SEC Filing | Integral Ad Science

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ias-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			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: 001-40557

INTEGRAL AD SCIENCE HOLDING CORP.

(Exact name of registrant as specified in its charter)


Delaware						83-0731995
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

95 Morton St., 8th Floor New York, NY						10014
(Address of principal executive offices)						(Zip Code)

(646) 278-4871

(Registrant’s telephone number, including area code)

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

Title of each class

Trading
symbol

Name of each exchange
on which registered

Common Stock, $0.001 par value per share

IAS

The NASDAQ Stock Market LLC

(Nasdaq 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	☐

Smaller reporting company	☐	Non-accelerated filer	☒

		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 ☒

On November 9, 2021, the Registrant had 153,940,553 shares of common stock, $0.001 par value, outstanding.

Table of Contents

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Condensed Consolidated Statements of Changes in Members’/ Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(IN THOUSANDS, EXCEPT SHARE AND UNIT DATA)	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	63,777	$	51,734
Restricted cash	213		187
Accounts receivable, net	45,589		45,418
Unbilled receivables	27,128		28,083
Prepaid expenses and other current assets	10,154		4,101
Total current assets	146,861		129,523
Property and equipment, net	1,417		2,243
Internal use software, net	17,511		12,322
Intangible assets, net	265,303		243,348
Goodwill	649,780		458,586
Other long-term assets	4,010		3,557
Total assets	$	1,084,882	$	849,579
LIABILITIES AND MEMBERS’/STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	43,099	$	38,789
Due to related party	62		150
Capital leases payable	50		325
Deferred revenue	568		1,144
Total current liabilities	43,779		40,408
Accrued rent	1,754		1,827
Net deferred tax liability	53,035		24,794
Long-term debt	232,682		351,071
Total liabilities	331,250		418,100
Commitments and Contingencies (Note 14)
Members’/Stockholders’ Equity
Units, $4.1322314 par value, 0 units authorized at September 30, 2021, 0 units and 134,039,494 issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		553,717
Preferred Stock, $0.001 par value, 50,000,000 shares authorized at September 30, 2021; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common Stock, $0.001 par value, 500,000,000 shares authorized at September 30, 2021, 153,940,553 shares issued and outstanding at September 30, 2021; 0 shares issued and outstanding at December 31, 2020	154		—
Additional paid-in-capital(1)	762,470		—
Accumulated other comprehensive income	788		4,523
Accumulated deficit(1)	(9,780)		(126,761)
Total members’/stockholders’ equity	753,632		431,479
Total liabilities and members’/stockholders’ equity	$	1,084,882	$	849,579

(1) Balances prior to the Company’s conversion to a Delaware corporation have been reclassified to additional paid-in capital to give effect to the corporate conversion described in Note 1.

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)	2021		2020		2021		2020
Revenue	$	79,014	$	59,964	$	221,041	$	162,326
Operating expenses:
Cost of revenue (excluding depreciation and amortization shown below)	13,846		10,180		38,191		28,091
Sales and marketing	19,574		13,519		63,387		48,643
Technology and development	14,609		11,107		47,554		36,169
General and administrative	16,089		6,863		57,680		22,449
Depreciation and amortization	16,100		16,434		45,098		49,185
Total operating expenses	80,218		58,103		251,910		184,537
Operating income (loss)	(1,204)		1,861		(30,869)		(22,211)
Interest expense, net	(5,753)		(7,795)		(17,880)		(23,748)
Loss on extinguishment of debt	(3,721)		—		(3,721)		—
Net loss before benefit from income taxes	(10,678)		(5,934)		(52,470)		(45,959)
Benefit from income taxes	898		1,486		4,855		10,616
Net loss	$	(9,780)	$	(4,448)	$	(47,615)	$	(35,343)
Net loss per share – basic and diluted (1):	$	(0.06)	$	(0.03)	$	(0.34)	$	(0.26)
Basic and diluted weighted average shares outstanding	151,988,054		134,039,202		140,016,260		134,047,188
Other comprehensive income (loss):
Foreign currency translation adjustments	(2,549)		1,761		(3,735)		1,037
Total comprehensive loss	$	(12,329)	$	(2,687)	$	(51,350)	$	(34,306)

(1) Amounts for periods prior to the Company’s conversion to a Delaware corporation have been retrospectively adjusted to give effect to the corporate conversion described in Note 1.

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’/ STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended September 30, 2021


	Common Stock
(IN THOUSANDS, EXCEPT UNITS AND SHARES)	Shares	Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total stockholders’ equity
Balance, July 1, 2021	134,203,403	$	134	$	430,368	$	3,337	$	—	$	433,839
RSUs vested	26,931	—		150		—		—		150
Stock-based compensation	—	—		7,984		—		—		7,984
Foreign currency translation adjustment	—	—		—		(2,549)		—		(2,549)
Net loss	—	—		—		—		(9,780)		(9,780)
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs	16,821,330	17		274,340		—		—		274,357
Issuance of common stock for the acquisition of Publica	2,888,889	3		49,628		—		—		49,631
Balance, September 30, 2021	153,940,553	$	154	$	762,470	$	788	$	(9,780)	$	753,632

Nine Months Ended September 30, 2021


	Member’s Interest			Common Stock
(IN THOUSANDS, EXCEPT UNITS AND SHARES)	Units (1)	Amount		Shares	Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total members’/ stockholders’ equity
Balance, January 1, 2021	134,039,494	$	553,717	—	$	—	$	—	$	4,523	$	(126,761)	$	431,479
Repurchase of units	(99,946)	(413)		—	—		—		—		(791)		(1,204)
Units vested	17,486			—	—		—		—		—		—
Option exercises	246,369	1,075		—	—		3,360		—		—		4,435
Foreign currency translation adjustment	—	—		—	—		—		(3,735)		—		(3,735)
Net loss prior to corporate conversion	—	—		—	—		—		—		(37,832)		(37,832)
Conversion to Delaware corporation (Note 1)	(134,203,403)	(554,379)		134,203,403	134		388,860		—		165,385		—
Stock-based compensation	—	—		—	—		46,132		—		—		46,132
RSUs vested	—	—		26,931	—		150		—		—		150
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs	—	—		16,821,330	17		274,340		—		—		274,357
Issuance of common stock for the acquisition of Publica	—	—		2,888,889	3		49,628		—		—		49,631
Net loss	—	—		—	—		—		—		(9,780)		(9,780)
Balance, September 30, 2021	—	$	—	153,940,553	$	154	$	762,470	$	788	$	(9,780)	$	753,632

(1) Amounts for periods prior to the Company’s conversion to a Delaware corporation have been retrospectively adjusted to give effect to the corporate conversion described in Note 1.

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’/STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended September 30, 2020


	Member’s Interest
(IN THOUSANDS, EXCEPT UNITS AND SHARES)	Units(1)	Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total members’ equity
Balance, July 1, 2020	134,050,576	$	553,778	$	—	$	(549)	$	(125,272)	$	427,957
Repurchase of units	(14,762)	(61)		—		—		(10)		(71)
Foreign currency translation adjustment	—	—		—		1,761		—		1,761
Net loss	—	—		—		—		(4,448)		(4,448)
Balance, September 30, 2020	134,035,814	$	553,717	$	—	$	1,212	$	(129,730)	$	425,199

Nine Months Ended September 30, 2020


	Member’s Interest
(IN THOUSANDS, EXCEPT UNITS AND SHARES)	Units(1)	Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total members’ equity
Balance, January 1, 2020	134,034,604	$	553,862	$	—	$	175	$	(94,365)	$	459,672
Repurchase of units	(35,090)	(145)		—		—		(22)		(167)
Units vested	36,300	—		—		—		—		—
Foreign currency translation adjustment	—	—		—		1,037		—		1,037
Net loss	—	—		—		—		(35,343)		(35,343)
Balance, September 30, 2020	134,035,814	$	553,717	$	—	$	1,212	$	(129,730)	$	425,199

(1) Amounts for periods prior to the Company’s conversion to a Delaware corporation have been retrospectively adjusted to give effect to the corporate conversion described in Note 1.

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(IN THOUSANDS)	2021		2020
Cash flows from operating activities:
Net loss	$	(47,615)	$	(35,343)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	45,098		49,185
Stock-based compensation	49,673		—
Deferred tax benefit	(9,966)		(12,431)
Extinguishment of debt	3,721		—
Amortization of debt issuance costs	1,020		1,024
Allowance for doubtful accounts	764		1,647
Non-cash interest expense	394		3,351
Changes in operating assets and liabilities, net of acquired business:
Decrease in accounts receivable	774		2,581
Decrease in unbilled receivables	703		1,542
Increase in prepaid expenses and other current assets	(6,151)		(86)
Decrease (increase) in other long-term assets	(574)		81
Increase in accounts payable and accrued expenses	220		6,644
Decrease in due to related party	(62)		(587)
Increase in accrued rent	220		162
Decrease in deferred revenue	(563)		(1,112)
Net cash provided by operating activities	37,656		16,659
Cash flows from investing activities:
Payment for the acquisition of Publica, net of acquired cash	(166,204)		—
Purchase of property and equipment	(636)		(447)
Acquisition and development of internal use software	(10,011)		(7,568)
Net cash used in investing activities	(176,851)		(8,015)
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions	281,589		—
Payments for offering costs	(4,728)		—
Repayment of long-term debt	(355,934)		—
Proceeds from the New Revolver	235,000		—
Payments for debt issuance costs	(2,318)		—
Principal payments on capital lease obligations	(275)		(1,333)
Cash paid for unit repurchases	(1,202)		(167)
Exercise of stock options	1,075		—
Net cash provided by (used in) financing activities	153,207		(1,500)
Net increase in cash, cash equivalents and restricted cash	14,012		7,144
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,042)		551
Cash, cash equivalents and restricted cash at beginning of period	54,721		30,370
Cash, cash equivalents, and restricted cash, at end of period	$	66,691	$	38,065
Supplemental Disclosures:
Cash paid during the period for:
Interest	$	17,109	$	15,224
Taxes	$	1,438	$	674
Non-cash investing and financing activities:
Deferred offering costs accrued, not yet paid	$	2,506	$	—
Assets acquired under capital leases	$	—	$	212
Property and equipment acquired included in accounts payable	$	11	$	88
Internal use software acquired included in accounts payable	$	682	$	894
Conversion of members’ equity to additional paid-in capital	$	165,385	$	—

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

1. Description of business

Integral Ad Science Holding Corp. and its wholly-owned subsidiaries (together, the “Company”), formerly known as Kavacha Topco, LLC, is a global digital advertising verification company. The Company’s mission is to be the global benchmark for trust and transparency in digital media quality for the world’s leading brands, publishers, and platforms. The Company’s cloud-based technology platform provides actionable insights and delivers independent measurement and verification of digital advertising across all devices, channels, and formats, including desktop, mobile, connected TV (“CTV”), social, display, and video. The Company’s proprietary and Media Rating Council (the “MRC”) accredited Quality Impressions® metric is designed to verify that digital ads are served to a real person rather than a bot, viewable on-screen, and appear in a brand-safe and suitable environment in the correct geography. The Company is an independent, trusted partner for buyers and sellers of digital advertising to increase accountability, transparency, and effectiveness in the market. The Company helps advertisers optimize their ad spend and better measure consumer engagement with campaigns across platforms, while enabling publishers to improve their inventory yield and revenue.

On August 9, 2021, the Company acquired Publica LLC (“Publica”). Publica is a leading CTV ad platform and works with many of the world’s biggest broadcasters, TV manufacturers, and over-the-top apps. With this acquisition, the Company is accelerating its CTV strategy to help publishers better monetize their video programming across CTV devices, while building new tools to provide advertisers with much-needed transparency into the quality of this inventory.

The Company has its operations within the United States (“U.S.”) in New York, California, Illinois, Washington, Texas and Virginia. Operations outside the U.S. include offices in the United Kingdom (“U.K.”), Germany, Italy, Spain, Sweden, Singapore, Australia, France, Japan, Canada, Brazil, and India.

Corporate conversion and initial public offering

On February 23, 2021, the Company amended the certificate of formation of Kavacha Topco, LLC. to change the name of the Company to Integral Ad Science Holding LLC and on June 29, 2021, the Company converted to a Delaware corporation pursuant to a statutory conversion and changed its legal name to Integral Ad Science Holding Corp. All of the outstanding member units were converted into shares of common stock with the same voting rights.

On June 29, 2021, the Company priced an initial public offering (“IPO”) of its common stock, which closed on July 2, 2021. In the IPO, the Company issued and sold 15,000,000 shares of common stock at a price per share of $18.00. The Company received aggregate proceeds of $244.0 million from the IPO, net of underwriters’ discounts and commissions, and offering costs. The underwriters were granted a 30-day option to purchase up to an additional 2,250,000 shares of common stock from the Company. On July 28, 2021, the underwriters exercised their option to purchase 1,821,330 shares of common stock and the Company received additional proceeds of $30.4 million, net of underwriters’ discount and commissions, and offering costs. The Company used the proceeds received from the IPO to repay outstanding debt and finance its acquisition of Publica, as discussed in Note 9 and Note 3, respectively.

2. Basis of presentation and summary of significant accounting policies

This summary of significant accounting policies is presented to assist in understanding the Company’s condensed consolidated financial statements. These accounting policies have been consistently applied in the preparation of the condensed consolidated financial statements.

(a) Basis of presentation

The Company’s condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The accompanying interim condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss, of cash flows and of members’/stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management’s opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company. All adjustments made were of a normal recurring nature. The results for the three months and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any future period.

The Company’s significant accounting policies are discussed in Note 2 to the consolidated financial statements for the years ended December 31, 2020 and 2019. There have been no significant changes to these policies that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2021. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our final IPO prospectus filed with the Securities and Exchange Commission (“SEC”) on July 1, 2021.

(b) Basis of consolidation

The condensed consolidated financial statements include the accounts of Integral Ad Science Holding Corp. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include the allocation of purchase price consideration in the business combination and the related valuation of acquired assets and liabilities, the estimated useful lives of our property and equipment, intangible assets and internal use software, the allowance for doubtful accounts, and goodwill impairment testing; the assumptions used to calculate stock-based compensation; and the realization of deferred tax assets. The Company bases its estimates on past experience, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Beginning in the first quarter of 2020, the COVID-19 pandemic has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the U.S. and globally, as well as the Company’s business, financial condition and results of operations. In the quarters subsequent to the second quarter of 2020, the underlying demand for the Company’s services has stabilized. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could still materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact of the COVID-19 pandemic will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration of the pandemic, new variants and their effects, vaccination rates and effectiveness, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic, macro-economic effects, such as supply chain constraints, labor shortages and inflationary pressures, and other economic and operational conditions the Company may face.

(d) Cash, cash equivalents, and restricted cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows.


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	63,777	$	51,734
Short term restricted cash	213		187
Long term restricted cash (held in other long-term assets)	2,701		2,800
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	66,691	$	54,721

(e) Accounts receivable, net

Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts. The allowance is estimated based on management’s knowledge of its customers’ financial condition, credit history, and existing economic conditions. Invoices are typically issued with net 30-days to net 90-days terms. Account balances are considered delinquent if payment is not received by the due date, and the receivables are written off when deemed uncollectible. These costs are recorded in general and administrative expenses.

The activity in our allowance for doubtful accounts consists of the following as of:


	September 30, 2021		September 30, 2020
Balance, beginning of period	$	4,257	5,843
Additional provision	764		1,647
Receivables written off	(640)		(1,975)
Balance, end of period	$	4,381	5,515

(f) Stock-based compensation

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company used the following assumptions in valuing its time-based service options, which vest over a period of time subject to continued employment (“Time-Based Options”) and return target options (“Return-Target Options”), which vest upon a realized cash return of the equity investment of Vista Equity Partners, the Company’s equity sponsor and funds controlled by Vista Equity Partners (“Vista”) and registration of the shares held by Vista.

Expected term — For time-based awards, the estimated expected term of options granted is generally calculated as the vesting period plus the midpoint of the remaining contractual term, as the Company does not have sufficient historical information to develop reasonable expectations surrounding future exercise patterns and post-vesting employment termination behavior. For awards subject to market and performance conditions, the expected term represents the period of time that the options granted are expected to be outstanding.

Expected volatility — Since the Company does not have substantive trading history of its common stock, volatility is estimated based upon observed option-implied volatilities for a group of peer companies. The Company believes this is the best estimate of the expected volatility over the weighted-average expected term of its option grants.

Risk-free interest rate — The risk-free interest rate is based on the implied yield currently available on U.S. Treasury instruments with terms approximately equal to the expected term of the option.

Expected dividend — The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company currently has no history or expectation of paying cash dividends on its units.

Fair value —Prior to the IPO, because there was no public market for the Company’s common stock/units, the board of directors determined the best estimate of the fair value of the Company’s option grants, based on reasonable judgment and numerous objective and subjective factors, including independent third-party valuations of the Company’s common stock/units, operating and financial performance, and general and industry-specific economic outlook, amongst other factors. Following the pricing of the IPO, the Company’s shares are traded in the public market, and accordingly the Company uses the applicable closing price of its common stock to determine fair value.

The Company used the following assumptions in valuing its stock-based compensation:


	September 30, 2021			September 30, 2020 (1)
Estimated fair value	$8.16	-	$14.04	$2.29
Expected volatility (%)	65%	-	80%	70%	-	75%
Expected term (in years)	3.00	-	10.00	3.25	-	6.63
Risk-free interest rate (%)	0.46%	-	0.98%	0.26%	-	0.55%
Dividend yield	—			—

(1) For issuances prior to the pricing of the IPO, the fair value of the Company’s option grants was estimated at the grant date using the Monte Carlo simulation model and relate to the Return-Target Options only as the Time-Based Options were not within the scope of ASC 718, Compensation - Stock Compensation for the three and nine months ended September 30, 2020.

(g) Deferred offering costs

Deferred offering costs are capitalized and consist of fees incurred in connection with our IPO and include legal, accounting, printing, and other IPO-related costs. Upon the completion of our IPO, which occurred on July 2, 2021, these deferred costs were reclassified to members’/stockholders’ equity and recorded against the proceeds from the offering.

Deferred offering costs of $7,233 were recognized within additional paid-in capital on the Company's condensed consolidated balance sheets as of September 30, 2021. No such costs were incurred as of December 31, 2020.

(h) Recently adopted accounting pronouncements

In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”) effective January 1, 2021, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company early adopted ASU No. 2019-12, which did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2018-15”), which requires customers in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. The guidance requires certain costs incurred during the application development stage to be capitalized and other costs incurred during the preliminary project and post-implementation stages to be expensed as they are incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrange is ready for its intended use. A customer’s accounting for the hosting component of the arrangement is not affected. The Company adopted this guidance on January 1, 2021 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

(i) Accounting pronouncements not yet adopted

In March 2020, the FASB issued ASU 2020-4, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU No. 2020-4”) which intends to address accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The amendments in ASU No. 2020-4 provide operational expedients and exceptions for applying U. S GAAP to contracts, hedging relationships and other transactions to affected by reference rate reform if certain criteria are met. The amendments in ASU No. 2020-4 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The Company intends to elect to apply certain of the optional expedients when evaluating the impact of reference rate reform on its debt instruments that reference LIBOR.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU No. 2016-13”) which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to accounts receivable. This guidance will be effective for the Company beginning January 1, 2023, including interim periods within that reporting period. Early adoption is permitted and the update allows for a modified retrospective method of adoption. The Company is currently evaluating the potential effect that adopting this guidance will have on its Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-2, “Leases (Topic 842)” (“ASU No. 2016-2”). Under ASU No. 2016-2, lessees will be required to put most leases on their balance sheets but to recognize expenses in the income statement in a manner similar to current accounting. ASU No. 2016-2 also eliminated the current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. The updated guidance will be effective for the Company beginning January 1, 2022, with early adoption permitted. Upon adoption, entities will be required to use the modified retrospective approach for leases that exist, or are entered into, after the beginning of the earliest comparative period in the financial statements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which allows entities to not apply the new leases standard, including its disclosure requirements, in the comparative periods they present in their financial statements in the year of adoption.

The Company expects to elect the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company will make a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. The other practical expedients available under the guidance are being evaluated.

The Company is evaluating the lease portfolio, process, control and policy change requirements. The Company's evaluation of these requirements has progressed and the Company continues to gather the necessary data elements for the lease population. The Company does not expect the amount or classification of rent expense in its statement of condensed consolidated statements of operations to be affected by the adoption of ASU No. 2016-2. The Company expects that the primary effect of the adoption of ASU No. 2016-2 will be the recognition of a right-of-use asset and lease liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to provide the additional disclosures stipulated in ASU No. 2016-2.

The adoption of ASU No. 2016-2 will not have an impact on the leverage calculation set forth in the agreements governing the outstanding debt of the Company, because the leverage calculations are not affected by the liability that will be recorded upon adoption of the new standard. The Company is continuing to evaluate the potential impacts that adopting this guidance will have on its condensed consolidated financials and expects the adoption of ASU No. 2016-2 will have a material impact on the Company's condensed consolidated balance sheet.

3. Business combinations

On August 9, 2021, a wholly-owned subsidiary of the Company acquired, directly or indirectly, all the membership units and membership interests of Publica. The purchase price related to this acquisition was $170,686 in cash and 2,888,889 shares of common stock of the Company, valued at $49,631. The acquisition was financed with proceeds received from the Company's IPO, as described in Note 1.

The acquisition was accounted for in accordance with ASC 805, using the acquisition method of accounting. The assets and liabilities of Publica, including identifiable intangible assets, have been measured at their fair value primarily using Level 3 inputs. Determining the fair value of the assets acquired and liabilities assumed requires judgement and involved the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, assets useful lives, market multiples, and other items. The use of different estimates and judgements could yield materially different results.

The estimated fair values allocated to the assets acquired are based on management's estimates and assumptions and may be subject to change as additional information becomes available. The estimated fair value of the customer relationship intangible asset acquired was determined using the excess earnings method. The estimated fair value of the trademark and developed technology intangible assets acquired were determined using the the relief from royalty method.

The excess of the purchase price, over the fair value of net assets acquired, including the amount assigned to the identifiable intangible assets, has been recorded to goodwill. The resulting goodwill has been allocated to the Company's single reporting unit. The Company is estimating approximately $58,390 of goodwill will be deductible for tax purposes.

The preliminary allocation of purchase consideration to the assets acquired and liabilities assumed is as follows:


		Fair Value
Assets acquired:
Cash and cash equivalents	$	4,482
Accounts receivable		2,391
Property, plant and equipment		46
Prepaid expenses		64
Security deposits		12
Intangible assets:
Developed technology		15,200
Trademarks		2,200
Customer relationships		42,800
Total intangible assets		60,200
Total identifiable assets acquired	$	67,195
Liabilities assumed:
Accounts payable	$	561
Other current liabilities		2
Taxes payable		421
Deferred tax liability		37,615
Total liabilities assumed		38,599
Goodwill		191,721
Total purchase consideration	$	220,317

The allocation of the purchase price to the assets acquired and liabilities assumed of Publica is not complete as of September 30, 2021 as the Company is continuing to gather information regarding Publica's pre-acquisition tax liability, deferred tax liability as well as the working capital adjustment.

The acquired intangible assets of Publica are amortized over their estimated useful lives. Accordingly, trademark will be amortized straight-line over 5 years, customer relationships will be amortized straight-line over 6 years and developed technology will be amortized over 5 years using an accelerated method. The weighted average amortization period for all acquired intangibles is 5.7 years. For the quarter and year to date period ended September 30, 2021, amortization for the acquired intangible assets was $1,440. The Company recognized a deferred tax liability of $37,615 on its purchase of Publica.

The results of Publica included in the Company's consolidated financial statements from the date of acquisition are net sales and loss from operations of $3,190 and $70, respectively for the three and nine months ended September 30, 2021. The Company incurred acquisition-related transaction costs of $1,304 during the three months ended September 30, 2021, which are included in General and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Publica had occurred as of January 1, 2020. The pro forma information includes certain adjustments, including depreciation and amortization expense, software capitalization, the removal of transactions between Publica and the Company and certain other adjustments. The pro forma amounts may not be indicative of the results that actually would have been achieved had the acquisition of Publica occurred as of January 1, 2020, and are not necessarily indicative of future results of the combined companies:


	Three months ended				Nine months ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Revenue	$	80,780	$	61,312	$	229,085	$	164,432
Net loss	$	(12,351)	$	(6,257)	$	(58,566)	$	(42,553)

4. Property and equipment, net

Property and equipment consisted of the following:


	Estimated useful life (in years)			September 30, 2021		December 31, 2020
Computer and office equipment	1	-	3	$	9,687	$	9,167
Computer software	3	-	5	237		236
Leasehold improvements	Various			2,119		2,120
Furniture	5 years			335		317
Total property and equipment				12,378		11,840
Less: accumulated depreciation				(10,961)		(9,597)
Total property and equipment, net				$	1,417	$	2,243

Depreciation expense of property and equipment for the three months ended September 30, 2021 and 2020 was $418 and $733, respectively. Depreciation expense of property and equipment for the nine months ended September 30, 2021 and 2020 was $1,378 and $2,401, respectively.

Computer and office equipment under capital leases are as follows:


	September 30, 2021		December 31, 2020
Computer and office equipment	$	6,073	$	6,073
Less: Accumulated depreciation	(6,057)		(5,782)
Total computer and office equipment under capital leases, net	$	16	$	291

Depreciation expense related to computer and office equipment under capital leases for the three months ended September 30, 2021 and 2020 was $55 and $346, respectively. Depreciation expense related to computer and office equipment under capital leases for the nine months ended September 30, 2021 and 2020 was $275 and $1,301, respectively.

5. Internal use software, net

Internal use software consisted of the following:


	Estimated useful life (in years)			September 30, 2021		December 31, 2020
Internal use software	3	-	5	$	29,939	$	19,124
Less: Accumulated amortization				(12,428)		(6,802)
Total internal use software, net				$	17,511	$	12,322

Amortization expense for the three months ended September 30, 2021 and 2020 was $2,086 and $1,294, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020 was $5,793 and $3,323, respectively. During the nine months ended September 30, 2021, the Company purchased digital advertising transparency software for $4,548. This software further expands the Company’s Total Visibility® product offering which provides insight into digital media quality and corresponding supply path costs.

6. Intangible assets, net

The gross book value, accumulated amortization, net book value and amortization periods of the intangible assets were as follows:


	September 30, 2021
	Estimated useful life			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	302,060	$	(74,327)	$	227,733	10.7 years
Developed technology	4	-	5 years	130,734		(106,232)		24,502		3.7 years
Trademarks	5	-	9 years	19,700		(6,725)		12,975		5.6 years
Favorable leases	6 years			198		(105)		93		2.8 years
Total				$	452,692	$	(187,389)	$	265,303

	December 31, 2020
	Estimated useful life			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	259,329	$	(55,282)	$	204,047	12.5 years
Developed technology	4	-	5 years	115,921		(89,219)		26,702		2.1 years
Trademarks	9 years			17,500		(5,018)		12,482		6.5 years
Favorable leases	6 years			198		(81)		117		3.5 years
Total				$	392,948	$	(149,600)	$	243,348

Amortization expense related to intangibles for the three months ended September 30, 2021 and 2020 was $13,596 and $14,498, respectively. Amortization expense related to intangibles for the nine months ended September 30, 2021 and 2020 was $37,927 and $43,514, respectively.

7. Goodwill

The following table provides a roll forward of the changes in the goodwill balance:



Goodwill as of December 31, 2020	$	458,586
Publica acquisition	191,721
Impact of exchange rates	(527)
Goodwill as of September 30, 2021	$	649,780

8. Accounts payable and accrued expenses

Accounts payable and accrued expenses consisted of the following:


	September 30, 2021		December 31, 2020
Accounts payable	$	9,700	$	8,808
Accrued payroll	4,526		3,482
Accrued professional fees	1,844		2,503
Accrued interest	19		4,277
Accrued bonuses and commissions	10,013		11,883
Accrued revenue sharing	5,823		2,503
Taxes payable	6,464		3,019
Other accrued expenses	4,710		2,314
Total accounts payable and accrued expenses	$	43,099	$	38,789

9. Long-term debt

Credit Agreement

On July 19, 2018, the Company entered into a credit agreement with various lenders (“Prior Credit Agreement”), providing a term facility in the aggregate principal amount of $325,000 (“Term Loan”) and the ability to draw additional funds through a revolving facility (“Revolving Loan”) of up to $25,000. The Term Loan and Revolving Loan had a maturity date of July 19, 2024 and July 19, 2023, respectively. As further explained below, on September 29, 2021, the Company repaid the outstanding balances and terminated the Prior Credit Agreement.

In addition to interest payable in cash, the Prior Credit Agreement included Paid in Kind (“PIK”) interest at a rate of 1.25% per annum. All PIK interest due was paid by capitalizing such interest and adding such applicable PIK interest to the principal amount of the outstanding Term Loan. The interest rate for the cash interest under the Prior Credit Agreement was either the (a) Alternate Base Rate, which is equal to the greatest of the base rate in effect, the Federal Funds Rate in effect on such day plus