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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
  (Mark One)

 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
 
Commission File Number: 001-36384
__________________
MAGNITE, INC.
(Exact name of registrant as specified in its charter)
 __________________
Delaware20-8881738
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1250 Broadway, 15th Floor
New York, New York 10001
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(212) 243-2769
______________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.00001 per shareMGNINasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒ Yes   ☐ No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes   ☐ No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ☐ Yes ☒  No
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
ClassOutstanding as of November 2, 2023
Common Stock, $0.00001 par value137,851,032

MAGNITE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page No.
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 6.
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MAGNITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(unaudited)
September 30, 2023December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$310,509$326,254
Accounts receivable, net
937,218976,506
Prepaid expenses and other current assets
21,45323,501
TOTAL CURRENT ASSETS
1,269,1801,326,261
Property and equipment, net
46,11244,969
Right-of-use lease asset
64,55178,211
Internal use software development costs, net
21,63023,671
Intangible assets, net
58,633253,501
Goodwill
978,217978,217
Other assets, non-current
6,6867,383
TOTAL ASSETS
$2,445,009$2,712,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
$1,100,752$1,094,321
Lease liabilities, current
20,91321,172
Debt, current
3,6003,600
Other current liabilities
5,7995,939
TOTAL CURRENT LIABILITIES
1,131,0641,125,032
Debt, non-current, net of debt issuance costs601,609722,757
Lease liabilities, non-current
54,02566,331
Deferred tax liability, net4,4005,072
Other liabilities, non-current
1,8011,723
TOTAL LIABILITIES
1,792,8991,920,915
Commitments and contingencies (Note 12)


STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000 shares authorized at September 30, 2023 and December 31, 2022; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022
——
Common stock, $0.00001 par value; 500,000 shares authorized at September 30, 2023 and December 31, 2022; 137,821 and 134,006 shares issued and outstanding at September 30, 2023 and December 31, 2022
22
Additional paid-in capital
1,370,6191,319,221
Accumulated other comprehensive loss(3,639)(3,151)
Accumulated deficit
(714,872)(524,774)
TOTAL STOCKHOLDERS' EQUITY
652,110791,298
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$2,445,009$2,712,213

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
3
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Revenue$150,085 $145,815 $432,778 $401,670 
Expenses:
Cost of revenue84,878 71,753 339,881 196,150 
Sales and marketing38,227 49,848 136,407 151,675 
Technology and development23,537 25,134 71,135 71,214 
General and administrative21,286 20,235 68,023 59,405 
Merger, acquisition, and restructuring costs— — 7,465 7,468 
Total expenses167,928 166,970 622,911 485,912 
Loss from operations(17,843)(21,155)(190,133)(84,242)
Other (income) expense:
Interest expense, net7,574 7,016 24,269 21,273 
Foreign exchange gain, net(1,471)(1,976)(1,542)(5,042)
Gain on extinguishment of debt(4,156)— (18,132)— 
Other income(1,346)(1,369)(4,017)(3,991)
Total other expense, net
601 3,671 578 12,240 
Loss before income taxes(18,444)(24,826)(190,711)(96,482)
Benefit for income taxes(967)(435)(613)(2,544)
Net loss$(17,477)$(24,391)$(190,098)$(93,938)
Net loss per share:
Basic and diluted$(0.13)$(0.18)$(1.40)$(0.71)
Weighted average shares used to compute net loss per share:
Basic and diluted137,372 133,144 136,084 132,611 

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


 
4
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net loss$(17,477)$(24,391)$(190,098)$(93,938)
Other comprehensive income (loss):
Foreign currency translation adjustments(962)(1,972)(488)(3,917)
Other comprehensive loss(962)(1,972)(488)(3,917)
Comprehensive loss$(18,439)$(26,363)$(190,586)$(97,855)

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



5
 

MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
Common Stock Additional
Paid-In
Capital		Accumulated Other
Comprehensive
Income (Loss) 		Accumulated
Deficit		Treasury StockTotal
Stockholders’
Equity
Shares
Amount
SharesAmount
Balance at December 31, 2021132,553 $2 $1,282,589 $(1,376)$(394,451)(349)$(6,007)$880,757 
Exercise of common stock options311 — 1,107 — — — — 1,107 
Issuance of common stock related to RSU vesting783 — — — — — — — 
Shares withheld related to net share settlement(315)— (4,260)— — — — (4,260)
Purchase of treasury stock— — — — — (931)(12,138)(12,138)
Retirement of common stock(1,280)— (18,145)— — 1,280 18,145 — 
Stock-based compensation— — 16,927 — — — — 16,927 
Other comprehensive income— — — 110 — — — 110 
Net loss— — — — (44,593)— — (44,593)
Balance at March 31, 2022132,052

$2 

$1,278,218 

$(1,266)

$(439,044)

— $— $837,910 
Exercise of common stock options164— 501— — — — 501 
Issuance of common stock related to employee stock purchase plan238 — 2,141 — — — — 2,141 
Issuance of common stock related to RSU vesting1,165 — — — — — — — 
Shares withheld related to net share settlement(462)— (5,198)— — — — (5,198)
Purchase of treasury stock— — — — — (312)(3,525)(3,525)
Retirement of common stock(312)— (3,525)— — 312 3,525 — 
Stock-based compensation— — 16,559 — — — — 16,559 
Other comprehensive loss— — — (2,055)— — — (2,055)
Net loss— — — — (24,954)— — (24,954)
Balance at June 30, 2022132,845

$2 

$1,288,696 

$(3,321)

$(463,998)

— $— $821,379 
Exercise of common stock options39— 163 — — — — 163 
Issuance of common stock related to RSU vesting722 — — — — — — — 
Shares withheld related to net share settlement(257)— (2,401)— — — — (2,401)
Stock-based compensation— — 17,724 — — — — 17,724 
Other comprehensive loss— — — (1,972)— — — (1,972)
Net loss— — — — (24,391)— — (24,391)
Balance at September 30, 2022
133,349$2 $1,304,182 $(5,293)$(488,389)— $— $810,502 

6
Common Stock Additional
Paid-In
Capital		Accumulated Other
Comprehensive
Income (Loss) 		Accumulated
Deficit		Treasury StockTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balance at December 31, 2022134,006 $2 $1,319,221 $(3,151)$(524,774)— $— $791,298 
Exercise of common stock options303 — 1,486 — — — — 1,486 
Issuance of common stock related to RSU vesting1,829 — — — — — — — 
Shares withheld related to net share settlement(700)— (9,046)— — — — (9,046)
Stock-based compensation— — 19,856 — — — — 19,856 
Other comprehensive income— — — 367 — — — 367 
Net loss— — — — (98,732)— — (98,732)
Balance at March 31, 2023135,438 $2 $1,331,517 $(2,784)$(623,506)— $— $705,229 
Exercise of common stock options74 — 610 — — — — 610 
Issuance of common stock related to employee stock purchase plan202 — 1,922 — — — — 1,922 
Issuance of common stock related to RSU and PSU vesting1,215 — — — — — — — 
Shares withheld related to net share settlement(70)— (631)— — — — (631)
Stock-based compensation— — 19,230 — — — — 19,230 
Other comprehensive income— — — 107 — ——107 
Net loss— — — — (73,889)— — (73,889)
Balance at June 30, 2023136,859 $2 $1,352,648 $(2,677)$(697,395)— $— $652,578 
Exercise of common stock options15 — 60 — — — — 60 
Issuance of common stock related to RSU vesting947 — — — — — — — 
Stock-based compensation— — 17,911 — — — — 17,911 
Other comprehensive loss— — — (962)— — — (962)
Net loss— — — — (17,477)— — (17,477)
Balance at September 30, 2023137,821 $2 $1,370,619 $(3,639)$(714,872)— $— $652,110 


The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
7

MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30, 2023September 30, 2022
OPERATING ACTIVITIES:
Net loss$(190,098)$(93,938)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization224,000 138,641 
Stock-based compensation55,462 50,193 
Impairment of intangible assets— 3,320 
Gain on extinguishment of debt(18,132)— 
Gain on disposal of property and equipment(49)(59)
Provision for (recovery of) doubtful accounts4,439 (357)
Amortization of debt discount and issuance costs4,816 5,092 
Non-cash lease expense(804)1,340 
Deferred income taxes(676)(1,626)
Unrealized foreign currency gain, net(3,734)(5,231)
Other items, net2,696 — 
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable19,033 125,268 
Prepaid expenses and other assets2,054 (1,751)
Accounts payable and accrued expenses26,341 (116,575)
Other liabilities(66)(472)
Net cash provided by operating activities125,282 103,845 
INVESTING ACTIVITIES:
Purchases of property and equipment(17,139)(18,004)
Capitalized internal use software development costs(8,200)(11,177)
Mergers and acquisitions, net— (20,755)
Net cash used in investing activities(25,339)(49,936)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options2,156 1,771 
Proceeds from issuance of common stock under employee stock purchase plan1,922 2,141 
Repayment of debt(2,700)(2,700)
Repurchase of Convertible Senior Notes(104,793)— 
Repayment of financing lease(276)(602)
Purchase of treasury stock— (15,663)
Taxes paid related to net share settlement(9,677)(11,859)
Payment of indemnification claims holdback(2,313)(1,409)
Net cash used in financing activities(115,681)(28,321)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH(209)(2,484)
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(15,947)23,104 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period326,502 230,693 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period$310,555 $253,797 

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

8
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

Nine Months Ended
September 30, 2023September 30, 2022
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents$310,509 $253,552 
Restricted cash included in prepaid expenses and other current assets46 245 
Total cash, cash equivalents and restricted cash$310,555 $253,797 
SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes$4,601 $4,356 
Cash paid for interest$27,609 $18,624 
Capitalized assets financed by accounts payable and accrued expenses and other liabilities
$3,226 $10,195 
Capitalized stock-based compensation$1,535 $1,017 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$3,797 $11,542 
Purchase consideration - indemnification claims holdback$— $2,293 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
9
MAGNITE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Summary of Significant Accounting Policies
Company Overview
Magnite, Inc. ("Magnite" or the "Company") 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. Magnite has its principal offices in New York City, Los Angeles, Denver, 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 globally, across all channels, formats and auction types. 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.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim period presented have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any future interim period, the year ending December 31, 2023, or for any future year.
The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in its 2022 Annual Report on Form 10-K.
There have been no significant changes in the Company's accounting policies from those disclosed in its audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in its Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed 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 of macroeconomic challenges, such as inflation, global conflict, capital market disruptions and instability of financial institutions, the risk of a recession, labor strikes, and other macroeconomic factors, it has become more difficult to apply certain assumptions and judgments into these estimates. The extent of the impact of these factors 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 how quickly and to what extent normal economic and operating conditions can resume. During the nine months ended September 30, 2023, this uncertainty continued to result in a higher level of judgment related to its estimates and assumptions. As of the date of issuance of the condensed consolidated financial statements for the three and nine months ended September 30, 2023, 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.
Recently Adopted Accounting Standards
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
10
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. The Company adopted this standard January 1, 2023 and will apply the guidance to future acquisitions, if any.
Note 2—Net Loss Per Share
The following table presents the basic and diluted net loss per share:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands, except per share data)
Basic and Diluted Loss Per Share:
Net loss$(17,477)$(24,391)$(190,098)$(93,938)
Weighted-average common shares outstanding137,372 133,144 136,084 132,611 
Weighted-average common shares outstanding used to compute net loss per share137,372 133,144 136,084 132,611 
Basic and diluted loss per share$(0.13)$(0.18)$(1.40)$(0.71)
The following weighted-average shares have been excluded from the calculation of diluted net loss per share attributable to common stockholders for each period presented because they are anti-dilutive:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands)(in thousands)
Options to purchase common stock1,656 1,280 1,702 1,985 
Unvested restricted stock units1,987 903 1,962 1,600 
Unvested performance stock units— 54 112 113 
ESPP shares84 49 37 23 
Convertible Senior Notes4,746 6,262 5,357 6,262 
Total shares excluded from net loss per share8,473 8,548 9,170 9,983 

For the three and nine months ended September 30, 2023 and 2022, the Company excluded outstanding performance stock units from the calculation of diluted net loss per share because they were anti-dilutive. As of September 30, 2023, the performance stock units granted in 2021, 2022, and 2023 had expected achievement levels of 0%, 50% and 32%, respectively. As of September 30, 2022, the performance stock units granted in 2020, 2021, and 2022 had expected achievement levels of 53%, 0%, and 0% respectively. Refer to Note 9—"Stock-Based Compensation" for additional information related to performance stock units.
For the three and nine months ended September 30, 2023 and September 30, 2022, shares that would be issuable assuming conversion of all of the Convertible Senior Notes (as defined in Note 13) were excluded from the calculation of diluted loss per share because they were 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 September 30, 2023 and 2022, the number of shares that would be issuable assuming conversion of all of the Convertible Senior Notes is approximately 4,305,871 and 6,261,560, respectively. Refer to Note 13—"Debt" for additional information related to accounting for Convertible Senior Notes issued and associated Capped Call Transactions.
Note 3—Revenue
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.
11
The following table presents the Company's revenue recognized on a net basis and on a gross basis for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands, except percentages)
Revenue:
Net basis$123,703 82 %$116,999 80 %$355,088 82 %$330,015 82 %
Gross basis26,382 18 28,816 20 77,690 18 71,655 18 
Total$150,085 100 %$145,815 100 %$432,778 100 %$401,670 100 %
The following table presents the Company's revenue by channel for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands, except percentages)
Channel:
CTV$67,765 45 %$71,604 49 %$198,604 46 %$187,619 47 %
Mobile56,329 38 45,994 32 159,545 37 130,111 32 
Desktop25,991 17 28,217 19 74,629 17 83,940 21 
Total$150,085 100 %$145,815 100 %$432,778 100 %$401,670 100 %
    The following table presents the Company's revenue disaggregated by geographic location, based on the location of the Company's sellers for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands)(in thousands)
United States$111,281 $113,851 $322,923 $310,870 
International38,804 31,964 109,855 90,800 
Total$150,085 $145,815 $432,778 $401,670 

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 75 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 5). Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is reviewed quarterly, requires judgment, and is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company reviews the status of the then-outstanding accounts receivable on a customer-by-customer basis, taking into consideration the aging schedule of receivables, its historical collection experience, current information regarding the client, subsequent collection history, and other relevant data, in establishing the allowance for doubtful accounts. Accounts receivable is presented net of an allowance for doubtful accounts of $19.6 million at September 30, 2023, and $1.1 million at December 31, 2022. 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 $0.5 million and $0.6 million as of September 30, 2023 and December 31, 2022, respectively.
12
The following is a summary of activity in the allowance for doubtful accounts for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands)(in thousands)
Allowance for doubtful accounts, beginning balance$19,643 $871 $1,092 $3,475 
Write-offs(30)(518)(773)(527)
Increase (decrease) in provision for expected credit losses(18)455 19,276 (2,227)
Recoveries of previous write-offs11 — 11 87 
Allowance for doubtful accounts, ending balance$19,606 $808 $19,606 $808 
During the three and nine months ended September 30, 2023, the provision for expected credit losses associated with accounts receivable decreased by an immaterial amount and increased by $19.3 million, respectively, offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $0.2 million and $14.8 million, respectively, which resulted in $0.2 million of bad debt recoveries and $4.4 million of bad debt expense, respectively. The increase in the provision for expected credit losses was primarily attributed to one buyer filing for bankruptcy, resulting in $4.5 million of bad debt expense in the nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, the provision for expected credit losses associated with accounts receivable increased by $0.5 million and decreased by $2.2 million, respectively, offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $0.1 million and decreases of $1.9 million, respectively, which resulted in $0.3 million of bad debt expense and $0.4 million of bad debt recoveries, respectively.
Note 4—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.
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The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at September 30, 2023:
TotalQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs 
(Level 3)
(in thousands)
Cash equivalents
$45,109 $45,109 $— $— 
The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2022:
TotalQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs 
(Level 3)
(in thousands)
Cash equivalents
$259,647 $259,647 $— $— 
At September 30, 2023 and December 31, 2022, cash equivalents of $45.1 million and $259.6 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 September 30, 2023 and December 31, 2022, the Company had Convertible Senior Notes and its Term Loan B Facility (as defined in Note 13) included in its balance sheets. The estimated fair value of the Company's Convertible Senior Notes was $233.8 million and $305.0 million as of September 30, 2023 and December 31, 2022, respectively. 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 September 30, 2023 and December 31, 2022 and is classified as Level 2 in the fair value hierarchy. At September 30, 2023 and December 31, 2022, the estimated fair value of the Company's Term Loan B Facility was $354.1 million and $333.3 million, respectively. The estimated fair value is based on borrowing rates currently available to the Company for financing with similar terms 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 nine months ended September 30, 2023 and 2022.
Note 5—Other Balance Sheet Amounts
Accounts payable and accrued expenses included the following:
September 30, 2023December 31, 2022
(in thousands)
Accounts payable—seller$1,063,131 $1,057,556 
Accounts payable—trade22,595 19,387 
Accrued employee-related payables15,026 15,065 
Accrued holdback - indemnification claims— 2,313 
Total$1,100,752 $1,094,321 

Note 6—Goodwill, Intangible Assets, and Internal Use Software Development Costs
The Company's goodwill balance as of September 30, 2023 and December 31, 2022 was $978.2 million.

14
The Company’s intangible assets as of September 30, 2023 and December 31, 2022 included the following:
September 30, 2023December 31, 2022
(in thousands)
Amortizable intangible assets:
Developed technology$109,736 $390,136 
Customer relationships37,300 136,000 
In-process research and development8,830 12,730 
Trademarks900 900 
Non-compete agreements400 900 
Total identifiable intangible assets, gross157,166 540,666 
Accumulated amortization—intangible assets:
Developed technology(70,666)(184,439)
Customer relationships(22,536)(97,316)
In-process research and development(4,319)(4,398)
Trademarks(675)(450)
Non-compete agreements(337)(562)
Total accumulated amortization—intangible assets(98,533)(287,165)
Total identifiable intangible assets, net$58,633 $253,501 
Amortization of intangible assets for the three months ended September 30, 2023 and 2022 was $29.8 million and $38.1 million, respectively, and $194.9 million and $115.3 million for the nine months ended September 30, 2023 and 2022, respectively. During the first quarter of 2022, the Company abandoned certain in-process research and development projects and technology intangible assets. The abandonment resulted in $3.3 million of impairment costs in the nine months ended September 30, 2022, which was included within merger, acquisition, and restructuring costs in the condensed consolidated statement of operations.
During the fourth quarter of 2022, the Company reassessed the remaining estimated useful lives of the developed technology and in-process research and development related to the SpotX acquisition based on the remaining expected benefit from those assets. The change in the remaining estimated useful lives for developed technology and in-process research and development resulted in increased amortization expense of $7.8 million and $111.9 million for the three and nine months ended September 30, 2023, respectively. The increased amortization expense increased the basic and diluted loss per share by $0.06 and $0.82, net of tax, for the three and nine months ended September 30, 2023, respectively.
The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of September 30, 2023:
Fiscal YearAmount
(in thousands)
Remaining 2023$7,622 
202430,134 
202514,445 
20266,001 
2027431 
Total$58,633 
The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure. During the fourth quarter of 2022, the Company reassessed the remaining estimated useful lives of capitalized software projects related to integration of its technology platforms. The change in the remaining estimated useful lives for the related projects resulted in increased amortization expense of $0.1 million and $2.4 million for the three and nine months ended September 30, 2023, respectively. The increased amortization expense, net of tax, did not impact basic and diluted loss per share for the three months ended September 30, 2023 and increased the basic and diluted loss per share by $0.02, net of tax, for the nine months ended September 30, 2023.

15

Note 7—Business Combinations
2022 Acquisition—Carbon
The Company completed the acquisition of Carbon (AI) Limited ("Carbon" and such acquisition the "Carbon Acquisition"), a platform that enables publishers to measure, manage, and monetize audience segments, in February 2022 for a total purchase price of $23.1 million in cash. Approximately $2.3 million of the purchase price was held back to cover possible indemnification claims, which was subsequently paid out in February 2023.


Note 8—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 SpotX Acquisition and restructuring activities.
The following table summarizes merger, acquisition, and restructuring cost activity (in thousands):
Nine Months Ended
September 30, 2023September 30, 2022
(in thousands)
Personnel related (severance and one-time termination benefit costs)$3,218 $1,227 
Loss contracts (facilities related)2,190 — 
Exit costs1,408 — 
Impairment of property and equipment, net506 — 
Non-cash stock-based compensation (double-trigger acceleration and severance)143 2,004 
Impairment costs of abandoned technology
— 3,320 
Professional services (investment banking advisory, legal and other professional services)— $917 
Total merger, acquisition, and restructuring costs$7,465 $7,468 

During the nine months ended September 30, 2023 and 2022, the Company incurred merger, acquisition, and restructuring costs of $7.5 million. During the nine months ended September 30, 2023, these activities included the Company's reduction of its global workforce primarily associated with the elimination of duplicative roles and other costs associated with the consolidation of its legacy CTV and SpotX CTV platforms following the SpotX Acquisition, including loss contracts for office facilities the Company does not plan to continue to occupy and impairment charges related to certain assets it no longer plans to utilize. During the nine months ended September 30, 2022 the Company incurred restructuring costs following the SpotX Acquisition.
Accrued restructuring costs related to mergers and acquisitions were $1.6 million and $1.2 million at September 30, 2023 and December 31, 2022, respectively, and were primarily related the Company's consolidation of its platforms as mentioned above and the Telaria Merger. Accrued restructuring costs associated with personnel costs are included within accounts payable and accrued expenses and accruals related to exit costs are included within other current liabilities and other liabilities, non-current on the Company's condensed consolidated balance sheets.
(in thousands)
Accrued restructuring costs at December 31, 2022
$1,222 
Personnel related and non-cash stock-based compensation3,361 
Loss contracts (facilities related)2,190 
Exit costs1,408 
Impairment of property and equipment, net506 
Cash paid for restructuring costs(4,254)
Non-cash loss contracts (facilities related)(2,190)
Non-cash impairments(506)
Non-cash stock-based compensation(143)
Accrued restructuring costs at September 30, 2023
$1,594 

16
Note 9—Stock-Based Compensation
Stock Options
A summary of stock option activity for the nine months ended September 30, 2023 is as follows:

Shares Under OptionWeighted- Average Exercise PriceWeighted- Average Contractual LifeAggregate Intrinsic Value

(in thousands)(in thousands)
Outstanding at December 31, 20224,672 $8.71 
Granted130 $10.59 
Exercised(392)$5.49 
Expired(144)$21.08 
Outstanding at September 30, 20234,266 $8.65 5.6 years$8,281 
Exercisable at September 30, 20233,550 $7.36 5.1 years$8,026 
The total intrinsic value of options exercised during the nine months ended September 30, 2023 was $2.2 million. At September 30, 2023, the Company had unrecognized employee stock-based compensation expense relating to nonvested stock options of approximately $6.5 million, which is expected to be recognized over a weighted-average period of 2.1 years. Total grant date fair value of options vested during the nine months ended September 30, 2023 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 nine months ended September 30, 2023 was $7.27 per share. The weighted-average input assumptions used by the Company were as follows:
Nine Months Ended
September 30, 2023September 30, 2022
Expected term (in years)5.05.0
Risk-free interest rate3.99 %1.63 %
Expected volatility84 %79 %
Dividend yield— %— %

Restricted Stock Units
A summary of restricted stock unit ("RSU") activity for the nine months ended September 30, 2023 is as follows:
Number of SharesWeighted-Average Grant Date Fair Value
(in thousands)
Restricted stock units outstanding at December 31, 2022
10,000 $15.06 
Granted7,244 $10.81 
Canceled(1,300)$13.44 
Vested and released
(3,853)$14.33 
Restricted stock units outstanding at September 30, 2023
12,091 $12.92 
The weighted-average grant date fair value per share of restricted stock units granted during the nine months ended September 30, 2023 was $10.81. The intrinsic value of restricted stock units that vested during the nine months ended September 30, 2023 was $44.5 million. At September 30, 2023, the intrinsic value of unvested restricted stock units was $91.2 million. At September 30, 2023, the Company had unrecognized stock-based compensation expense relating to unvested restricted stock units of approximately $135.3 million, which is expected to be recognized over a weighted-average period of 2.8 years.
Performance Stock Units
The Company has granted performance stock units ("PSU") to select executive employees that vest based on share price metrics tied to total shareholder return relative to a peer group over a three-year period. The grant date fair value for such PSUs was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date
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through the end of the performance period. Between 0% and 150% of the performance stock units will vest on the third anniversary of the respective grant date.
The Company has additionally granted PSUs to the Company's CEO which are subject to both time-based and performance-based vesting conditions. The PSUs 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, respectively, over 60 consecutive trading days during a performance period commencing on August 26, 2022 and ending on August 26, 2026. The grant date fair value for such PSUs was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. 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.
Stock-based compensation expense for PSUs is based on a performance measurement of 100%. The compensation expense will not be reversed if the performance metrics are not met.
A summary of performance stock units activity for the nine months ended September 30, 2023 is as follows:
Number of SharesWeighted-Average Grant Date Fair Value
(in thousands)
Outstanding at December 31, 2022
639 $19.02 
Granted474 $13.32 
Vested(138)$6.15 
Forfeited(8)$6.15 
Outstanding at September 30, 2023
967 $18.17 
The grant date fair value for the PSUs was estimated using a Monte-Carlo simulation model. The weighted-average input assumptions used by the Company were as follows:
Nine Months Ended
September 30, 2023September 30, 2022
Expected term (in years)3.03.0
Risk-free interest rate4.19 %1.39 %
Expected volatility of Magnite94 %84 %
Expected volatility of selected peer companies64 %63 %
Expected correlation coefficients of Magnite0.620.56
Expected correlation coefficients of selected peer companies0.540.52
Dividend yield— %— %
The intrinsic value of performance stock units that vested during the nine months ended September 30, 2023 was $1.2 million. At September 30, 2023, the intrinsic value of unvested performance stock units based on expected achievement levels was $1.5 million. As of September 30, 2023, the Company had unrecognized stock-based compensation expense relating to outstanding PSUs of approximately $9.4 million, which will be recognized over a weighted-average period of 2.4 years.
Stock-Based Compensation Expense
Total stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
(in thousands)(in thousands)
Cost of revenue$446 $424 $1,373 $1,191 
Sales and marketing6,371 5,491 20,869 16,257 
Technology and development4,999 6,576 15,918 16,645 
General and administrative5,652 4,911 17,159 14,096 
Merger, acquisition, and restructuring costs— — 143 2,004 
Total stock-based compensation expense$17,468 $17,402 $55,462 $50,193 
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On January 1, 2023, pursuant to the evergreen provision in the Company's 2014 Equity Incentive Plan, the Company increased the aggregate number of shares of common stock that may be issued pursuant to stock awards by 6,700,286 shares. On June 14, 2023, the Company's stockholders approved the Magnite, Inc. Amended and Restated 2014 Equity Incentive Plan (the "Amended and Restated 2014 Equity Incentive Plan"), which, among other things, increased the aggregate maximum number of shares of common stock that may be issued pursuant to stock awards by 8,056,129, removed the prior evergreen provision, and extended the plan through April 2033. As of September 30, 2023, an aggregate of 23,056,794 shares remained available for future grants under the Company's Amended and Restated 2014 Equity Incentive Plan.
On January 1, 2023, pursuant to the evergreen provision in the Company's 2014 Employee Stock Purchase Plan, the Company increased the aggregate number of shares of common stock that may be issued pursuant to the Company's 2014 Employee Stock Purchase Plan by 1,340,057 shares. On June 14, 2023, the Company's stockholders approved the Magnite, Inc. Amended and Restated 2014 Employee Stock Purchase Plan (the "Amended and Restated 2014 Employee Stock Purchase Plan"), which, among other things, removed the evergreen provision and extended the plan through June 2033. As of September 30, 2023, the Company has reserved 4,968,034 shares of its common stock for issuance under the Company's Amended and Restated 2014 Employee Stock Purchase Plan ("ESPP").
Note 10—Income Taxes
In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income. The Company's annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, foreign taxes, deductible stock option expenses, nondeductible executive compensation, and changes in the Company's valuation allowance.
The Company recorded an income tax benefit of $1.0 million and $0.6 million for the three and nine months ended September 30, 2023, respectively, and an income tax benefit of $0.4 million and $2.5 million for the three and nine months ended September 30, 2022, respectively. The tax benefit for the three and nine months ended September 30, 2023 and September 30, 2022 are primarily the result of the Company's ability to recognize deferred tax assets ("DTAs") subject to the domestic valuation allowance and the foreign income tax provision. The Company continues to maintain a partial valuation allowance for the domestic DTAs.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law. The IRA includes a new corporate alternative minimum tax (the “Corporate AMT”) of 15% on the adjusted financial statement income (the “AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period. The Corporate AMT is effective for tax years beginning after December 31, 2022 and is not expected to impact the Company. Additionally, the IRA imposes an excise tax of 1% on the fair market value of net stock repurchases made after December 31, 2022. The Company has not repurchased shares during the nine months ended September 30, 2023.
Due to uncertainty as to the realization of benefits from the Company's domestic and certain international DTAs, including net operating loss carryforwards and research and development tax credits, the Company has a partial valuation allowance reserved against such assets. The Company intends to continue to maintain a partial valuation allowance on the DTAs until there is sufficient evidence to support the reversal of all or some additional portion of these allowances.
Due to the net operating loss carryforwards, all of the Company's United States federal and a majority of its state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. For the Netherlands, Malaysia, India, Sweden, and the United Kingdom, all tax years remain open for examination by the local country tax authorities, for France only 2020 and forward are open, for Singapore only 2019 and forward are open for examination, for Australia, Brazil, Germany, and New Zealand 2018 and forward are open for examination, for Canada 2017 and forward are open for examination, and for Japan and Italy 2016 and forward remain open for examination.
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 our 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 our ability to utilize substantially all of our NOLs and state research and development carryforward tax credits to the extent it will generate taxable income that can be offset by such losses. The Company reasonably expects its pre-2021 federal research and development carryforward tax credits will not be recovered prior to expiration.
There was no material change to the Company's unrecognized tax benefits in the nine months ended September 30, 2023 and the Company does not expect to have any material changes to unrecognized tax benefits through the end of the fiscal year.
Note 11—Lease Obligations
Operating lease expense associated with leases included in the lease liability and right of use ("ROU") asset on the condensed consolidated balance sheets were $5.9 million and $5.9 million for the three months ended September 30, 2023 and 2022,
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respectively, and $18.8 million and $17.0 million, for the nine months ended September 30, 2023 and 2022, respectively. For lease expenses not included in the Company's ROU asset and lease liability balances, the Company recognized short term lease expense of $0.1 million and $0.3 million and variable lease expense of $0.9 million and $0.7 million during the three months ended September 30, 2023 and 2022, respectively. The Company recognized short term lease expense of $0.4 million and $0.9 million and variable lease expense of $2.7 million and $1.9 million during the nine months ended September 30, 2023 and 2022, respectively.
The Company also received rental income of $1.3 million and $1.3 million for real estate leases for which it subleases the property to third parties during the three months ended September 30, 2023 and 2022, respectively, and $4.0 million and $3.9 million during the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023 and December 31, 2022, a weighted average discount rate of 6.19% and 6.11%, respectively, has been applied to the remaining lease payments to calculate the lease liabilities included within the condensed consolidated balance sheet. The lease terms of the Company’s operating leases generally range from one year to ten years, and the weighted average remaining lease term of leases included in the lease liability is 5.3 years and 5.6 years as of September 30, 2023 and December 31, 2022, respectively.
The maturity of the Company's lease liabilities associated with leases included in the lease liability and ROU asset were as follows as of September 30, 2023 (in thousands):
Fiscal Year
Remaining 2023$6,576 
202423,534 
202515,232 
202612,217 
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