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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 March 31, 2022

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: 001-37879

 

THE TRADE DESK, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

 

 

27-1887399

(State or other jurisdiction of

incorporation or organization)

 

 

 

(I.R.S. Employer

Identification No.)

42 N. Chestnut Street

Ventura, California 93001

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (805) 585-3434

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $0.000001 per share

 

TTD

 

The Nasdaq Stock Market LLC

 

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 Exchange Act).    Yes      No  

As of April 30, 2022, the registrant had 442,090,841 shares of Class A common stock and 44,234,950 shares of Class B common stock outstanding.

 

 


 

THE TRADE DESK, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

 

  

 

Page

Part I.

  

FINANCIAL INFORMATION

 

3

Item 1.

  

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

  

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

3

 

  

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

6

 

  

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

19

Item 4.

  

Controls and Procedures

 

20

Part II.

  

OTHER INFORMATION

 

21

Item 1.

  

Legal Proceedings

 

21

Item 1A.

  

Risk Factors

 

21

Item 6.

  

Exhibits

 

43

Signatures

 

44

 


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

 

 

 

As of

 

 

As of

 

 

 

March 31,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

844,223

 

 

$

754,154

 

Short-term investments, net

 

 

260,347

 

 

 

204,625

 

Accounts receivable, net of allowance for credit losses

   of $8,040 and $7,374 as of March 31, 2022 and December 31, 2021, respectively

 

 

1,760,985

 

 

 

2,020,720

 

Prepaid expenses and other current assets

 

 

89,784

 

 

 

112,150

 

TOTAL CURRENT ASSETS

 

 

2,955,339

 

 

 

3,091,649

 

Property and equipment, net

 

 

130,640

 

 

 

135,856

 

Operating lease assets

 

 

228,991

 

 

 

234,091

 

Deferred income taxes

 

 

73,548

 

 

 

68,244

 

Other assets, non-current

 

 

44,203

 

 

 

47,500

 

TOTAL ASSETS

 

$

3,432,721

 

 

$

3,577,340

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,405,673

 

 

$

1,655,684

 

Accrued expenses and other current liabilities

 

 

92,903

 

 

 

101,472

 

Operating lease liabilities

 

 

47,226

 

 

 

46,149

 

TOTAL CURRENT LIABILITIES

 

 

1,545,802

 

 

 

1,803,305

 

Operating lease liabilities, non-current

 

 

229,489

 

 

 

238,449

 

Other liabilities, non-current

 

 

8,327

 

 

 

8,280

 

TOTAL LIABILITIES

 

 

1,783,618

 

 

 

2,050,034

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued

   and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, par value $0.000001

   Class A, 1,000,000 shares authorized; 441,791 and 439,206 shares

     issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

   Class B, 95,000 shares authorized; 44,235 shares

     issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

1,051,572

 

 

 

915,177

 

Retained earnings

 

 

597,531

 

 

 

612,129

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

1,649,103

 

 

 

1,527,306

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

3,432,721

 

 

$

3,577,340

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

3


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

315,323

 

 

$

219,811

 

Operating expenses:

 

 

 

 

 

 

 

 

Platform operations

 

 

63,890

 

 

 

50,500

 

Sales and marketing

 

 

70,688

 

 

 

55,764

 

Technology and development

 

 

71,999

 

 

 

53,918

 

General and administrative

 

 

125,799

 

 

 

51,845

 

Total operating expenses

 

 

332,376

 

 

 

212,027

 

Income (loss) from operations

 

 

(17,053

)

 

 

7,784

 

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,076

 

 

 

45

 

Foreign currency exchange loss (gain), net

 

 

(795

)

 

 

(353

)

Total other expense (income), net

 

 

281

 

 

 

(308

)

Income (loss) before income taxes

 

 

(17,334

)

 

 

8,092

 

Benefit from income taxes

 

 

(2,736

)

 

 

(14,550

)

Net income (loss)

 

$

(14,598

)

 

$

22,642

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

0.05

 

Diluted

 

$

(0.03

)

 

$

0.05

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

484,190

 

 

 

472,816

 

Diluted

 

 

484,190

 

 

 

497,916

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

4


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Class A and B

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance as of December 31, 2020

 

 

473,401

 

 

$

 

 

$

538,778

 

 

$

474,367

 

 

$

1,013,145

 

Exercise of common stock options

 

 

1,794

 

 

 

 

 

 

12,621

 

 

 

 

 

 

12,621

 

Issuance of restricted stock, net of forfeitures

    and shares withheld for taxes

 

 

110

 

 

 

 

 

 

(17,080

)

 

 

 

 

 

(17,080

)

Stock-based compensation

 

 

 

 

 

 

 

 

52,985

 

 

 

 

 

 

52,985

 

Net income

 

 

 

 

 

 

 

 

 

 

 

22,642

 

 

 

22,642

 

Balance as of March 31, 2021

 

 

475,305

 

 

$

 

 

$

587,304

 

 

$

497,009

 

 

$

1,084,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

483,441

 

 

$

 

 

$

915,177

 

 

$

612,129

 

 

$

1,527,306

 

Exercise of common stock options

 

 

2,395

 

 

 

 

 

 

24,408

 

 

 

 

 

 

24,408

 

Issuance of restricted stock, net of forfeitures

    and shares withheld for taxes

 

 

190

 

 

 

 

 

 

(13,428

)

 

 

 

 

 

(13,428

)

Stock-based compensation

 

 

 

 

 

 

 

 

125,415

 

 

 

 

 

 

125,415

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,598

)

 

 

(14,598

)

Balance as of March 31, 2022

 

 

486,026

 

 

$

 

 

$

1,051,572

 

 

$

597,531

 

 

$

1,649,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5


THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(14,598

)

 

$

22,642

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,350

 

 

 

10,011

 

Stock-based compensation

 

 

124,895

 

 

 

52,354

 

Allowance for credit losses on accounts receivable

 

 

725

 

 

 

203

 

Noncash lease expense

 

 

10,515

 

 

 

9,451

 

Deferred income taxes

 

 

(5,304

)

 

 

 

Other

 

 

998

 

 

 

4,905

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

259,483

 

 

 

208,847

 

Prepaid expenses and other assets

 

 

23,743

 

 

 

(16,180

)

Accounts payable

 

 

(245,937

)

 

 

(200,578

)

Accrued expenses and other liabilities

 

 

(8,688

)

 

 

(5,691

)

Operating lease liabilities

 

 

(11,990

)

 

 

(10,894

)

Net cash provided by operating activities

 

 

146,192

 

 

 

75,070

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(121,221

)

 

 

(89,354

)

Sales of investments

 

 

 

 

 

4,539

 

Maturities of investments

 

 

64,133

 

 

 

62,670

 

Purchases of property and equipment

 

 

(8,401

)

 

 

(13,120

)

Capitalized software development costs

 

 

(1,614

)

 

 

(1,062

)

Net cash used in investing activities

 

 

(67,103

)

 

 

(36,327

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

24,408

 

 

 

12,621

 

Taxes paid related to net settlement of restricted stock awards

 

 

(13,428

)

 

 

(17,080

)

Net cash provided by (used in) financing activities

 

 

10,980

 

 

 

(4,459

)

Increase in cash and cash equivalents

 

 

90,069

 

 

 

34,284

 

Cash and cash equivalents—Beginning of period

 

 

754,154

 

 

 

437,353

 

Cash and cash equivalents—End of period

 

$

844,223

 

 

$

471,637

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for operating lease liabilities

 

$

14,030

 

 

$

15,107

 

Asset retirement obligation

 

$

 

 

$

625

 

Operating lease assets obtained in exchange for operating lease liabilities

 

$

4,732

 

 

$

(937

)

Capitalized assets financed by accounts payable

 

$

1,837

 

 

$

2,421

 

Stock-based compensation included in capitalized software development costs

 

$

520

 

 

$

631

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

6


THE TRADE DESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Nature of Operations

The Trade Desk, Inc. (the “Company”) is a global technology company that empowers buyers of advertising. Through the Company’s self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). The Company’s platform integrations with major inventory, publisher and data partners provides ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to develop on top of the platform.

The Company is a Delaware corporation formed in November 2009 and headquartered in Ventura, California with offices in various cities in North America, Europe, Asia and Australia.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.

 

On June 16, 2021, the Company effected a ten-for-one stock split (the “Stock Split”) of the Company’s common stock in the form of a stock dividend. Each stockholder of record on June 9, 2021 received nine additional shares of common stock for each then-held share. Trading began on a stock split-adjusted basis on June 17, 2021. The number of shares subject to outstanding equity awards and the exercise prices of the outstanding stock option awards were also adjusted to reflect the effect of the Stock Split. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

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 amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.

Management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for credit losses accounts, (3) operating lease assets and liabilities, including our incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of stock-based compensation and (7) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

As of March 31, 2022, the impact of the Coronavirus (“COVID-19”) pandemic on the Company’s business continues to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macro-economic factors in the market, which require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

7


Note 3—Earnings Per Share

The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings (loss) per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(14,598

)

 

$

22,642

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding—basic

 

 

484,190

 

 

 

472,816

 

   Effect of dilutive securities

 

 

 

 

 

25,100

 

Weighted-average shares outstanding—diluted

 

 

484,190

 

 

 

497,916

 

Basic earnings (loss) per share

 

$

(0.03

)

 

$

0.05

 

Diluted earnings (loss) per share

 

$

(0.03

)

 

$

0.05

 

Anti-dilutive equity awards under stock-based award plans

   excluded from the determination of diluted earnings (loss) per share

 

 

25,609

 

 

 

263

 

 

Note 4—Cash, Cash Equivalents and Short-Term Investments, Net

Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):

 

 

 

As of March 31, 2022

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

Cash

 

$

268,511

 

 

$

 

 

$

268,511

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

539,351

 

 

 

 

 

 

539,351

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

36,361

 

 

 

103,176

 

 

 

139,537

 

Corporate debt securities

 

 

 

 

 

86,455

 

 

 

86,455

 

U.S. government and agency securities

 

 

 

 

 

70,716

 

 

 

70,716

 

Total

 

$

844,223

 

 

$

260,347

 

 

$

1,104,570

 

 

 

 

As of December 31, 2021

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

Short-Term

 

 

 

 

 

 

 

Equivalents

 

 

Investments

 

 

Total

 

Cash

 

$

272,058

 

 

$

 

 

$

272,058

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

431,299

 

 

 

 

 

 

431,299

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

47,544

 

 

 

70,804

 

 

 

118,348

 

Corporate debt securities

 

 

3,253

 

 

 

85,425

 

 

 

88,678

 

U.S. government and agency securities

 

 

 

 

 

48,396

 

 

 

48,396

 

Total

 

$

754,154

 

 

$

204,625

 

 

$

958,779

 

 

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three months ended March 31, 2022 and 2021, were immaterial.

8


The contractual maturities of the Company’s short-term investments are as follows (in thousands):

 

 

 

March 31, 2022

 

Due in one year

 

$

227,934

 

Due in one to two years

 

 

32,413

 

Total

 

$

260,347

 

 

Note 5—Leases

 

The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating lease cost

 

$

12,484

 

 

$

13,095

 

Short-term lease cost

 

 

472

 

 

 

171

 

Variable lease cost

 

 

1,943

 

 

 

1,923

 

Sublease income

 

 

(626

)

 

 

(650

)

Total lease cost

 

$

14,273

 

 

$

14,539

 

 

Note 6—Debt

Credit Facility

On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, the Company has the right to increase the Credit Facility by an amount not to exceed $300 million. The Credit Facility is collateralized by substantially all of the Company’s assets, including a pledge of certain of its accounts receivable, deposit accounts, intellectual property, investment property and equipment.

Loans under the Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a rate per annum for any day equal to the greatest of (1) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (2) the NYFRB Rate in effect on such day plus half of 1%, and (3) the adjusted LIBOR rate for a one-month interest period on such day plus 1%. The applicable margin is between 0.25% to 1.25% for Base Rate Borrowings and between 1.25% and 2.25% for LIBOR Rate Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the Credit Facility ranges, based on the applicable leverage, from 0.200% to 0.350%. The Company is also required to pay customary letter of credit fees, as necessary.

On December 17, 2021, the Company amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.

As of March 31, 2022, the Company did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $444 million as of March 31, 2022, which is net of outstanding letters of credit of $6 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026.

The Credit Facility contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The Credit Facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00. As of March 31, 2022, the Company was in compliance with all covenants.

9


Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

Stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Platform operations

 

$

5,950

 

 

$

5,015

 

Sales and marketing

 

 

16,525

 

 

 

13,684

 

Technology and development

 

 

22,393

 

 

 

16,094

 

General and administrative

 

 

80,027

 

 

 

17,561

 

Total

 

$

124,895

 

 

$

52,354

 

 

 

 

 

 

 

 

 

 

 

Stock Options

The following summarizes stock option activity:

 

 

 

Shares

Under Option

(in thousands)

 

 

Weighted-

Average

Exercise Price

 

Outstanding as of December 31, 2021

 

 

18,984

 

 

$

15.14

 

Granted

 

 

122

 

 

 

81.37

 

Exercised

 

 

(2,395

)

 

 

10.19

 

Expired/forfeited

 

 

(247

)

 

 

39.93

 

Outstanding as of March 31, 2022

 

 

16,464

 

 

$

15.98

 

Exercisable as of March 31, 2022

 

 

11,803

 

 

$

9.29

 

 

 

 

 

 

 

 

 

 

At March 31, 2022, the Company had unrecognized stock-based compensation relating to stock options of approximately $83 million, which is expected to be recognized over a weighted-average period of 1.7 years.

CEO Performance Option

In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $68.29 per share. At March 31, 2022, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three months ended March 31, 2022. No acceleration of unachieved award traches occurred during the three months ended March 31, 2022. Stock-based compensation of $66 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three months ended March 31, 2022. At March 31, 2022, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $596 million which, assuming no acceleration of vesting, is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock

The following summarizes restricted stock activity:

 

 

 

RSU

(in thousands)

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested as of December 31, 2021

 

 

5,597

 

 

$

51.54

 

Granted

 

 

884

 

 

 

77.10

 

Vested

 

 

(518

)

 

 

40.20

 

Forfeited

 

 

(266

)

 

 

57.35

 

Unvested as of March 31, 2022

 

 

5,697

 

 

$

56.27

 

 

10


 

At March 31, 2022, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $296 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $26 million for the three months ended March 31, 2022 and 2021. At March 31, 2022, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $17 million, which is expected to be recognized over a weighted-average period of 0.3 years.

Note 8—Income Taxes

In determining the interim provision for income taxes, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. Due to our forecasted level of profitability and significant permanent differences, primarily related to the CEO Performance Option, the Company is unable to utilize the annual effective tax rate method.

For the three months ended March 31, 2022 and 2021, the income tax benefit included benefits associated with stock-based awards of $26 million.

For the three months ended March 31, 2022 and 2021, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to the impact of tax benefits associated with stock-based awards, nondeductible stock-based compensation, state and foreign taxes and research and development tax credits.

There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

Note 9— Segment and Geographic Information

The Company has one primary business activity and operates in one reportable and operating segment.

The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients based on Gross Billings, which is the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances. The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Gross Billings, based on the billing address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

U.S.

 

 

88

%

 

 

86

%

International

 

 

12

%

 

 

14

%

Total

 

 

100

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

11


 

Note 10— Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at March 31, 2022.

Litigation

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

On June 28, 2021, a class action lawsuit was filed against the Company, the members of the Company’s board of directors, and one of the Company’s executive officers (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The complaint alleges generally that the Defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020 (the “Amendments”). The plaintiff is seeking a court order rescinding the Amendments, as well as monetary damages. On November 29, 2021, the plaintiff filed a supplement to the complaint, adding factual allegations related to the CEO Performance Option. On February 1, 2022, the Defendants moved to dismiss the complaint. A hearing on Defendants’ motions was held on April 11, 2022. The Company believes that all of the claims asserted in the complaint are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Defendants’ defense of the action will be successful.

Employment Contracts

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock options in the event of changes in control, as defined, and involuntary terminations.

 

 

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

We discuss many of these risks in Part II of this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors” and in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.

Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a global technology company that empowers buyers of advertising. Through our self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). Our platform’s integrations with major data, inventory and publisher partners provide ad buyers reach and decisioning capabilities, and our enterprise application programming interfaces enable our clients to develop on top of the platform.

We commercially launched our platform in 2011, targeting the display advertising channel and have continued to add additional advertising channels. The gross spend on our platform comes from multiple channels including mobile, video (which includes CTV), display, audio, native, digital-out-of-home and social channels.

Our clients are primarily the advertising agencies and other service providers for advertisers, with whom we enter into ongoing master services agreements. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

Executive Summary

Highlights

 

 

 

Three Months Ended March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in millions, except percentages)

 

Revenue

 

$

315

 

 

$

220

 

 

$

95

 

 

 

43

%

Net Income (Loss)

 

$

(15

)

 

$

23