that can be offset by such losses. 91 Table of Contents Unaudited Pro Forma Information The following table provides unaudited pro forma information as if Telaria had been merged with the Company as of January 1, 2019. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, and transaction expenses as if the Telaria Merger occurred on January 1, 2019. The pro forma results do not include any anticipated cost synergies or other effects of the integration merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Year Ended December 31, 2020 December 31, 2019 (in thousands) Pro Forma Revenue $ 236,666 $ 224,452 Pro Forma Net Loss $ ( 64,030 ) $ ( 78,585 ) During the year ended December 31, 2020, post-merger revenue on a stand-alone basis for Telaria was $ 60.1 million. During the year ended December 31, 2020, due to the process of integrating the operations of Telaria into the operations of the Company, the determination of Telaria's post-merger operating results on a standalone basis was impracticable. 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. ("RTL"). 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). 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. All intangible assets and goodwill will be tested for impairment 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 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 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. 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. 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. 92 Table of Contents 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. 93 Table of Contents 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. 94 Table of Contents 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. 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. All intangible assets and goodwill will be tested for impairment 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 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. 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. 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. 95 Table of Contents 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): Cash $ 1,062 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 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 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. This methodology included allocating future revenue projections to the existing technologies and applying decay rates and appropriate discount rates that reflect the respective intangible asset's relative risk profile when compared to other intangible assets as well as considering the risk associated with the overall business. At the Acquisition Date, 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. 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 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. 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. 96 Table of Contents 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 . Nth Party 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 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 SpotX and SpringServe Acquisitions occurred on 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. Year Ended 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 Accounts payable and accrued expenses included the following: December 31, 2021 December 31, 2020 (in thousands) Accounts payable—seller $ 971,220 $ 492,605 Accounts payable—trade 11,904 4,268 Accrued employee-related payables 16,230 12,442 Accrued holdback - indemnification claims 1,602 — Total $ 1,000,956 $ 509,315 97 Table of Contents Note 12— Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) were as follows (in thousands): Unrealized Gain (Loss) on Investments, net of tax Foreign Currency Translation Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2018 $ ( 2 ) $ ( 257 ) $ ( 259 ) Other comprehensive income 2 212 214 Balance at December 31, 2019 — ( 45 ) ( 45 ) Other comprehensive loss — ( 912 ) ( 912 ) Balance at December 31, 2020 — ( 957 ) ( 957 ) Other comprehensive loss — ( 419 ) ( 419 ) Balance at December 31, 2021 $ — $ ( 1,376 ) $ ( 1,376 ) Note 13— Stock-Based Compensation In connection with its IPO, the Company implemented its 2014 Equity Incentive Plan, which governs equity awards made to employees and directors of the Company since the IPO. Prior to the IPO, the Company granted equity awards under its 2007 Stock Incentive Plan, which governs equity awards made to employees and contractors prior to the IPO. In November 2014, the Company approved the 2014 Inducement Grant Equity Incentive Plan (the "Inducement Plan"), which governs certain equity awards made to certain employees in connection with commencement of employment. In connection with the Company's acquisitions of Chango Inc. ("Chango"), iSocket, Inc. ("iSocket"), and nToggle, Inc. ("nToggle") it assumed the existing employee equity award plans, the 2009 Chango Stock Option Plan (the "Chango Plan"), the iSocket 2009 Equity Incentive Plan (the "iSocket Plan"), and the nToggle 2014 Equity Incentive Plan (the "nToggle Plan"). In connection with the Merger with Telaria, the Company assumed Telaria's 2013 Equity Incentive Plan, as amended (the "Telaria Plan"); 2008 Stock Plan, as amended (the "2008 Stock Plan"); and the ScanScout, Inc. 2009 Equity Incentive Plan, as amended (the "ScanScout Plan"). All compensatory equity awards outstanding at December 31, 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 ("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. 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. An aggregate of 13,323,449 shares remained available for future issuance at December 31, 2021 under the plans. The 2014 Equity Incentive Plan has an evergreen provision pursuant to which the share reserve will automatically increase on January 1 st of each year in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31 st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, or no increase, in any year. The 2014 Inducement Grant Equity Incentive Plan has a provision pursuant to which the share reserve may be increased at the discretion of the Company's board of directors. 98 Table of Contents Stock Options A summary of stock option activity for the year ended December 31, 2021 is as follows: Shares Under Option Weighted- Average Exercise Price Weighted- Average Contractual Life Aggregate Intrinsic Value (in thousands) (in thousands) Outstanding at December 31, 2020 6,695 $ 5.61 Granted 302 $ 38.99 Exercised ( 1,560 ) $ 6.04 Forfeited ( 308 ) $ 8.85 Outstanding at December 31, 2021 5,129 $ 7.25 5.6 years $ 58,464 Exercisable at December 31, 2021 3,815 $ 5.52 4.8 years $ 45,730 The total intrinsic value of options exercised during the year ended December 31, 2021 was $ 46.4 million. 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. 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: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Expected term (in years) 5.0 6.3 6.1 Risk-free interest rate 0.88 % 0.45 % 2.55 % Expected volatility 79 % 67 % 60 % Dividend yield — % — % — % Restricted Stock Units A summary of restricted stock unit activity for the year ended December 31, 2021 is as follows: Number of Shares Weighted-Average Grant Date Fair Value (in thousands) Restricted stock units outstanding at December 31, 2020 9,286 $ 5.30 Granted 3,040 $ 37.37 Canceled ( 1,068 ) $ 15.33 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, 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 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. 99 Table of Contents 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. Employee Stock Purchase Plan In November 2013, the Company adopted the Company's 2014 Employee Stock Purchase Plan ("ESPP"). The ESPP is designed to enable eligible employees to periodically purchase shares of the Company's common stock at a discount through payroll deductions of up to 10 % of their eligible compensation, subject to any plan limitations. At the end of each six-month offering period, employees are able to purchase shares at a price per share equal to 85 % of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the last trading day of the offering period. Offering periods generally commence and end in May and November of each year. As of December 31, 2021, the Company has reserved 2,934,485 shares of its common stock for issuance under the ESPP. The ESPP has an evergreen provision pursuant to which the share reserve will automatically increase on January 1 st of each year in an amount equal to 1 % of the total number of shares of capital stock outstanding on December 31 st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, or no increase, in any year. Stock-Based Compensation Expense Total stock-based compensation expense recorded in the consolidated statements of operations was as follows: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Cost of revenue $ 792 $ 525 $ 421 Sales and marketing 15,718 8,229 5,638 Technology and development 11,857 7,451 4,757 General and administrative 11,297 10,416 8,009 Merger, acquisition, and restructuring costs 1,071 1,870 — Total stock-based compensation expense $ 40,735 $ 28,491 $ 18,825 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. 100 Table of Contents 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): Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Professional Service (investment banking advisory, legal and other professional services) $ 28,422 $ 9,935 $ 2,041 Personnel related (severance and one-time termination benefit costs) 6,184 5,747 — Non-cash stock-based compensation (double-trigger acceleration and severance) 1,071 1,870 — 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. Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (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 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, acquisition, and restructuring costs at end of period $ 2,742 $ 2,935 $ — Note 15— Income Taxes The following are the domestic and foreign components of the Company’s income (loss) before income taxes for the years ended December 31, 2021, 2020, and 2019: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Domestic $ ( 105,168 ) $ ( 57,253 ) $ ( 28,063 ) International 10,180 4,514 1,073 Loss before income taxes $ ( 94,988 ) $ ( 52,739 ) $ ( 26,990 ) 101 Table of Contents The following are the components of the provision (benefit) for income taxes for the years ended December 31, 2021, 2020, and 2019: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 (in thousands) Current: Federal $ 128 $ ( 144 ) $ ( 153 ) State 1,515 15 28 Foreign 2,275 1,117 281 Total current provision 3,918 988 156 Deferred: Federal ( 89,404 ) 9 ( 762 ) State ( 8,296 ) ( 12 ) ( 174 ) Foreign ( 1,271 ) ( 292 ) ( 732 ) Total deferred benefit ( 98,971 ) ( 295 ) ( 1,668 ) Total provision (benefit) for income taxes $ ( 95,053 ) $ 693 $ ( 1,512 ) 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. Federal statutory rate of 21% for the years ended December 31, 2021, 2020, and 2019: Year Ended December 31, 2021 December 31, 2020 December 31, 2019 U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 5.6 % ( 0.2 ) % ( 0.1 ) % Foreign loss at other than U.S. rates ( 0.5 ) % ( 0.5 ) % ( 4.3 ) % Stock-based compensation expense 31.7 % 11.4 % 3.5 % Meals and entertainment ( 0.1 ) % ( 0.1 ) % ( 0.9 ) % Other permanent items ( 1.6 ) % ( 1.1 ) % ( 1.2 ) % Change in valuation allowance 58.0 % ( 19.5 ) % ( 7.5 ) % Sec 162(m) officers compensation ( 14.2 ) % ( 12.7 ) % ( 6.3 ) % Provision to return adjustments 0.2 % 0.4 % 1.4 % Effective income tax rate 100.1 % ( 1.3 ) % 5.6 % 102 Table of Contents Set forth below are the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 (in thousands) Deferred Tax Assets: Accrued liabilities $ 1,208 $ 1,568 Lease liabilities 18,499 8,943 Stock-based compensation 5,573 3,559 Net operating loss carryovers 131,509 117,707 Tax credit carryovers 5,308 4,882 Other 1,555 1,263 Total deferred tax assets 163,652 137,922 Less valuation allowance ( 56,049 ) ( 109,992 ) Deferred tax assets, net of valuation allowance 107,603 27,930 Deferred Tax Liabilities: Fixed assets ( 2,059 ) ( 824 ) Intangible assets ( 101,477 ) ( 18,584 ) Right of use lease asset ( 15,563 ) ( 8,283 ) Total deferred tax liabilities ( 119,099 ) ( 27,691 ) Net deferred tax assets (liability) $ ( 11,496 ) $ 239 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. federal net operating loss carryforwards, or NOLs, of approximately $ 486.1 million, which will begin to expire in 2027. At December 31, 2021, the Company had state NOLs of approximately $ 285.2 million, which will begin to expire in 2023. At December 31, 2021, the Company had foreign NOLs of approximately $ 30.2 million, which will begin to expire in 2026. 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. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, and net operating loss carryback periods. The Company has determined the tax implications of the CARES Act will not be material. 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. Pursuant to Section 382 of the Internal Revenue Code, the Company and Telaria, Inc. both underwent ownership changes for tax purposes (i.e. a more than 50% change in stock ownership in aggregated 5% shareholders) on April 1, 2020 due to the 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 103 Table of Contents and state research and development carryforward tax credits to the extent it will generate taxable income that can be offset by such losses. The Company reasonably expects its federal research and development carryforward tax credits will not be recovered prior to expiration. Additionally, for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the NOL deduction to 80% of taxable income, repeals carryback of all NOLs arising in a tax year ending after 2017, and permits indefinite carryforward for all such NOLs. NOL’s arising in a tax year ending in or before 2017 can offset 100% of taxable income, are available for carryback, and expire 20 years after they arise. 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. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subject to withholding taxes payable to various foreign countries and, potentially, various state taxes. The amounts of such tax liabilities that might be payable upon actual repatriation of foreign earnings, after consideration of corresponding foreign tax credits, are not material. The following table summarizes the activity related to the unrecognized tax benefits (in thousands): Amount Balance as of December 31, 2019 $ 4,720 Increases related to current year tax positions — Decreases related to current year tax positions ( 2,294 ) Increases related to prior year tax positions 788 Balance as of December 31, 2020 3,214 Increases related to current year tax positions 200 Decreases related to prior year tax positions ( 41 ) Increases related to prior year tax positions 342 Balance as of December 31, 2021 $ 3,715 Interest and penalties related to the Company’s unrecognized tax benefits accrued at December 31, 2021, 2020, and 2019 were not material. Due to the net operating loss carryforwards, the Company's United States federal and a majority of its state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. 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 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. 104 Table of Contents 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): Fiscal Year 2022 $ 22,491 2023 19,354 2024 16,522 2025 8,796 2026 6,734 Thereafter 27,095 Total lease payments (undiscounted) 100,992 Less: imputed interest ( 15,363 ) Lease liabilities—total (discounted) $ 85,629 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 Commitments The Company has commitments under non-cancelable operating leases for facilities, certain equipment, and its managed data center facilities (Note 16). 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. Guarantees and Indemnification The Company’s agreements with sellers, buyers, and other third parties typically obligate the Company to provide indemnity and defense for losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to the Company’s own business operations, obligations, and acts or omissions. However, under some circumstances, the Company agrees to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations, and acts or omissions, or the business operations, obligations, and acts or omissions of third parties. For example, because the Company’s business interposes the Company between buyers and sellers in various ways, buyers often require the Company to indemnify them against acts and omissions of sellers, and sellers often require the Company to indemnify them against acts and omissions of buyers. In addition, the Company’s agreements with sellers, buyers, and other third parties typically include provisions limiting the Company’s liability to the counterparty, and the counterparty’s liability to the Company. These limits sometimes do not apply to certain liabilities, including indemnity obligations. These indemnity and limitation of liability provisions generally survive termination or expiration of the agreements in which they appear. The Company has also entered into indemnification agreements with its directors, executive officers and certain other officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No material demands have been made upon the Company to provide indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on the Company’s consolidated financial statements. 105 Table of Contents Litigation The Company and its subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to their business activities and to the Company’s status as a public company. Such matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of the Company’s business, regulatory investigations or enforcement proceedings, and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to such matters as of December 31, 2021. However, based on management’s knowledge as of December 31, 2021, management believes that the final resolution of these matters known at such date, individually and in the aggregate, will not have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows. Employment Contracts The Company has entered into severance agreements with certain employees and officers. The Company may be required to pay severance and accelerate the vesting of certain equity awards in the event of involuntary terminations. Note 18— Debt Long term debt as of December 31, 2021 consisted of the following: December 31, 2021 (in thousands) Convertible Senior Notes $ 400,000 Less: Unamortized debt issuance cost ( 9,643 ) Net 390,357 Term Loan B Facility 358,200 Less: Unamortized discount and debt issuance cost ( 24,934 ) Net 333,266 Less: 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): Fiscal Year 2022 $ 3,600 2023 3,600 2024 3,600 2025 3,600 2026 403,600 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. Bank Loan 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 106 Table of Contents 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 107 Table of Contents below. 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 % 108 Table of Contents 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 2022 $ 2,288 2023 2,288 2024 2,288 2025 2,288 2026 491 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. 109 Table of Contents 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 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. 110 Table of Contents 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 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. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.