SEC Filing | Integral Ad Science

View:

ias-20220630

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 June 30, 2022


☐			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.)

Not Applicable1
(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	☐

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 ☒

On August 2, 2022, the Registrant had 155,750,276 shares of common stock, $0.001 par value, outstanding.

1Any stockholder or other communication required to be sent to our principal executive offices may be directed to our mailing address: 99 Wall Street, #1950, New York, NY 10005

Table of Contents

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30 , 2022 (Unaudited) and December 31, 20 21

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 3 0 , 2022 and 2021 (Unaudited)

Condensed Consolidated Statements of Changes in Members’/ Stockholders’ Equity for the Three and Six Months Ended June 3 0 , 2022 and 2021 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the Six Months Ended Ju ne 3 0 , 2022 and 2021 (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 DATA)	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	77,366	$	73,210
Restricted cash	189		70
Accounts receivable, net	60,186		53,028
Unbilled receivables	34,076		36,210
Prepaid expenses and other current assets	11,749		7,647
Total current assets	183,566		170,165
Property and equipment, net	1,583		1,413
Internal use software, net	19,964		18,100
Intangible assets, net	237,475		258,316
Goodwill	673,501		676,513
Operating lease right-of-use assets	20,763		—
Deferred tax asset, net	848		887
Other long-term assets	4,366		4,143
Total assets	$	1,142,066	$	1,129,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	41,562	$	56,257
Due to related party	166		74
Deferred revenue	395		160
Operating lease liabilities, current	7,096		—
Total current liabilities	49,219		56,491
Accrued rent	—		854
Net deferred tax liability	52,486		53,523
Long-term debt	233,030		242,798
Operating lease liabilities, non-current	21,126		—
Other long-term liabilities	1,639		8,681
Total liabilities	357,500		362,347
Commitments and Contingencies (Note 15)
Stockholders’ Equity
Preferred Stock, $0.001 par value, 50,000,000 shares authorized at June 30, 2022; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021.	—		—
Common Stock, $0.001 par value, 500,000,000 shares authorized, 155,498,704 and 154,398,495 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.	155		154
Additional paid-in-capital	804,175		781,951
Accumulated other comprehensive loss	(8,285)		(315)
Accumulated deficit	(11,479)		(14,600)
Total stockholders’ equity	784,566		767,190
Total liabilities and stockholders’ equity	$	1,142,066	$	1,129,537

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 June 30,				Six Months Ended June 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)	2022		2021		2022		2021
Revenue	$	100,328	$	75,075	$	189,570	$	142,027
Operating expenses:
Cost of revenue (excluding depreciation and amortization shown below)	18,132		12,925		34,693		24,344
Sales and marketing	26,482		27,268		49,539		43,813
Technology and development	17,624		20,176		34,611		32,944
General and administrative	18,834		33,044		35,603		41,592
Depreciation and amortization	12,510		14,603		24,968		28,998
Total operating expenses	93,582		108,016		179,414		171,691
Operating income (loss)	6,746		(32,941)		10,156		(29,664)
Interest expense, net	(1,814)		(5,167)		(3,240)		(12,126)
Net income (loss) before income taxes	4,932		(38,108)		6,916		(41,790)
(Provision) benefit from income taxes	(2,971)		3,045		(3,796)		3,958
Net income (loss)	$	1,961	$	(35,063)	$	3,120	$	(37,832)
Net income (loss) per share – basic and diluted (1)	$	0.01	$	(0.26)	$	0.02	$	(0.28)
Weighted average shares outstanding:
Basic	155,140,684		133,981,985		154,812,037		133,996,147
Diluted	156,973,684		133,981,985		157,309,858		133,996,147
Other comprehensive loss:
Foreign currency translation adjustments	(6,996)		718		(7,970)		(1,186)
Total comprehensive loss	$	(5,035)	$	(34,345)	$	(4,850)	$	(39,018)

(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 June 30, 2022


	Common Stock
(IN THOUSANDS, EXCEPT SHARES)	Shares	Amount		Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
Balance, April 1, 2022	155,016,271	$	155	$	792,616	$	(1,289)	$	(13,441)	$	778,041
RSUs vested	277,119	—		—		—		—		—
Option exercises	205,314	—		850		—		—		850
Stock-based compensation	—	—		10,709		—		—		10,709
Foreign currency translation adjustment	—	—		—		(6,996)		—		(6,996)
Net income	—	—		—		—		1,961		1,961
Balance, June 30, 2022	155,498,704	$	155	$	804,175	$	(8,285)	$	(11,479)	$	784,566

Six Months Ended June 30, 2022


	Common Stock
(IN THOUSANDS, EXCEPT SHARES)	Shares	Amount		Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
Balance, January 1, 2022	154,398,495	$	154	$	781,951	$	(315)	$	(14,600)	$	767,190
RSUs vested	289,213	—		—		—		—		—
Option exercises	810,996	1		3,381		—		—		3,382
Stock-based compensation	—	—		18,843		—		—		18,843
Foreign currency translation adjustment	—	—		—		(7,970)		—		(7,970)
Net income	—	—		—		—		3,120		3,120
Balance, June 30, 2022	155,498,704	$	155	$	804,175	$	(8,285)	$	(11,479)	$	784,566

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 June 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		Accumulated deficit		Total members’/ stockholders’ equity
Balance, April 1, 2021	133,957,034	$	553,304	—	$	—	$	—	$	2,619	$	(130,322)	$	425,601
Option exercises	246,369	1,075		—	—		3,360		—		—		4,435
Stock-based compensation	—	—		—	—		38,148		—		—		38,148
Foreign currency translation adjustment	—	—		—	—		—		718		—		718
Net loss	—	—		—	—		—		—		(35,063)		(35,063)
Conversion to Delaware corporation (Note 1)	(134,203,403)	(554,379)		134,203,403	134		388,860		—		165,385		—
Balance, June 30, 2021	—	$	—	134,203,403	$	134	$	430,368	$	3,337	$	—	$	433,839

Six Months Ended June 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
Stock-based compensation	—	—		—	—		38,148		—		—		38,148
Foreign currency translation adjustment	—	—		—	—		—		(1,186)		—		(1,186)
Net loss	—	—		—	—		—		—		(37,832)		(37,832)
Conversion to Delaware corporation (Note 1)	(134,203,403)	(554,379)		134,203,403	134		388,860		—		165,385		—
Balance, June 30, 2021	—	$	—	134,203,403	$	134	$	430,368	$	3,337	$	—	$	433,839

(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)


	Six Months Ended June 30,
(IN THOUSANDS)	2022		2021
Cash flows from operating activities:
Net income (loss)	$	3,120	$	(37,832)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	24,968		28,998
Stock-based compensation	18,860		41,531
Deferred tax benefit	(728)		(6,582)
Amortization of debt issuance costs	232		683
Allowance for (reversal of) doubtful accounts	485		99
Non-cash interest expense	—		395
Impairment of assets	49		—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(9,654)		3,718
Decrease in unbilled receivables	1,639		2,769
Increase in prepaid expenses and other current assets	(4,560)		(2,791)
Increase in operating leases, net	(223)		—
Increase in other long-term assets	(326)		(602)
Increase (decrease) in accounts payable and accrued expenses	(10,986)		2,852
Increase in accrued rent	—		128
Increase (decrease) in deferred revenue	221		(377)
Increase in due to/from related party	108		67
Net cash provided by operating activities	23,205		33,056
Cash flows from investing activities:
Payment for acquisitions, net of acquired cash	(1,604)		—
Purchase of property and equipment	(460)		(318)
Acquisition and development of internal use software and other	(6,124)		(7,778)
Net cash used in investing activities	(8,188)		(8,096)
Cash flows from financing activities:
Principal payments on capital lease obligations	—		(219)
Cash paid for unit repurchases	—		(1,204)
Initial public offering costs paid	—		(2,767)
Repayment of short-term debt	(1,885)		—
Repayment of long-term debt	(10,000)		—
Proceeds from exercise of stock options	3,381		1,075
Net cash used in financing activities	(8,504)		(3,115)
Net increase in cash, cash equivalents and restricted cash	6,513		21,845
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,246)		(553)
Cash, cash equivalents and restricted cash at beginning of period	76,078		54,721
Cash, cash equivalents, and restricted cash, at end of period	$	80,345	$	76,013
Supplemental Disclosures:
Cash paid during the period for:
Interest	$	3,025	$	11,710
Taxes	$	10,098	$	1,170
Non-cash investing and financing activities:
Deferred offering costs accrued, not yet paid	$	—	$	2,956
Property and equipment acquired included in accounts payable	$	338	$	127
Internal use software acquired included in accounts payable	$	1,130	$	630
Conversion of members’ equity to additional paid-in capital	$	—	$	165,385
Lease liabilities arising from right of use assets	$	28,222	$	—

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 leading global digital advertising verification company by revenue. 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 deliver 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.

The Company has its operations within the United States ("U.S.") in New York, California, and Illinois. Operations outside the U.S. are within countries such as the United Kingdom ("U.K."), Germany, Italy, Spain, Sweden, Singapore, Australia, France, Japan, Canada, Brazil and India.

Corporate conversion

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. in connection with its initial public offering ("IPO"). All of the outstanding member units were converted into 134,203,403 shares of common stock of the Company on a proportion of 1 member unit for 242 shares of common stock with the same voting rights. On June 29, 2021, the Company priced its IPO, which closed on July 2, 2021.

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 June 30, 2022, the condensed consolidated statements of operations and comprehensive loss, of cash flows and of members’/stockholders’ equity for the three and six months ended June 30, 2022 and 2021, 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 and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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, 2021, 2020 and 2019. There have been no significant changes to these policies, except for the adoption of ASC 842, Leases as disclosed in Note 2(g), that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three and six months ended June 30, 2022. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 3, 2022.

(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 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 fair value of assets acquired in business combinations, including assumptions with respect to future cash inflows and outflows, discount rates, assets useful lives, market multiples, the allocation of purchase price consideration in the business combination valuation of acquired assets and liabilities, the estimated useful lives of intangible assets and internal use software, the allowance for doubtful accounts, goodwill impairment testing, assumptions used to calculate equity-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. Actual results may differ from these estimates due to risks and uncertainties, including uncertainty surrounding rapidly changing market and economic conditions due to heightened inflation, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, challenges in the supply chain, disruptions in European economies as a result of the conflict in Ukraine and ongoing effects of the COVID-19 pandemic.

(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.


	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	77,366	$	73,210
Short term restricted cash	189		70
Long term restricted cash (held in other long-term assets)	2,790		2,798
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	80,345	$	76,078

(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 within the Consolidated Statements of Operations and Comprehensive Loss.

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


	June 30, 2022		June 30, 2021
Balance, beginning of period	$	5,883	4,257
Additional provision	485		99
Receivables written off	(678)		(558)
Balance, end of period	$	5,690	3,798

(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"), return target options ("Return-Target Options"), which vest upon a realized cash return of the equity investment of Vista Equity Partners ("Vista"), the Company’s equity sponsor and funds controlled by Vista and registration of the shares held by Vista, and market stock units ("MSUs").

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:


	June 30, 2022			June 30, 2021
Estimated fair value per share	$8.16	-	$14.43	$7.77	-	$13.93
Expected volatility (%)	65%	-	80%	65%	-	80%
Expected term (in years)	3.00	-	10.00	3.00	-	10.00
Risk-free interest rate (%)	0.46%	-	3.35%	0.41%	-	0.98%
Dividend yield	—			—

(g) 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.

In February 2016, the FASB issued ASU 2016-2, “Leases (Topic 842)” (“ASU No. 2016-2”). Under ASU No. 2016-2, lessees are 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 is effective for the Company beginning January 1, 2022. 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 adopted ASU No. 2016-2 on January 1, 2022 using the modified retrospective transition approach, which resulted in the recognition of right-of-use assets ("ROU assets") of $21,666 and lease liabilities of $29,361. Differences between ROU assets and lease liabilities are attributed to deferred rent, lease incentive obligations and cease-use liability previously recognized under ASC 420 Exit or Disposal Cost Obligations. The Company elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. In addition, the Company elected the expedient permitting the combination of lease and non-lease components into a single lease component. The Company made a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes.

The adoption of ASU No. 2016-2 did not have a material impact on the Consolidated Statements of Operations and Comprehensive Loss or the Consolidated Statement of Cash Flows. Expanded disclosures around the Company's lease agreements under ASU No. 2016-2 are included in Note 14, Leases.

(h) Accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which is intended to improve the accounting for acquired revenue contracts with customers in a business combination and create consistency in practice related to (i) the recognition of an acquired contract liability, and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2023. The Company will evaluate the impact of this guidance on future acquisitions as transactions occur.

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 is intended 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. The Company does not expect the adoption of ASU No. 2020-4 to have a material impact on its consolidated financial statements.

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.

3. Business combinations

Publica LLC

On August 9, 2021, a wholly-owned subsidiary of the Company acquired, directly or indirectly, all the membership units and membership interests of Publica LLC ("Publica"). The purchase price related to this acquisition was $171,366 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.

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 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 fair value of the customer relationship intangible asset acquired was determined using the excess earnings method. The fair value of the trademark and developed technology intangible assets acquired were determined using 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. $57,972 of goodwill will be deductible for tax purposes.

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


	Fair Value		Useful Life
Assets acquired:
Cash and cash equivalents	$	4,482
Accounts receivable	2,391
Property, plant and equipment	46
Prepaid expenses	188
Security deposits	12
Intangible assets:
Developed technology	15,200		5 years
Trademarks	2,200		5 years
Customer relationships	42,800		6 years
Total intangible assets	60,200
Total identifiable assets acquired	$	67,319
Liabilities assumed:
Accounts payable	$	560
Other current liabilities	2
Deferred tax liability	36,161
Total liabilities assumed	36,723
Goodwill	190,401		Indefinite
Total purchase consideration	$	220,997

Context

On December 31, 2021, a wholly-owned subsidiary of the Company acquired, directly or indirectly, all the common equity of Nobora SAS ("Context"). The Context acquisition builds on the Company's current, market-leading media classification and contextual targeting capabilities. The integration of Context's technology will enable marketing partners to identify brand suitable content beyond standard frameworks and contextually target with granularity. The purchase price related to this acquisition was $22,575 in cash, of which $967 is payable on December 31, 2023, and 457,959 shares of common stock of the Company, valued at $10,391.

The Context acquisition was accounted for in accordance with ASC 805, using the acquisition method of accounting. The assets and liabilities of Context, 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 discount rates, opportunity costs, and assets useful lives. The use of different estimates and judgments could yield materially different results.

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, none of which will be deductible for tax purposes.

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


	Fair Value		Useful Life
Assets acquired:
Accounts receivable	$	122
Other assets	112
Developed technology	7,670		5 years
Total identifiable assets acquired	$	7,904
Liabilities assumed:
Accounts payable	$	318
Short-term debt	2,354
Deferred tax liability	142
Total liabilities assumed	2,814
Goodwill	27,876		Indefinite
Total purchase consideration	$	32,966

The Company recognized a deferred tax liability of $142 on its purchase of Context.

4. Property and equipment, net

Property and equipment consisted of the following:


	Estimated useful life (in years)			June 30, 2022		December 31, 2021
Computer and office equipment	1	-	3 years	$	3,701	$	3,100
Computer software	3	-	5 years	218		218
Leasehold improvements	Various			387		412
Furniture	5 years			80		66
Total property and equipment				4,386		3,796
Less: accumulated depreciation				(2,803)		(2,383)
Total property and equipment, net				$	1,583	$	1,413

Depreciation expense of property and equipment for the three months ended June 30, 2022 and 2021 was $217 and $455, respectively. Depreciation expense of property and equipment for the six months ended June 30, 2022 and 2021 was $435 and $960, respectively.

5. Internal use software, net

Internal use software consisted of the following:


	Estimated useful life (in years)			June 30, 2022		December 31, 2021
Internal use software	3	-	5 years	$	38,964	$	32,591
Less: Accumulated amortization				(19,000)		(14,491)
Total internal use software, net				$	19,964	$	18,100

Amortization expense for the three months ended June 30, 2022 and 2021 was $2,320 and $2,134, respectively. Amortization expense for the six months ended June 30, 2022 and 2021 was $4,547 and $3,707, respectively. For the six months ended June 30, 2022, the Company impaired $49 of costs related to projects that were no longer being implemented, recorded in general and administrative expenses within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

6. Intangible assets, net

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


	June 30, 2022
	Estimated useful life			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	301,935	$	(97,322)	$	204,613	10.0 years
Developed technology	4	-	5 years	137,263		(115,465)		21,798		4.0 years
Trademarks	5	-	9 years	19,700		(8,703)		10,997		4.9 years
Favorable leases	6 years			198		(131)		67		2.0 years
Total				$	459,096	$	(221,621)	$	237,475

	December 31, 2021
	Estimated useful life			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	302,026	$	(82,105)	$	219,921	10.4 years
Developed technology	4	-	5 years	138,342		(112,347)		25,995		4.5 years
Trademarks	5	-	9 years	19,700		(7,384)		12,316		5.4 years
Favorable leases	6 years			198		(114)		84		2.5 years
Total				$	460,266	$	(201,950)	$	258,316

Amortization expense related to intangibles for the three months ended June 30, 2022 and 2021 was $9,973 and $12,013, respectively. Amortization expense related to intangibles for the six months ended June 30, 2022 and 2021 was $19,986 and $24,332, respectively.

7. Goodwill

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



Goodwill as of December 31, 2021	$	676,513
Measurement period adjustments	(231)
Impact of exchange rates	(2,781)
Goodwill as of June 30, 2022	$	673,501

8. Accounts payable and accrued expenses

Accounts payable and accrued expenses consisted of the following: