What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 162 added, 140 removed, 387 unchanged (44% of the section changed)

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Telaria Merger, SpotX and SpringServe Acquisitions

On April 1, 2020, we completed the Telaria Merger, and on April 30, 2021, we completed the SpotX Acquisition.

These transactions were transformative and have resulted in what we believe to be the world’s largest independent sell-side advertising platform and ad server, with scale, capabilities, and solutions exceeding those offered by competitors.

We offer a single partner for transacting CTV, desktop display, video, audio and mobile inventory across all geographies and auction types.

On April 1, 2020, we completed a stock-for-stock merger with Telaria, Inc.

("Telaria" and such merger the "Telaria Merger"), a leading provider of connected television ("CTV") technology, on April 30, 2021, we completed the acquisition of SpotX, Inc.

("SpotX" and such acquisition the "SpotX Acquisition"), a leading platform shaping CTV and video advertising globally, and on July 1, 2021, we acquired SpringServe, LLC ("SpringServe"), a leading ad serving platform for CTV.

Following these transactions, we believe that we are the world's largest independent omni-channel sell-side advertising platform ("SSP"), offering a single partner for transacting globally across all channels, formats and auction types, and the largest independent programmatic CTV marketplace, making it easier for buyers to reach CTV audiences at scale from industry-leading streaming content providers, broadcasters, platforms and device manufacturers.

As CTV viewership is growing rapidly and the pace of adoption is accelerating the shift of advertising budgets from linear television to CTV, these transactions have strategically positioned us to take advantage of this trend, and we believe that CTV will be our biggest growth driver in future periods.

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The acquisition also resulted in an increase in related operating expenses, primarily associated with costs for personnel, data center and hosting costs, facilities, payments to sellers for revenue reported on a gross basis, and other ancillary costs to support the business.

We expect some of those increases to be offset by cost saving activities that began in the second quarter of 2021 and continue to be in process.

We are targeting in excess of $35 million in run-rate operating cost synergies over a two year period.

As of December 31, 2021, we have achieved more than half of our cost synergy target on a run-rate basis.

The SpringServe Acquisition, which we completed in July 2021, expanded our video and CTV offering to include ad server functionality in addition to our programmatic SSP capabilities.

The SpringServe ad server manages multiple aspects of video advertising for both programmatic transactions and inventory sold directly by the publisher, including forecasting, routing, customized ad experiences, and advanced podding logic.

We have been able to offset some of these increases through cost saving activities and the achievement of acquisition synergies.

As part of our integration efforts, we recently introduced our unified CTV platform, Magnite Steaming, which merges leading technology from the legacy Magnite CTV and SpotX CTV platforms.

We expect client migration to our unified platform to occur primarily through the first half of 2023 and expect the migration to be completed by the third quarter of 2023, and will continue to support certain aspects of our legacy CTV platforms through this transition, resulting in some temporary duplication of costs.

The SpringServe Acquisition expanded our video and CTV offering to include ad server functionality in addition to our programmatic SSP capabilities.

Combined with our SSP, the SpringServe ad server provides publishers a holistic yield management solution that works across their entire video advertising business to drive value.

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We believe the acquisition of SpringServe is highly strategic as it allows us to offer publishers an independent full-stack solution to the walled gardens, which can be leveraged across their entire video advertising business.

Impact of COVID-19 Pandemic and Other Recent Developments

The COVID-19 pandemic and resulting global disruptions have negatively affected our revenue, results of operations, cash flows, and financial condition.

We recently announced a reduction of our global workforce by approximately 6%.

The reduction in force was primarily associated with the elimination of duplicative technology roles resulting from the integration of our CTV platforms and represent additional costs synergies related to our acquisition.

Impact of COVID-19 Pandemic and Other Macroeconomic Developments

Our business depends on the overall demand for advertising and on the economic health of our current and prospective sellers and buyers.

In response to the pandemic and associated economic challenges, a significant number of advertisers, in particular with respect to certain categories of advertising that were particularly impacted by the pandemic and resulting stay-at-home orders, reduced their advertising budgets, resulting in an overall decrease in advertising spend through our platform compared to our pre-COVID expectations.

This decrease was particularly pronounced through the first half of 2020, where we experienced a significant decline in our revenues compared to our expectations.

Our revenue trends improved significantly during the third and fourth quarters of 2020 as our revenue returned to positive growth.

During the first half of 2021, revenue from a number of advertising categories returned to pre-COVID spending levels, while certain categories including travel, auto, and entertainment remained below pre-COVID spending levels.

In the second half of 2021, we continued to see lower levels of spending in travel and auto, in part due to global supply chain disruptions, and also faced challenges due to government stay-at-home orders in certain markets such as Australia.

These factors were exacerbated by the

spread of the Omicron variant in December 2021, which resulted in renewed macro-economic challenges.

We expect such challenges to persist through the first quarter of 2022 and it is possible that they will increase in scope.

Due to the substantial uncertainties associated with the COVID-19 pandemic, the extent to which the pandemic (and actions taken in response to it by governments, businesses, and individuals) and other direct and indirect impacts of the pandemic will ultimately impact our business and is currently unknown, and depends on various factors, many of which are outside of our control.

Accordingly, our business and operations have been, and could in the future be, adversely affected by events beyond our control, such as health epidemics, including the COVID-19 pandemic, geopolitical events, including the conflict in

Ukraine, and economic and macroeconomic factors like labor shortages, supply chain disruptions, inflation and recessionary concerns impacting the markets and communities in which our clients operate.

In response to the COVID-19 pandemic and associated economic challenges, a significant number of advertisers, in particular with respect to certain categories of advertising that were particularly impacted by the pandemic and resulting stay-at-home orders, reduced their advertising budgets, resulting in an overall decrease in advertising spend through our platform compared to our pre-COVID expectations.

We believe the negative impact on our revenue from the COVID-19 pandemic has largely subsided, although we did experience some negative impacts due to pandemic-related supply chain disruptions during the first half of 2022.

More recently, our business has been negatively impacted as a result of macroeconomic challenges, such as inflation, global hostilities, recession, and other macroeconomic factors, which have generally negatively impacted ad budgets, and in turn led to reduced ad spend through our platform.

Any worsening of macroeconomic conditions in future periods would likely have a negative effect on our financial results, the magnitude of which is difficult to predict.

In addition, continued inflation could result in an increase in our cost base relative to our revenue.

Refer to Item 1A.

"Risk Factors" for additional information related to this risk.

2021 Channel Trends

Sellers use our technology to monetize their content across all digital channels, including CTV, mobile and desktop, and each of these channels will continue to represent a meaningful portion of our revenue in future periods.

We track the breakdown of revenue across channels to better understand how our clients are transacting on our platforms, which informs decisions as to business strategy and the allocation of resources and capital.

Each of these digital channels has its own industry growth rate, with CTV and mobile projected to continue to grow steadily, while desktop growth flattens.

MAGNA's October 2021 Programmatic Market forecast has estimated compound annual growth rates from 2021 to 2025 for mobile and desktop at 18% and 2%, respectively, and over the same period, eMarketer projected CTV to grow at a 24% compound annual growth rate.

We believe that CTV will be our biggest growth driver in future periods, and following the SpotX Acquisition we expect CTV revenue to represent a significantly higher percentage of our overall revenue compared to pre-acquisition periods.

We expect our mobile business to grow at a higher rate than desktop, consistent with industry trends and our historical results.

Our mobile business consists of two components, mobile web and mobile applications.

Initially our mobile business consisted primarily of mobile web, which is similar to our desktop business, but we expect our future growth within mobile to come largely from our mobile applications business and, in particular, mobile video.

Lower industry growth rates in desktop will make growing desktop revenue more challenging;

however, in future periods we believe we will be able to grow our desktop business in excess of industry projections by capturing market share through SPO and expansion of publisher relationships.

We expect our desktop business to decline as an overall percentage of our revenue in future periods.

However, we expect that it will continue to represent a significant part of our revenue in the near term and therefore have a negative effect on our overall growth rate.

"Risk Factors" for additional information related to risks associated with the COVID-19 pandemic and other macroeconomic challenges.

Components of Our Results of Operations

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Our consolidated operating results are regularly reviewed by our chief operating decision maker, principally to make decisions about how we allocate our resources and to measure our consolidated operating performance.

We generate revenue from the purchase and sale of digital advertising inventory through our platform.

We generate revenue from the use of our 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.

We also generate revenue from the fee we charge clients for use of our Demand Manager header-bidding product and SpringServe ad server product, which we acquired on July 1, 2021.

We also generate revenue from our ad server and Demand Manager header-bidding product, where fees are either based on the number of impressions processed or a percentage of ad spend.

In addition, we may receive certain fixed monthly fees for the use of our platform or products.

We recognize revenue upon the fulfillment of our contractual obligations in connection with a completed transaction, subject to satisfying all other revenue recognition criteria.

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During the first quarter of 2021 (prior to the SpotX Acquisition), our revenue reported on a gross basis was less than 3% of total revenue.

For the three months ended December 31, 2021, our revenue reported on a gross basis increased to 19% of total revenue.

As revenue streams acquired in the SpotX Acquisition continue to increase, the percentage of revenue reported on a gross basis may continue to increase in future periods.

For the twelve months ended December 31, 2022, our revenue reported on a gross basis was 18% of total revenue.

Any mix shift that causes an increase in the relative percentage of our revenue accounted for on a gross basis would result in a higher revenue contribution and an associated decrease in our gross margin percentage (with no underlying impact on gross profit or Revenue ex-TAC, as defined in section "Key Operating and Financial Performance Metrics").

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Our 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, backlog, and non-compete agreements from our business acquisitions, and to a lesser extent, facilities-related costs and depreciation and amortization.

Our sales organization focuses on increasing the adoption of our solution by existing and new buyers and sellers.

sales organization focuses on increasing the adoption of our solution by existing and new buyers and sellers.

We amortize acquired intangibles associated with client relationships and backlog from our business acquisitions over their estimated useful lives.

Technology and Development .

Our technology and development expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, as well as professional services associated with the ongoing development and maintenance of our solution, depreciation and amortization, and to a lesser extent, facilities-related costs.

Our technology and development expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, as well as outsourced resources associated with the ongoing development and maintenance of our 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.

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Merger, Acquisition, and Restructuring Costs.

Our merger, acquisition, and restructuring costs consist primarily of professional service fees associated with the merger and acquisition activities, including cash-based employee termination costs, stock-based compensation charges, and other restructuring activities, including facility closures, relocation costs, and contract termination costs.

Our merger, acquisition, and restructuring costs consist primarily of professional service fees associated with the merger and acquisition activities, cash-based employee termination costs, related stock-based compensation charges, and other restructuring activities, including facility closures, relocation costs, contract termination costs, and impairment costs of abandoned technology associated with restructuring activities.

Other (Income) Expense

Interest (Income) Expense, Net.

Interest expense consists of interest expense associated with our Convertible Senior Notes and credit facility ("Term Loan B Facility"), and their related amortization of debt issuance costs and debt discount.

Interest expense consists of interest expense associated with our Term Loan B Facility (defined below) and Convertible Senior Notes (defined below), and their related amortization of debt issuance costs and debt discount.

Interest income consists of interest earned on our cash equivalents.

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Tax laws, regulations, administrative practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.

There are many transactions that occur during the ordinary course of business for which the

ultimate tax determination is uncertain.

Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.

There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets ("DTAs") and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.

Results of Operations

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Loss from operations (112,784) (81,070) (54,234) (39) % (49) %

Other (income) expense, net 13,918 (1,495) (593) (1,031) % 152 %

Other (income) expense, net 22,813 13,918 (1,495) (64) % NM

Loss before income taxes (135,597) (94,988) (52,739) (43) % (80) %

Provision (benefit) for income taxes (95,053) 693 (1,512) 13,816 % (146) %

Net income (loss) $ 65 $ (53,432) $ (25,478) 100 % (110) %

Provision (benefit) for income taxes (5,274) (95,053) 693 (94) % NM

Net income (loss) $ (130,323) $ 65 $ (53,432) NM 100 %

NM means Not Meaningful

(1) Stock-based compensation expense included in our expenses was as follows:

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Net income (loss) (23) % — % (24) %

Percentages may not sum due to rounding

Comparison of the Years Ended December 31, 2022, 2021, and 2020

Revenue increased $108.7 million, or 23%, for the year ended December 31, 2022 compared to the prior year.

Our revenue growth was driven primarily by organic growth as well as incremental revenue from the SpotX Acquisition, which was completed on April 30, 2021.

On a pro forma basis, including revenue for Telaria, SpotX and SpringServe during the relevant pre-acquisition period, revenue increased 30% for the year ended December 31, 2021 compared to the prior period, primarily due to growth in all channels, mainly driven by CTV and mobile, and a rebound from impacts of the COVID-19 pandemic, which were particularly pronounced in the first half of 2020.

Our revenue growth was driven primarily by growth in CTV and mobile as well as incremental revenue from full-year results from the SpotX Acquisition, which was completed on April 30, 2021, and the SpringServe Acquisition, which was completed on July 1, 2021.

Revenue from CTV and mobile increased by $83.3 million, or 45%, and $27.8 million, or 17%, respectively.

On a pro forma basis, including results from SpotX and SpringServe during the relevant pre-acquisition period, revenue increased 7% for the year ended December 31, 2022 compared to the prior period.

Revenue increased $246.8 million, or 111%, for the year ended December 31, 2021 compared to the prior year.

Our revenue growth was driven primarily by the Telaria Merger, completed on April 1, 2020, which contributed $60.1 million in revenue during the year ended December 31, 2020.

On a per channel basis, CTV revenue increased $34.3 million, compared to the prior year (all as a result of the Telaria Merger), while mobile revenue increased $20.2 million, or a 23%, compared to the prior year, and desktop revenue increased $10.7 million, or 16%, compared to the prior year.

Excluding the impact of the Telaria Merger, our revenue increased 3% year-over-year.

Despite some recovery in our revenue trends beginning in the third quarter of 2020, our overall annual revenue growth was significantly negatively affected by the impact of the COVID-19 pandemic.

We expect our revenue will increase in 2022 compared to 2021, as a result of organic growth and contributions from recently acquired businesses, in particular with respect to our CTV revenue.

Our revenue growth was driven primarily by organic growth as well as incremental revenue from the SpotX Acquisition, which was completed on April 30, 2021, and the inclusion of a full year of results for Telaria, which was acquired on April 1, 2020.

We expect our revenue will increase in 2023 compared to 2022.

Our revenue is largely a function of the number of advertising transactions and the price, or CPM, at which the inventory is sold, which results in total advertising spend on our platform, and, with respect to our revenue reported on a net basis, the take rate we charge for our services.

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We believe that contributions to revenue from reserve auctions, in particular with respect to CTV which is largely transacted on a reserved basis, will continue to grow as a percentage of our total revenue.

In general, we expect this shift will have a net positive impact on our revenue due to both an increase in the volume of transactions and average CPM, despite the fact that reserve auctions generally carry a lower take rate compared to open auction transactions.

Our revenue growth has been tempered, and may be negatively impacted in the future, by reductions in revenue resulting from the economic impact of the COVID-19 pandemic.

In general, we expect this shift will have a positive impact on our revenue due to both an increase in the volume of transactions and average CPM, despite the fact that reserve auctions generally carry a lower take rate compared to open auction transactions.

Our business is dependent in part on the overall health of the advertising market.

Our revenue growth has been tempered, and may be negatively impacted in the future, by reductions in revenue resulting from the impact of macroeconomic challenges, such as the occurrence of a pandemic or health crisis, geopolitical events (including the conflict in Ukraine), and other macroeconomic factors like labor shortages, supply chain disruptions, recessionary concerns, and inflation impacting the markets and communities in which we operate.

If economic conditions were to deteriorate further, we would likely experience a negative impact on our future revenue trends, and the magnitude of this impact is difficult to predict depending on the scope and duration of any recession.

Refer to Item 1A.

"Risk Factors" for additional information related to this risk factor and the impact it may have on our business.

"Risk Factors" for additional information related to these risks and the impact they may have on our business.

Cost of Revenue

Cost of revenue increased by $123.9 million , or 159%, for the year ended December 31, 2021 compared to the prior year primarily due to an increase in traffic acquisition cost of $49.9 million driven by the increase in revenue reported on a gross basis as a result of the SpotX Acquisition, an increase in depreciation and amortization expenses of $43.2 million also associated with the SpotX Acquisition, and an increase in data and bandwidth expenses of $21.4 million.

Cost of revenue increased $20.4 million, or 35%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the Telaria Merger.

Cost of revenue includes an increase of $11.8 million in data and bandwidth expenses, $4.5 million in depreciation and amortization, and $2.0 million in media costs.

Our cost of revenue will continue to increase in future periods primarily due to the impacts of recently completed acquisitions that have expanded the size of our revenue and expense base, increases in hosting costs and other expenses to support the growth of our business, increases in traffic acquisition costs associated with revenue reported on a gross basis, and an increase in amortization of intangible assets resulting from the Telaria Merger and the SpotX Acquisition.

Cost of revenue increased $105.5 million , or 52%, for the year ended December 31, 2022 compared to the prior year primarily due to an increase of $64.5 million in depreciation and amortization.

This increase was driven by incremental amortization

due to the acceleration of the remaining lives of certain acquired intangible assets and capitalized software from the integration of our legacy Magnite CTV and SpotX CTV platforms into Magnite Streaming, as well as from a full year of amortization expense from the SpotX Acquisition.

The incremental amortization due to the acceleration was $35.4 million.

Costs of revenue also included increases of $26.9 million in data and bandwidth expenses and $10.5 million in traffic acquisition costs, both primarily due to revenue growth.

Cost of revenue increased $123.9 million, or 159%, for the year ended December 31, 2021 compared to the prior year primarily due to an increase in traffic acquisition cost of $49.9 million driven by the increase in revenue reported on a gross basis as a result of the SpotX Acquisition, an increase in depreciation and amortization expenses of $43.2 million also associated with the SpotX Acquisition, and an increase in data and bandwidth expenses of $21.4 million.

We expect cost of revenue to increase in 2023 compared to 2022 in absolute dollars primarily due to the accelerated amortization expense as discussed above, which is expected to result in approximately $114.3 million of net incremental non-cash expense through the third quarter of 2023 as compared to the original timing of its amortization.

We also expect increases in our hosting costs, cloud costs, and other data center expenses to support the growth of our business.

Cost of revenue may fluctuate from quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, depending on revenue levels and the volume of transactions we process supporting those revenues, and the timing and amounts of depreciation and amortization of equipment and software.

Sales and Marketing

Sales and marketing expenses increased by $94.4 million, or 124%, for the year ended December 31, 2021 compared to the prior year primarily due to an increase of $54.1 million in amortization of acquired intangibles and other assets as a result of the SpotX Acquisition and the Telaria Merger as well as increases in headcount from the SpotX Acquisition, resulting in an additional $36.8 million of personnel related expenses.

Sales and marketing expenses increased by $31.5 million, or 71%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the Telaria Merger and associated increases in amortization related to acquired intangibles and other assets and increases in headcount.

Sales and marketing expenses increased by $20.4 million related to personnel expenses and $12.8 million related to depreciation and amortization associated with the Telaria Merger.

These increases were partially offset by a decrease in expenses of $2.4 million related to travel and industry events due to the impact of the COVID-19 pandemic.

We expect sales and marketing expenses to increase in 2022 compared to 2021 in absolute dollars primarily due to a full year of additional headcount costs and amortization of acquired intangible assets as a result of the SpotX Acquisition, new hiring to support our growth, and increases in travel and entertainment expenses.

Sales and marketing expenses increased $29.7 million, or 17%, for the year ended December 31, 2022 compared to the prior year primarily due to the impact of the SpotX Acquisition, which resulted in substantial increases in headcount in mid-2021, as well as expenses related to the amortization of acquired intangibles.

Compared to the prior year, sales and marketing included an increase of $17.5 million of personnel related expenses and $4.2 million in amortization of acquired intangibles relating to the SpotX Acquisition.

In addition, the increase in sales and marketing expenses included $3.3 million related to travel and industry events due to the lifting of travel restrictions during the year.

Sales and marketing expenses increased $94.4 million, or 124%, for the year ended December 31, 2021 compared to the prior year primarily due to an increase of $54.1 million in amortization of acquired intangibles and other assets as a result of the SpotX Acquisition and the Telaria Merger, as well as increases in headcount from the SpotX Acquisition and full year results from the Telaria Merger, resulting in an additional $36.8 million of personnel related expenses.

We expect sales and marketing expenses to decrease in 2023 compared to 2022 in absolute dollars primarily due to decreases in amortization of acquired intangible assets.

We expect these decreases to be partially offset by increases in personnel related expenses primarily driven by annual merit increases to current staff, higher marketing from the introduction of our new Magnite Streaming Platform, and increases in event, travel and entertainment expenses.

Sales and marketing expenses may fluctuate quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, based on revenue levels, the timing of our investments and seasonality in our industry and business.

Technology and Development

Technology and development expenses increased by $22.9 million, or 44%, for the year ended December 31, 2021 compared to the prior year, primarily due to an increase of $21.2 million in personnel costs as a result of the increased headcount associated with the SpotX Acquisition and a full-year of results from the Telaria Merger.

Technology and development expenses increased by $11.3 million, or 28%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to an increase of $11.6 million in personnel costs as a result of the increased headcount associated with the Telaria Merger.

We expect technology and development expenses to increase in 2022 compared to 2021 in absolute dollars, primarily due to a full year of additional headcount costs related to the SpotX and SpringServe Acquisitions and new hiring to support our growth.

The timing and amount of our capitalized development and enhancement projects may affect the amount of technology development costs expensed in any given period.

Technology and development expenses increased $19.3 million, or 26%, for the year ended December 31, 2022 compared to the prior year, primarily due to an increase of $15.8 million in personnel costs as a result of the increased headcount associated with the SpotX Acquisition.

Technology and development expenses increased $22.9 million, or 44%, for the year ended December 31, 2021 compared to the prior year, primarily due to an increase of $21.2 million in personnel costs as a result of the increased headcount associated with the SpotX Acquisition and a full-year of results from the Telaria Merger.

We expect technology and development expenses to increase slightly in 2023 compared to 2022 in absolute dollars, primarily due to increased investment in software, outsourced resources, and travel and entertainment expenses.

We expect these increases to be partially offset by decreased personnel related expenses due to the recent reduction in force associated with the elimination of duplicative technology and development roles resulting from the integration of our CTV platforms.

The timing and amount of our capitalized development and enhancement projects may affect the amount of development costs expensed in any given period.

As a percentage of revenue, technology and development expense may fluctuate from quarter to quarter and period to period based on revenue levels, the timing and amounts of technology and development efforts, the timing and the rate of the amortization of capitalized projects and the timing and amounts of future capitalized internal use software development costs.

General and Administrative

General and administrative expenses increased $16.6 million, or 26%, for the year ended December 31, 2022 compared to the prior year, primarily due to increases of $10.2 million in personnel expenses mainly due to increases in stock-based compensation year-over-year, $2.0 million in facilities related expenses due to a return to office work environment, $1.8 million in

business insurance and taxes, and $1.1 million related to travel and industry events due to the lifting of travel restrictions during the year.

General and administrative expenses increased by $11.8 million, or 22%, for the year ended December 31, 2021 compared to the prior year, primarily due to increases of $6.3 million in personnel expenses, $1.5 million in professional services, and $1.1 million in software license mainly attributed to the growth of the overall business as a result of the SpotX Acquisition.

General and administrative expenses increased by $13.2 million, or 33%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to increases of $7.1 million in personnel expenses and $4.0 million in facilities related expenses, both primarily associated with the Telaria Merger.

In addition, professional services increased by $3.0 million mainly attributed to the growth of the overall business as a result of the Telaria Merger.

These increases were partially offset by a decrease in bad debt expense of $1.3 million.

We expect general and administrative expenses to increase in 2022 compared to 2021 in absolute dollars primarily due to a full year of additional headcount costs related to the SpotX Acquisition and new hires to support our overall growth, as well as additional costs assuming a return to office work environment in 2022.

We expect general and administrative expenses to increase in 2023 compared to 2022 in absolute dollars primarily due to increases in personnel related expenses along with additional costs for a full-year return to office work environment.

General and administrative expenses may fluctuate from quarter to quarter and period to period based on the timing and amounts of expenditures in our general and administrative functions as they vary in scope and scale over periods.

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Merger, Acquisition, and Restructuring Costs

We incurred merger, acquisition, and restructuring costs of $38.2 million and $17.6 million during the years ended December 31, 2021 and 2020, respectively, primarily related to the SpotX and SpringServe Acquisitions, which were completed on April 30, 2021 and July 1, 2021, respectively, and the Telaria Merger, which was completed on April 1, 2020.

We incurred merger, acquisition, and restructuring costs of $7.5 million, $38.2 million, and $17.6 million during the years ended December 31, 2022, 2021, and 2020, respectively, primarily related to the SpotX and SpringServe Acquisitions, which were completed on April 30, 2021 and July 1, 2021, respectively, and the Telaria Merger, which was completed on April 1, 2020.

In 2022, these costs were primarily due to restructuring activities related to the integration of our recent acquisitions, which included $3.3 million of impairment costs associated with abandoned technology, $2.0 million non-cash stock-based compensation expense associated with the acceleration of unvested equity awards, and $1.2 million of one-time cash-based employee termination costs.

In 2021, these costs included professional fees related to investment banking advisory, legal, and other professional service fees of $28.4 million, one-time cash-based employee termination benefit costs of $6.2 million, facility closure costs of $2.5 million, and non-cash stock-based compensation expense associated with double-trigger accelerations and severance benefits of $1.1 million.

Costs incurred in 2020 included professional services of $9.9 million, one-time cash-based employee termination benefit costs of $5.7 million, and non-cash stock-based compensation expense and severance benefits of $1.9 million.

Merger, acquisition, and restructuring costs increased by $15.5 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increased professional services and cash and non-cash acceleration and termination benefits, as referenced above, associated with the Telaria Merger and resulting restructuring activities.

Other (Income) Expense, Net

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Total other (income) expense, net $ 22,813 $ 13,918 $ (1,495)

Interest expense, net increased by $19.9 million during the year ended December 31, 2021 compared to the prior year, mainly due to interest expense associated with the Convertible Senior Notes (defined below), which the Company entered into during March 2021, and interest expense associated with the Term Loan B Facility (defined below), which the Company entered into during April 2021, both in connection with the closing of the SpotX Acquisition.

Interest (income) expense, net was immaterial in the years ended December 31, 2020 and 2019.

Other income increased by $0.8 million and $3.4 million during the years ended December 31, 2021 and 2020, respectively, compared to the prior years due to a subleased property acquired from the Telaria Merger in April 2020 and additional subleases entered into in 2021 and 2020.

Interest expense, net increased by $9.4 million during the year ended December 31, 2022 compared to the prior year, mainly due to a full year of interest expense associated with the Term Loan B Facility (defined below), which the Company entered into during April 2021, as well as increasing interest rates since our Term Loan B Facility carries a variable rate.

The increase in interest expense was partially offset by increases in interest income of $2.9 million.

Interest expense, net increased by $19.9 million during the year ended December 31, 2021 compared to the prior year, for the same reasons above.

Interest (income) expense, net was immaterial in the year ended December 31, 2020.

Our interest expense is expected to fluctuate as it is directly impacted by changes in market interest rates.

While changes to interest income from our cash, cash equivalents and short-term investments do provide a mitigant to changes to interest expense from our Term Loans, they do not fully offset all of the impact from potential changes in underlying variable rates on our Term Loans.

Other income is primarily attributed to sublease income.

Foreign exchange (gain) loss, net is impacted by movements in exchange rates and the amount of foreign currency-denominated cash, receivables, and payables, which are impacted by our billings to buyers, payments to sellers, and intercompany balances.

The foreign exchange gain, net during the year ended December 31, 2022 was primarily attributable to the currency movements between the British Pound, Australian Dollar, Canadian Dollar, and Euro relative to the U.S.

The foreign currency gain, net during the year ended December 31, 2021 was primarily attributable to the currency movements between the British Pound, Australian Dollar, Canadian Dollar, and Euro relative to the U.S.

The foreign currency loss, net during the year ended December 31, 2020 was primarily attributable to the currency movements between the same foreign currencies mentioned above relative to the U.S.

Dollar and the foreign currency loss, net during the year ended December 31, 2019 was primarily attributable to the currency movements between the British Pound and the Euro relative to the U.S.

The foreign exchange loss, net during the year ended December 31, 2020 was primarily attributable to the currency movements between the same foreign currencies mentioned above relative to the U.S.

Provision (Benefit) for Income Taxes

We 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.

We recorded an income tax benefit of $5.3 million for the year ended December 31, 2022 compared to an income tax benefit of $95.1 million and income tax expense of $0.7 million for the years ended December 31, 2021 and 2020, respectively.

The tax benefit for the year ended December 31, 2022 was primarily the result of recognizing the benefit of deferred tax assets previously subject to the domestic valuation allowance and the foreign income tax liability.

The net deferred tax liabilities recorded in connection with the prior years acquisitions and our current year taxable income provided sources of taxable income to support the realizability of pre-existing deferred tax assets.

We continue to maintain a partial valuation allowance for our domestic deferred tax assets.

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 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.

Key Operating and Financial Performance Metrics

In addition to our GAAP results, we review non-GAAP financial measures, including Revenue ex-TAC and Adjusted EBITDA, to help us evaluate our business on a consistent basis, measure our performance, identify trends affecting our business, establish budgets, measure the effectiveness of investments in our technology and development and sales and marketing, and assess

our operational efficiencies.

Our non-GAAP financial measures are discussed below.

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Revenue ex-TAC $ 514,615 $ 416,455 $ 219,602

Each of these digital channels has its own industry growth rate, with CTV and mobile projected to continue to grow steadily, while desktop growth flattens.

MAGNA's October 2022 Programmatic Market forecast has estimated compound annual growth rates from 2022 to 2026 for mobile and desktop at 18% and 3%, respectively, and over the same period, eMarketer projected CTV to grow at a 20% compound annual growth rate.

We track the breakdown of Revenue ex-TAC across channels to better understand how our clients are transacting on our platform, which informs decisions as to business strategy and the allocation of resources and capital.

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CTV $ 214,803 $ 143,407 $ 34,319

Desktop 112,981 76,930 68,302

Mobile 188,116 160,067 108,353

Desktop 111,696 112,981 76,930

Total $ 514,615 $ 416,455 $ 219,602

Revenue ex-TAC increased $98.2 million, or 24%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in Revenue ex-TAC was primarily due to contributions from the SpotX and SpringServe Acquisitions and the Telaria Merger, which were completed on April 30, 2021, July 1, 2021, and April 1, 2020, respectively, as well as organic growth across all channels as the business recovered from COVID-19 advertising lows in 2020.

The increase in Revenue ex-TAC was primarily due to incremental revenue from the SpotX Acquisition, which was completed on April 30, 2021, and the SpringServe Acquisition, which was completed on July 1, 2021, as well as organic growth across CTV and mobile.

We saw substantial growth in our CTV channel, which benefited from a full year of results from the SpotX and Spring Serve Acquisitions, as well as modest growth in mobile, which was partially offset by a decline in our Revenue ex-TAC from desktop.

Revenue ex-TAC increased $196.9 million, or 90%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase in Revenue ex-TAC was primarily attributable to contributions from the Telaria Merger, which was completed on April 1, 2020.

We expect Revenue ex-TAC to increase through the remainder of 2022 as compared to the same period in the prior year.

We believe that CTV will be our biggest growth driver in future periods and continue to represent a higher percentage of our overall Revenue ex-TAC.

The increase in Revenue ex-TAC was primarily due to contributions from the SpotX and SpringServe Acquisitions and a full year of results from the Telaria Merger, which were completed on April 30, 2021, July 1, 2021, and April 1, 2020, respectively, as well as organic growth across all channels as the business recovered from COVID-19 advertising lows in 2020.

We expect Revenue ex-TAC to increase in 2023 compared to 2022.

We believe that CTV will be our biggest growth driver in future periods and continue to represent a higher percentage of our overall Revenue ex-TAC, with mobile as our second biggest driver.

Our mobile business consists of two components, mobile web and mobile applications.

Initially our mobile business consisted primarily of mobile web, which is similar to our desktop business, but our mobile application business has been the growth driver behind our mobile business.

We therefore expect our growth within mobile to come largely from our mobile applications business and, in particular, mobile in-app video.

Lower industry growth rates in desktop will make growing desktop Revenue ex-TAC more challenging;

however, in future periods we believe we will be able to grow our desktop business in excess of industry projections by capturing market share through SPO and expansion of publisher relationships.

We expect our desktop business to decline as an overall percentage of our revenue in future periods.

However, we expect that it will continue to represent a significant part of our Revenue ex-TAC in the near term.

Therefore, we believe the mix of our desktop business will continue to dampen our overall growth rate.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense, depreciation and amortization, amortization of acquired intangible assets, impairment charges, interest income or expense, and other cash and non-cash based income or expenses that we do not consider indicative of our core operating performance, including, but not limited to foreign exchange gains and losses, acquisition and related items, non-operational real estate expense (income), net, and provision (benefit) for income taxes.

We define Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense, depreciation and amortization, amortization of acquired intangible assets, impairment charges, interest income or expense, and other cash and non-cash based income or expenses that we do not consider indicative of our core operating performance, including, but not limited to foreign exchange gains and losses, acquisition and related items, non-operational real estate and other expense (income), net, and provision (benefit) for income taxes.

We believe Adjusted EBITDA is useful to investors in evaluating our performance for the following reasons:

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• Impairment charges are non-cash charges related to goodwill, intangible assets and/or long-lived assets.

• Adjusted EBITDA does not reflect non-cash charges related to acquisition and related items, such as amortization of acquired intangible assets, merger or acquisition related severance costs, and changes in the fair value of contingent consideration.

• Adjusted EBITDA does not reflect non-cash charges related to acquisition and related items, such as amortization of acquired intangible assets, merger, acquisition, or restructuring related severance costs, and changes in the fair value of contingent consideration.

• Adjusted EBITDA does not reflect cash and non-cash charges and changes in, or cash requirements for, acquisition and related items, such as certain transaction expenses and expenses associated with earn-out amounts.

• Adjusted EBITDA does not reflect changes in our working capital needs, capital expenditures, non-operating real estate expenses or income, or contractual commitments.

• Adjusted EBITDA does not reflect changes in our working capital needs, capital expenditures, non-operational real estate expenses or income, or contractual commitments.

• Adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense.

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Merger, acquisition, and restructuring costs, excluding stock-based compensation expense 5,464 37,106 15,682

Non-operational real estate expense (income), net 553 198 —

Non-operational real estate and other expense, net 622 552 213

Interest (income) expense, net 29,260 19,848 (50)

Foreign exchange (gain) loss, net (1,129) (1,480) 2,220

Other non-operating (income) expense, net (1) 15 —

Provision (benefit) for income taxes (5,274) (95,053) 693

Adjusted EBITDA $ 178,790 $ 148,659 $ 43,065

Adjusted EBITDA increased by $30.1 million during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to incremental revenue growth from the SpotX Acquisition and organic growth.

Adjusted EBITDA increased by $105.6 million during the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to increases in revenue from both organic growth and the SpotX and SpringServe Acquisitions, which are discussed in section "Comparison of the Years Ended December 31, 2022, 2021, and 2020" and improved operating leverage from our increased scale and related cost synergies.

Adjusted EBITDA increased by $17.4 million during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to the increase in revenue from the Telaria Merger and improved operating leverage from our increased scale and related merger cost synergies.

We expect Adjusted EBITDA to continue to increase as a result of continued growth in revenue, ongoing operating leverage, and the realization of additional cost synergies.

Liquidity and Capital Resources

At December 31, 2022, we had cash and cash equivalents of $326.3 million, of which $34.0 million was held in foreign currency denominated cash accounts, and an aggregate gross principal amount of $754.6 million of indebtedness outstanding under our Term Loan B Facility (as defined below) and our Convertible Senior Notes (as defined below).

In addition, we are party to a $65.0 million Revolving Credit Facility, of which approximately $5.1 million is assigned to outstanding but undrawn letters of credit.

In addition, we are party to a $65.0 million Revolving Credit Facility (as defined below), of which approximately $5.3 million is assigned to outstanding but undrawn letters of credit.

See "Capital Resources" below for further information about our outstanding debt.

Our principal cash requirements for the 12 month period following this report primarily consist of personnel costs, contractual payment obligations, including office leases, data center costs and cloud hosting costs, capital expenditures, payment of interest and required principal payments on our Convertible Senior Notes and Term Loan B Facility, taxes, and cash requirements to fund working capital.

Our principal cash requirements for the twelve-month period following this report primarily consist of personnel costs, contractual payment obligations, including office leases, data center costs and cloud hosting costs, capital expenditures, payment of interest and required principal payments on our Convertible Senior Notes and Term Loan B Facility, taxes paid related to net share settlement associated with vesting of stock-based compensation awards, cash outlays for income taxes, and cash requirements to fund working capital.

In the longer term, we would expect to have similar cash requirements, with increases in absolute dollars associated with the continued growth of our business and expansion of operations.

See "Contractual Obligations and Known Future Cash Requirements" for a further discussion of our known material contractual obligations.

Our working capital needs and cash conversion cycle, which is influenced by seasonality and may be negatively impacted as a result of COVID-19, can have large fluctuations due to the timing of receipts from buyers and timing of disbursements to sellers.

Our working capital needs and cash conversion cycle, which is influenced by seasonality and may be negatively impacted as a result of pandemics, inflationary, recessionary and other macroeconomic challenges, can have large fluctuations due to the timing of receipts from buyers and timing of disbursements to sellers.

In addition, in the event a buyer defaults on payment, we may still be required to pay sellers for the inventory purchased.

Additionally, our capital expenditure investments tend to be higher in the second half of the year.

Our capital expenditure investments tend to be higher in the second half of the year.

The impacts from changes in working capital and capital expenditures can significantly impact our cash flows and therefore, our liquidity during any period presented.

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Our ability to meet our cash requirements depends on, among other things, our operating performance, competitive developments, and financial market conditions, all of which are significantly affected by business, financial, economic, political, global health-related and other factors, many of which we may not be able to control or influence.

We believe our existing cash and cash equivalents, cash generated from operating activities, and available borrowings under our Revolving Credit Facility will be sufficient to meet our working capital requirements for at least the next twelve months from the issuance of our financial statements.

However, there are multiple factors that could impact our cash balances in the future, including the factors described above with respect to working capital and cash conversion cycles, as well as the duration and severity of the COVID-19 pandemic and its impact on buyers and sellers and the factors set forth in Part I, Item 1A:

We believe our existing cash and cash equivalents, cash generated from operating activities, and amounts available to borrow under our Revolving Credit Facility will be sufficient to meet our working capital requirements for at least the next twelve

months from the issuance of our financial statements.

However, there are multiple factors that could impact our cash balances in the future, including the factors described above with respect to working capital and cash conversion cycles, as well as the duration and severity of events beyond our control, such as health epidemics, including the COVID-19 pandemic, geopolitical events, including the evolving conflict in Ukraine, and economic and macroeconomic factors like labor shortages, supply chain disruptions, and inflation impacting the markets and communities in which our clients operate and the factors set forth in Part I, Item 1A:

"Risk Factors" of this Annual Report on Form 10-K.

Capital Resources

On April 30, 2021, we completed the SpotX Acquisition, which included cash consideration of $640.0 million, and on July 1, 2021, we completed the SpringServe Acquisition, which included cash consideration of $31.1 million, excluding indemnification holdback.

In March 2021, we sold convertible senior notes ("Convertible Senior Notes") for gross proceeds of $400.0 million.

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On April 30, 2021, and in conjunction with the SpotX Acquisition, we entered into a credit agreement (the "Credit Agreement") with Goldman Sachs Bank USA as administrative and collateral agent, and other lending parties thereto 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"), which was subsequently increased to $65.0 million in June 2021.

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 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.

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Accrued interest for the Term Loan B Facility at December 31, 2022 was $0.8 million.

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.

In December 2021, the Board of Directors approved a repurchase program (the "2021 Repurchase Plan"), under which the Company was authorized to purchase up to $50.0 million of its common stock from December 10, 2021 through December 10, 2022.

In November 2022, the Board of Directors approved an extension of the repurchase program through December 15, 2023.

Approximately $28.3 million remained available for purchase under this repurchase program as of December 31, 2022.

In February 2023, our Board of Directors approved a repurchase plan (the “2023 Repurchase Plan”), pursuant to which the Company is authorized to purchase up to an aggregate of $75.0 million of common stock or Convertible Senior Notes through February 16, 2025.

The 2023 Repurchase Plan replaces the 2021 Repurchase Plan.

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

securities laws.

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 remained available for purchase under the plan as of December 31, 2021.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements.

If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.

If we raise additional financing by incurring indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and

other operating restrictions that could adversely impact our ability to conduct our business.

Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

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Our cash and cash equivalents balance is affected by our results of operations, the timing of capital expenditures which are typically greater in the second half of the year, and by changes in our working capital, particularly changes in accounts receivable and accounts payable.

The timing of cash receipts from buyers and payments to sellers can significantly impact our cash flows from operating activities and our liquidity for, and within, any period presented.

The timing of cash receipts from buyers and payments to sellers can significantly impact our cash flows from

operating activities and our liquidity for, and within, any period presented.

Our collection and payment cycle can vary from period to period depending upon various circumstances, including seasonality, and may be negatively impacted as a result of COVID-19.

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Operating Activities

Our cash flows from operating activities are primarily driven by revenues generated from advertising activity, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from buyers and related payments to sellers.

Our cash flows from operating activities are primarily driven by revenue from transactions of advertising on our platform, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from buyers and related payments to sellers.

Our future cash flows will be diminished if we cannot increase our revenue levels and manage costs appropriately.

During the year ended December 31, 2021, net cash provided by operating activities was $126.6 million, compared to net cash used in operating activities of $12.1 million during the year ended December 31, 2020 and net cash provided by operating activities of $32.0 million during the year ended December 31, 2019.

Our operating activities included net income of $0.1 million, and net losses of $53.4 million, and $25.5 million for the years ended December 31, 2021 and 2020, and 2019, respectively, which were offset by non-cash adjustments of $94.6 million, $76.4 million, and $51.5 million, respectively.

Net changes in our working capital resulted in increases of $31.9 million and $5.9 million in cash provided by operating activities in 2021 and 2019, respectively.

In 2020, net changes in our working capital increased cash used from operating activities by $35.1 million.

During the year ended December 31, 2022, net cash provided by operating activities was $192.6 million, compared to net cash provided by operating activities of $126.6 million during the year ended December 31, 2021 and net cash used in operating activities of $12.1 million during the year ended December 31, 2020.

Our operating activities included net loss of $130.3 million, net income of $0.1 million, and net loss of $53.4 million for the years ended December 31, 2022 and 2021, and 2020, respectively, which were offset by non-cash adjustments of $282.4 million, $94.6 million, and $76.4 million, respectively.

Net changes in our working capital resulted in increases of $40.4 million and $31.9 million in cash provided by operating activities in 2022 and 2021, respectively, and resulted in decreases of $35.1 million in cash provided by operating activities in 2020.

The net changes in working capital for all periods presented are primarily due to the timing of cash receipts from buyers and the timing of payments to sellers.

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Purchases of property and equipment and investments in internal use software development may vary from period-to-period due to the timing of the expansion of our operations, changes to headcount, and the cycles of our internal use software development.

We anticipate investment in internal use software development to slightly increase compared to past years' investment levels as we continue to innovate new solutions on our platform.

As the business continues to grow, we expect our investment in property and equipment to increase compared to 2021.

Historically, a majority of our purchases in property and equipment have occurred in the latter half of the year in preparation for the peak volumes of the fourth quarter and early in the first quarter of the following year.

We expect those trends to continue, with higher levels of property and equipment spend in the latter half of next year compared to the first half of the year.

Investments in, and maturities of, available-for-sale securities and acquisitions of businesses vary from period-to-period.

During the year ended December 31, 2021, net cash used by investing activities was $691.0 million compared to net cash provided by investing activities of $32.6 million during the year ended December 31, 2020 and net cash used by investing activities of $23.4 million during the year ended December 31, 2019.

During the year ended December 31, 2021, 2020, and 2019, we used

cash for purchases of property and equipment of $17.7 million, $14.3 million, and $11.4 million, respectively, and used cash for investments in our internally developed software of $11.4 million, $7.7 million, and $8.5 million, respectively.

We anticipate investment in internal use software development and purchases of property and equipment to decrease in 2023 compared to 2022.

During the year ended December 31, 2022, net cash used by investing activities was $65.2 million, compared to net cash used by investing activities of $691.0 million during the year ended December 31, 2021 and net cash provided by investing activities of $32.6 million during the year ended December 31, 2020.

During the year ended December 31, 2022, 2021, and 2020, we used cash for purchases of property and equipment of $30.8 million, $17.7 million, and $14.3 million, respectively, and used cash for investments in our internally developed software of $13.6 million, $11.4 million, and $7.7 million, respectively.

During the year ended December 31, 2022, we used net cash of $20.8 million to acquire Carbon.

During the year ended December 31, 2021, we used net cash of $661.9 million to acquire SpotX, SpringServe, and Nth Party.

During the year ended December 31, 2020, we acquired $54.6 million cash in the Telaria Merger.

For the year ended December 31, 2019, we used net cash of $11.0 million for the acquisition of RTK.io and had net maturities of investments in available-for-sale securities of $7.5 million.

Financing Activities

Our financing activities consisted of our Convertible Senior Notes offering, amounts borrowed under our Term Loan B Facility, and transactions related to our equity plans.

For the years ended December 31, 2021, 2020, and 2019 we provided net cash of $678.1 million and $7.4 million, and used net cash of $0.2 million, respectively, for financing activities.

Our financing activities consisted of our Convertible Senior Notes transactions, repayment of amounts borrowed under our Term Loan B Facility, transactions related to our equity plans, and stock purchases under the share repurchase plan.

During the year ended December 31, 2022, net cash used in financing activities was $30.2 million, compared to net cash provided by financing activities of $678.1 million and $7.4 million during the years ended December 31, 2021 and December 31, 2020, respectively.

Cash outflows from financing activities for the year ended December 31, 2022 primarily included $15.7 million for payments related to share repurchases, $14.5 million for taxes paid related to net share settlement of stock-based awards, and $3.6 million for repayment of our Term Loan B.

These outflows for the year ended December 31, 2022 were partially offset by cash proceeds from issuance of common stock under our employee stock purchase plan of $3.7 million and from stock options exercised of $2.2 million.

Cash inflows from financing activities for the year ended December 31, 2021 included $400.0 million in proceeds from our Convertible Senior Notes offering, $349.2 million in net proceeds from our Term Loan B Facility, cash proceeds from stock options exercised of $9.4 million and $3.7 million cash proceeds from issuance of common stock under our employee stock purchase plan.

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Cash inflows from financing activities for the year ended December 31, 2020 included cash proceeds from stock option exercised of $13.5 million and cash proceeds from issuance of common stock under our employee stock purchase plan of $1.7 million, partially offset by payments of $7.9 million for income tax deposits paid in respect of vesting of stock-based compensation awards that were reimbursed by the award recipients through surrender of shares.

Cash outflows from financing activities for the year ended December 31, 2019 included payments of $1.8 million for income tax deposits paid in respect of vesting of stock-based compensation awards that were reimbursed by the award recipients through surrender of shares, which were partially offset by cash proceeds from issuance of common stock under our employee stock purchase plan of $1.1 million and cash proceeds from stock option exercised of $0.6 million.

Off-Balance Sheet Arrangements

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Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of obligations under our Convertible Senior Notes, Term Loan B Facility, Revolving Credit Facility, leases for our various office facilities, including our corporate headquarters in New York, New York and offices in Los Angeles, California, operating lease agreements, including data centers and cloud hosting services that expire at various times through 2031, and indemnification holdback associated with the SpringServe Acquisition.

Our principal commitments consist of obligations under our Convertible Senior Notes, Term Loan B Facility, Revolving Credit Facility, leases for our various office facilities, including our corporate headquarters in New York, New York and offices in Los Angeles, California, operating lease agreements, including data centers, cloud hosting services that expire at various times through 2033, and indemnification holdback associated with acquisitions.

In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

We received rental income from subleases totaling $4.4 million for the year ended December 31, 2021.

The following table summarizes our future lease obligations, payments of principal and interest under our debt agreements, sublease income, and other future payments due under non-cancelable agreements at December 31, 2022:

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Total $ 69,286 $ 62,297 $ 52,335 $ 448,456 $ 43,294 $ 369,251 $ 1,044,919

(1) Includes only scheduled amortization of payments and excludes currently unknown prepayment amounts that will be required, per terms of the Credit Agreement, after the end of each fiscal year.

(2) Interest payments are based on an assumed rate of 5.75%, which was the rate used as of December 31, 2021 for the associated Credit Agreement.

Payments associated with our Convertible Senior Notes are based on contractual terms and intended timing of repayments of long-term debt and associated interest and do not assume conversion prior to the maturity date.

Other non-cancelable obligations include other agreements in the normal course of business and purchase consideration that extend beyond a year.

(1) Includes only scheduled amortization of payments and excludes currently unknown prepayment amounts that may be required, per terms of the Credit Agreement, after the end of each fiscal year.

(2) Interest payments are based on an assumed rate of 9.33%, which was the rate as of December 31, 2022 for the associated Term Loan B Facility.

Obligations for leases not included in lease liabilities as of December 31, 2022 include commitments under agreements for office spaces that have not commenced as of December 31, 2022.

Payments associated with our Convertible Senior Notes and Term Loan B are based on contractual terms and intended timing of repayments of long-term debt and associated interest.

Other non-cancelable obligations include agreements in the normal course of business and purchase consideration that extend beyond a year as of December 31, 2022 and indemnification holdback obligations associated with acquisitions.

Other non-cancelable obligations above excludes a variable commitment from an agreement for third-party cloud-managed services.

The variable commitment begins in July 2023 and ends in June 2025.

The future obligation under this agreement will be based on actual spend, as defined in the agreement, with the third-party provider from July 2022 through June 2023.

We estimate the future minimum annual obligation to be approximately $50 million to $55 million in each twelve-month period (i.e., July 2023 to June 2024 and July 2024 to June 2025).

In the ordinary course of business, we enter into agreements with sellers, buyers, and other third parties pursuant to which we agree to indemnify buyers, sellers, vendors, lessors, business partners, lenders, stockholders, and other parties with respect to certain matters, including, but not limited to, losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities.

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We believe that the following assumptions and estimates have the greatest potential impact on our consolidated financial statements:

(i) the determination of revenue recognition as net versus gross in our revenue arrangements, (ii) the determination of the estimated useful lives of internal-use software development costs, (iii) the recoverability of intangible asset and goodwill, (iv) assumptions used in the valuation models to determine the fair value of stock options, awards with market and performance conditions and stock-based compensation expense, (v) the assumptions used in the valuation of acquired assets and liabilities in business combinations, and (vi) income taxes, including the realization of tax assets and estimates of tax liabilities.

(i) the determination of revenue recognition as net versus gross in our revenue arrangements, (ii) the determination of amounts to capitalize and the estimated useful lives of internal-use software development costs, (iii) the recoverability of intangible

assets and goodwill and the determination of the estimated useful lives of intangible assets, (iv) assumptions used in the valuation models to determine the fair value of stock options, awards with market and performance conditions and stock-based compensation expense, (v) the assumptions used in the valuation of acquired assets and liabilities in business combinations, and (vi) income taxes, including the realization of tax assets and estimates of tax liabilities.

There have been no significant changes in our accounting policies or estimates from those disclosed in our audited consolidated financial statements and notes thereto for the years ended December 31, 2022, 2021 and 2020.

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We capitalize 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.

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.

There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project.

A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.

We amortize internal use software development costs using a straight-line method over a three year estimated useful life, commencing when the software is ready for its intended use.

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We determined the life of internal use software based on historical software upgrades and replacement.

The Company evaluates internal use software in use for abandonment and use that as a significant indicator for impairment on a quarterly basis.

On an ongoing basis, we assess if the estimated remaining useful lives of capitalized projects continue to be reasonable based on the remaining expected benefit and usage.

If the remaining useful life of a capitalized project is revised, it is accounted for as a change in estimate and the remaining unamortized cost of the underlying asset is amortized prospectively over the updated remaining useful life.

During the fourth quarter of 2022, we accelerated the remaining useful lives of certain capitalized internal use software projects due to the integration of our legacy CTV platforms, which resulted in approximately $0.7 million of incremental amortization expense during the year.

We also evaluate internal use software for abandonment and use that as a significant indicator for impairment on a quarterly basis.

Valuation of Goodwill and Intangibles

The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions.

The acquisition method of accounting for business combinations requires us to estimate the fair value of

assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.

The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.

On an ongoing basis, we assess if the estimated remaining useful lives of acquired intangible assets continue to be reasonable based on the remaining expected benefit and usage.

If the remaining useful life of an intangible is revised, it is accounted for as a change in estimate and the remaining unamortized cost of the underlying asset is amortized prospectively over the updated remaining useful life.

During the fourth quarter of 2022, we accelerated the remaining useful lives of certain acquired intangible assets due to the integration of our legacy CTV platforms, which resulted in around $34.7 million of incremental amortization expense during the year.

Long-lived assets, including property and equipment, long-term prepayments, and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Determining the fair value of stock-based awards at the grant date requires judgment.

Our use of the Black-Scholes option-pricing model and Monte-Carlo lattice model requires the input of subjective assumptions such as the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, the expected dividend yield of our common stock, and the fair value of our common stock.

Our use of the Black-Scholes option-pricing model and Monte-Carlo lattice model requires the input of subjective assumptions such as the expected term of the option,

the expected volatility of the price of our common stock, risk-free interest rates, the expected dividend yield of our common stock, and the fair value of our common stock.

The assumptions used in our valuation models represent management’s best estimates.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis