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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 March 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-40557
https://cdn.kscope.io/9e59c513665bcf2c01082e9f07c0a07a-g192400g0723002850821.jpg
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 filerAccelerated filer
Non-accelerated filerSmaller 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 May 2, 2023, the Registrant had 154,927,770 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. 
Item 1. 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II. 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 

2


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRAL AD SCIENCE HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)March 31, 2023December 31, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$94,427 $86,877 
Restricted cash308 45 
Accounts receivable, net62,739 67,884 
Unbilled receivables40,376 41,550 
Prepaid expenses and other current assets21,368 24,761 
Due from related party20 29 
Total current assets219,238 221,146 
Property and equipment, net3,871 2,412 
Internal use software, net27,543 23,642 
Intangible assets, net207,968 217,558 
Goodwill674,754 674,094 
Operating lease right-of-use assets21,246 22,787 
Deferred tax asset, net1,718 2,020 
Other long-term assets5,083 5,024 
Total assets$1,161,421 $1,168,683 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses$47,518 $60,799 
Due to related party179 122 
Deferred revenue622 99 
Operating lease liabilities, current6,387 6,749 
Total current liabilities54,706 67,769 
Net deferred tax liability42,740 45,495 
Long-term debt213,378 223,262 
Operating lease liabilities, non-current21,720 22,875 
Other long-term liabilities1,113 1,066 
Total liabilities333,657 360,467 
Commitments and Contingencies (Note 14)
Stockholders’ Equity
Preferred Stock, $0.001 par value, 50,000,000 shares authorized at March 31, 2023; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022.
  
Common Stock, $0.001 par value, 500,000,000 shares authorized, 154,811,980 and 153,990,128 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.
154 154 
Additional paid-in-capital824,498 810,186 
Accumulated other comprehensive loss(1,750)(2,899)
Retained earnings4,862 775 
Total stockholders’ equity827,764 808,216 
Total liabilities and stockholders’ equity$1,161,421 $1,168,683 


See notes to the unaudited condensed consolidated financial statements.
3



INTEGRAL AD SCIENCE HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)

 
Three Months Ended March 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)20232022
Revenue$106,092 $89,242 
Operating expenses:
Cost of revenue (excluding depreciation and amortization shown below)21,682 16,561 
Sales and marketing26,260 23,080 
Technology and development15,529 16,988 
General and administrative20,723 16,794 
Depreciation and amortization12,825 12,458 
Foreign exchange gain, net (1)
(516)(49)
Total operating expenses96,503 85,832 
Operating income 9,589 3,410 
Interest expense, net(3,417)(1,426)
Net income before income taxes6,172 1,984 
Provision for income taxes(3,026)(825)
Net income$3,146 $1,159 
Net income per share – basic and diluted$0.02 $0.01 
Weighted average shares outstanding:
Basic154,315,219 154,477,403
Diluted157,884,615 157,159,026 
Other comprehensive income:
Foreign currency translation adjustments1,149 (974)
Total comprehensive income$4,295 $185 

(1) Prior period amounts have been reclassified to conform to current period presentation.
See notes to the unaudited condensed consolidated financial statements.

4



INTEGRAL AD SCIENCE HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

Three Months Ended March 31, 2023
 Common Stock    
(IN THOUSANDS, EXCEPT SHARE DATA)SharesAmountAdditional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
stockholders’
equity
Balance, December 31, 2022153,990,128 $154 $810,186 $(2,899)$775 $808,216 
RSUs vested371,740 — — — —  
Option exercises338,949 — 2,115 — — 2,115 
ESPP purchase111,163 — 882 — — 882 
Stock-based compensation— — 11,315 — — 11,315 
Foreign currency translation adjustment— — — 1,149 — 1,149 
Adoption of ASC 326, net of tax
— — — — 941 941 
Net income— — — — 3,146 3,146 
Balance, March 31, 2023
154,811,980 $154 $824,498 $(1,750)$4,862 $827,764 


Three Months Ended March 31, 2022
Common Stock
(IN THOUSANDS, EXCEPT SHARE DATA)SharesAmountAdditional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
equity
Balance, December 31, 2021154,398,495 $154 $781,951 $(315)$(14,600)$767,190 
RSUs vested12,094 — — — —  
Option exercises605,682 1 2,531 — — 2,532 
Stock-based compensation— — 8,134 — — 8,134 
Foreign currency translation adjustment— — — (974)— (974)
Net income— — — — 1,159 1,159 
Balance, March 31, 2022155,016,271 $155 $792,616 $(1,289)$(13,441)$778,041 






See notes to the unaudited condensed consolidated financial statements.

5



INTEGRAL AD SCIENCE HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended March 31,
(IN THOUSANDS)20232022
Cash flows from operating activities:  
Net income$3,146 $1,159 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization12,825 12,458 
Stock-based compensation11,306 8,139 
Foreign currency gain, net(678) 
Deferred tax benefit(2,767)(719)
Amortization of debt issuance costs116 116 
Allowance for credit losses514 314 
Impairment of assets  49 
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable6,642 (1,673)
Decrease in unbilled receivables1,292 649 
Decrease (increase) in prepaid expenses and other current assets3,063 (2,612)
Decrease (increase) in operating leases, net20 (195)
Increase in other long-term assets(19)(185)
Decrease in accounts payable and accrued expenses(13,073)(6,520)
Increase in deferred revenue522 173 
Increase in due to/from related party47 34 
Net cash provided by operating activities22,956 11,187 
Cash flows from investing activities:
Purchase of property and equipment(1,282)(328)
Acquisition and development of internal use software and other(7,060)(2,677)
Net cash used in investing activities(8,342)(3,005)
Cash flows from financing activities:
Proceeds from the Revolver75,000  
Repayment of long-term debt(85,000) 
Repayment of short-term debt (1,934)
Exercise of stock options2,115 2,532 
Cash received from Employee Stock Purchase Program787  
Net cash (used in) provided by financing activities(7,098)598 
Net increase in cash, cash equivalents and restricted cash7,516 8,780 
Effect of exchange rate changes on cash, cash equivalents and restricted cash305 278 
Cash, cash equivalents and restricted cash at beginning of period89,671 76,078 
Cash, cash equivalents, and restricted cash, at end of period$97,492 $85,137 
Supplemental Disclosures:
Cash paid during the period for:
Interest$3,004 $1,298 
Taxes$935 $977 
Non-cash investing and financing activities:
Property and equipment acquired included in accounts payable$433 $16 
Internal use software acquired included in accounts payable$1,309 $1,128 
Lease liabilities arising from right of use assets$28,107 $27,650 


See notes to the unaudited condensed consolidated financial statements.

6



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 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 Quality Impressions® is a proprietary metric that helps ensure media quality standards. To be counted as a Quality Impression, a digital ad must be viewable, by a real person rather than a bot, in a brand-safe and suitable environment within the correct geography. The viewability and invalid traffic filtration aspects of Quality Impression are accredited by the Media Rating Council across desktop and mobile platforms. 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 operates within the United States ("U.S.") in New York, California, and Illinois. Operations outside the U.S. include but are not limited to countries such as the United Kingdom ("U.K."), France, Germany, Italy, Singapore, Australia, Japan, India and the Nordics.

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 March 31, 2023, the condensed consolidated statements of operations and comprehensive income, of cash flows and of stockholders’ equity for the three months ended March 31, 2023 and 2022, 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 ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, 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, 2022, 2021 and 2020. There have been no significant changes to these policies, except for the adoption of Accounting Standards Update ("ASU") No. 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” as disclosed in Note 2(g) and Note 2(i), that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three months ended March 31, 2023. 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 2, 2023.

7


During the year ended December 31, 2022, the Company reclassified foreign exchange loss, net from "General and administrative" expenses within the Condensed Consolidated Statement of Operations and Comprehensive Income as a separate line item "Foreign currency translation adjustments" presented on the Condensed Consolidated Statement of Operations and Comprehensive Income. Corresponding prior period amounts have also been reclassified to conform to current period presentation.

(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.

(c) Use of estimates

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. 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 the continued uncertainty surrounding rapidly changing market and economic conditions due to high inflation, changes to fiscal and monetary policy, high interest rates, currency fluctuations, instability in the financial markets and banking industry, challenges in the supply chain and disruptions in European economies as a result of the war in Ukraine.

(d) Employee retention tax credit

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to 70% of qualified wages paid to employees during the 2021 fiscal year.

The Company qualified for the employee retention credit beginning in March 2020 for qualified wages through June 2021 and filed a cash refund claim during the year ended December 31, 2022. The Company recorded an employee retention credit totaling $6,981, within Employee retention tax credit on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income. As of March 31, 2023, the tax credit receivable has been included within Prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets.

(e) Foreign currency

The reporting currency of the Company is the U.S. dollar. The functional currency of our foreign subsidiaries is the currency of the primary economic environment in which they operate, which is their local currency. The financial statements of these subsidiaries are translated into U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses including those on intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in foreign exchange gain (loss) in the Condensed Consolidated Statement of Operations and Comprehensive Income.

Foreign exchange loss, net consists of unrealized foreign exchange gains, net of $678 and $86 for the months ended March 31, 2023, and 2022, respectively, adjusted for realized transaction losses of $162 and $37 for the three months ended March 31, 2023, and 2022, respectively.

(f) 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.
8


 March 31, 2023December 31, 2022
Cash and cash equivalents$94,427 $86,877 
Short term restricted cash308 45 
Long term restricted cash (held in other long-term assets)2,757 2,749 
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows$97,492 $89,671 

(g) Accounts receivable, net

Accounts receivable are carried at the original invoiced amount less an allowance for credit losses. The allowance is estimated by pooling accounts receivables based on similar risk characteristics and expected credit loss exposure is evaluated for each accounts receivable pool. 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 Income.

The activity in our allowance for credit losses consists of the following as of:

 March 31, 2023March 31, 2022
Balance, beginning of period$6,691 5,883 
Additional provision514 314 
Receivables written off and impact of exchange rates26 (207)
Adoption of ASC 326(1,271) 
Balance, end of period$5,960 5,990 
(h) 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 market stock units ("MSUs"), shares granted under the Company's 2021 Employee Stock Purchase Program (the "ESPP"), 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 ("Vista"), the Company’s equity sponsor and funds controlled 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 — Volatility is estimated based upon observed option-implied volatilities for the Company in addition to 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 common stock.

9


Fair value —Prior to the Company's initial public offering ("IPO"), because there was no public market for the Company’s common stock/units, the Company's board of directors (the "Board") 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, among other factors. Following the pricing of the IPO, the Company’s shares have traded publicly, 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:

 March 31, 2023
March 31, 2022
Estimated fair value$3.35$8.16$14.04
Expected volatility (%)60%65%-80%
Expected term (in years)0.503.00-10.00
Risk-free interest rate (%)4.79%0.46%-0.98%
Dividend yield
(i) Recently adopted accounting pronouncements

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 are 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 Accounting Standards Codification ("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 ROU 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 Income or the Consolidated Statement of Cash Flows. Expanded disclosures around the Company's lease agreements under ASU No. 2016-2 are included in Note 13, Leases.

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.

The Company adopted ASU No. 2016-13 on January 1, 2023, utilizing the modified retrospective approach requiring a cumulative-effect adjustment to the opening accumulated deficit in the first quarter of 2023, and the adoption resulted in $941 adjustment to retained earnings on January 1, 2023, net of tax. Refer to Note 2(g), Accounts receivables, net, for details on the Company’s accounting policy in accordance with ASU 2016-13.

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(j) 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," ("ASU No. 2021-08") 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. ASU No. 2021-08 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 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.

3.    Property and equipment, net

Property and equipment consisted of the following:
 Estimated
useful life
(in years)
March 31, 2023December 31, 2022
Computer and office equipment1-3 years$3,824 $3,761 
Computer software3-5 years218 218 
Leasehold improvementsVarious2,160 1,060 
Furniture5 years492 308 
Total property and equipment6,694 5,347 
Less: accumulated depreciation(2,823)(2,935)
Total property and equipment, net$3,871 $2,412 

Depreciation expense of property and equipment for the three months ended March 31, 2023 and 2022 was $198 and $218, respectively. During the three months ended March 31, 2023, the Company wrote off fully depreciated assets of $267.

4.    Internal use software, net

Internal use software consisted of the following:
 Estimated
useful life
(in years)
March 31, 2023December 31, 2022
Internal use software3-5 years$54,487 $47,658 
Less: Assets written off (199)
Less: Accumulated amortization(26,944)(23,817)
Total internal use software, net$27,543 $23,642 

Amortization expense for the three months ended March 31, 2023 and 2022 was $2,924 and $2,227, respectively.

11


5.    Intangible assets, net

The gross book value, accumulated amortization, net book value and amortization periods of the intangible assets were as follows:
 March 31, 2023
 Estimated
useful life
Gross book
value
Accumulated
amortization
Net book valueWeighted
average
remaining
useful life
Customer relationships5-15 years$301,977 $(119,982)$181,995 9.3 years
Developed technology4-5 years137,250 (120,352)16,898 3.3 years
Trademarks5-9 years19,700 (10,667)9,033 4.1 years
Favorable leases6 years198 (156)42 1.3 years
Total$459,125 $(251,157)$207,968 
 December 31, 2022
 Estimated
useful life
Gross book
value
Accumulated
amortization
Net book valueWeighted
average
remaining
useful life
Customer relationships5-15 years$301,955 $(112,589)$189,366 9.5 years
Developed technology4-5 years137,112 (118,650)18,462 3.5 years
Trademarks5-9 years19,700 (10,021)9,679 4.4 years
Favorable leases6 years198 (147)51 1.5 years
Total$458,965 $(241,407)$217,558 

Amortization expense related to intangibles for the three months ended March 31, 2023 and 2022 was $9,703 and $10,013, respectively.

6.    Goodwill

The following table provides a roll forward of the changes in the goodwill balance:
Goodwill as of December 31, 2022
$674,094 
Impact of exchange rates660 
Goodwill as of March 31, 2023
$674,754 
  

7.    Accounts payable and accrued expenses and other long-term liabilities

Accounts payable and accrued expenses consisted of the following:
 March 31, 2023December 31, 2022
Accounts payable$13,310 $10,487 
Accrued payroll7,196 12,623 
Accrued professional fees3,525 3,150 
Accrued bonuses and commissions7,792 16,527 
Accrued revenue sharing3,367 3,522 
Taxes payable2,971 3,130 
Accrued hosting fees3,685 5,949 
Other accrued expenses5,672 5,411 
Total accounts payable and accrued expenses$47,518 $60,799 

12


Other long-term liabilities consisted of the following:
 March 31, 2023December 31, 2022
Security deposit received672 672 
Fin 48 liability441 394 
Total Other long-term liabilities$1,113 $1,066 

8.    Long-term debt

On September 29, 2021, the Company entered into a credit agreement with various lenders (the “Credit Agreement”), that provides for an initial $300,000 in commitments for revolving credit loans (the “Revolver”), which amount may be increased or decreased under specific circumstances, with a $30,000 letter of credit sublimit and a $100,000 alternative currency sublimit. In addition, the Credit Agreement provides for the ability to request incremental term loan facilities, in a minimum amount of $5,000 for each facility. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement. During the three months ended March 31, 2023, the Company drew down $75,000 and paid $85,000 under the Revolver.

Borrowings under the Credit Agreement are scheduled to mature on September 29, 2026. The Credit Agreement contains certain customary events of default including failure to make payments when due thereunder, and failure to observe or perform certain covenants.

The proceeds of the Revolver, together with cash on hand, were used to repay the outstanding balance of the Term Loan and Revolving Loan under the prior credit agreement. In connection with the Revolver, the Company incurred costs of $2,318 that are included in Long-term debt, net, in the Condensed Consolidated Balance Sheets. In connection with the extinguishment of the Term Loan and Revolving Loan under the prior credit agreement, the Company wrote off deferred financing costs of $3,721 as a loss on extinguishment.

The interest rates for the Revolver under the Credit Agreement for U.S. dollar loans are equal to (i) the applicable rate for base rate loans range from 0.75% to 1.50% per annum, (ii) for LIBO Rate (as defined in the Credit Agreement) loans range from 1.75% to 2.50% per annum, (iii) for RFR Loans (as defined in the Credit Agreement) denominated in sterling range from 1.7826% to 2.5326%, and (iv) for RFR Loans denominated in euro range from 1.7965% to 2.5456%, in each case, based on the Senior Secured Net Leverage Ratio (as defined in the Credit Agreement). Base rate borrowings may only be made in dollars. The Company is required to pay a commitment fee during the term of the Credit Agreement ranging from 0.20% to 0.35% per annum of the average daily undrawn portion of the revolving commitments based on the Senior Secured Net Leverage Ratio. The interest rate on March 31, 2023 was 6.74%.

Any borrowings under the Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed the aggregate commitment of all lenders.

The Credit Agreement contains covenants requiring certain financial information to be submitted quarterly and annually. In addition, the Company is also required to comply with certain financial covenants such as maintaining a Net Leverage Ratio (as defined in the Credit Agreement) of 3.50:1.00 or lower and maintaining a minimum Interest Coverage Ratio (as defined in the Credit Agreement) of 2.50 to 1.00. As of March 31, 2023, the Company was in compliance with all covenants contained in the Credit Agreement.

March 31, 2023December 31, 2022
Revolver$215,000 $225,000 
Less: Unamortized debt issuance costs(1,622)(1,738)
Total carrying amount$213,378 $223,262 

Amortization of debt issuance costs for both the three months ended March 31, 2023 and 2022 were $116. Amortization of debt issuance costs is recorded to interest expense, net on the Company's Condensed Consolidated Statements of Operations and Comprehensive Income.
13



The Company recognized interest expense of $3,830 and $1,312 during the three months ended March 31, 2023 and 2022, respectively. Future principal payments of long-term debt as of March 31, 2023 are as follows:

Year Ending 
2023$ 
2024 
2025 
2026215,000 
 $215,000 

9.    Income taxes

At the end of each interim period, the Company estimates the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or the Company’s tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.

For the three months ended March 31, 2023 and 2022, the Company recorded an income tax provision of $3,026 and $825, respectively. The Company’s effective tax rate for the three months ended March 31, 2023 and 2022 was 49.0% and 41.6%, respectively. The Company's effective tax rate for the three months ended March 31, 2023 is higher than for the respective three months ended March 31, 2022 primarily due to non-deductible stock-based compensation and other permanent tax differences and discrete items.

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. The Company is not currently under audit in any taxing jurisdiction.

10.    Segment data

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer is the CODM.

The Company manages its operations as a single segment for the purpose of assessing and making operating decisions. The CODM allocates resources and assesses performance based upon financial information at the consolidated level. Since the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

The following table summarizes revenue by geographic area:
 Three Months Ended March 31,
 20232022
North and South America (“Americas”)$74,201 $60,559 
Europe, Middle East and Africa (“EMEA”)24,063 21,658 
Asia and Pacific Rim (“APAC”)7,828 7,025 
Total$106,092 $89,242 

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For the three months ended March 31, 2023 and 2022, revenue in the U.S. was $70,615 and $57,432, respectively.

The following table summarizes long lived assets, net by geographic area:

 March 31, 2023December 31, 2022
Long lived assets  
Americas$14,720 $16,016 
EMEA7,890 6,419 
APAC2,507 2,764 
Total$25,117 $25,199 

11.    Stock-based compensation

Integral Ad Science Holding Corp. Amended and Restated 2018 Non-Qualified Stock Option Plan

On August 1, 2018, the Company adopted the 2018 Non-Qualified Stock Option Plan (“2018 Plan”). Under the 2018 Plan, the Company issued (i) Time-Based Options that vest over four years with 25% vesting after twelve months and an additional 6.25% vesting at the end of each successive quarter thereafter; and (ii) Return-Target Options that vest upon the first to occur of sale of the Company, or, sale or transfer to any third party of shares, as a result of which, any person or group other than Vista, obtains possession of voting power to elect a majority of the Board or any other governing body and the achievement of a total equity return multiple of 3.0 or greater.

The 2018 Plan contained a provision wherein, the Time-Based Options can be repurchased by the Company at cost upon resignation of the employee. Due to this repurchase feature, the Time-Based Options did not provide the employee with the potential benefits associated with a stock award holder, and therefore, these awards were not accounted for as a stock-based award under ASC 718, Compensation - Stock Compensation but instead, compensation cost was recognized when the benefit to the employee was determined to be probable.

The Return-Target Options were considered to contain both market (total stockholder return threshold) and performance (exit event) conditions. As such, the award was measured on the date of grant. Since the conditions for vesting related to the Return-Target Options were not met prior to the IPO, no stock-based compensation was recognized in the pre-IPO financial statements of the Company.

In connection with the IPO, the 2018 Plan was amended and restated (the “Amended and Restated 2018 Plan”) with the following modifications: (i) the provision to repurchase the Time-Based Options at cost upon resignation of the employee was removed and (ii) the Return-Target Options were modified to include vesting upon a sale of shares by Vista following the IPO resulting in Vista realizing a cash return on its investment in the Company equaling or exceeding $1.17 billion.

As a result of the modification to the Time-Based Options, the awards became subject to the guidance in ASC 718, Compensation - Stock Compensation. During the three months ended March 31, 2023, the Company recognized stock compensation expense of $1,093 related to the Time-Based Options.

As the return multiple and vesting conditions associated with the Return-Target Options were also modified, the Company fair valued the Return-Target Options using a Monte Carlo simulation model. The Return-Target Options become exercisable following both (i) a registration of shares of common stock held by Vista and (ii) Vista realizing a cash return on its investment in the Company equaling or exceeding $1.17 billion. As of March 31, 2023, the condition relating to Vista's cash return was not deemed probable and therefore, no stock-based compensation expense was recognized relating to the Return-Target Options.

Vesting of the Time-Based Options accelerate when the Return-Target Options vest and therefore, recognition of the remaining unamortized stock compensation expense related to the Time-Based Options will accelerate when it becomes probable that the Return-Target Options would vest.

The total number of Time-Based Options and Return Target Options outstanding under the Amended and Restated 2018 Plan as of March 31, 2023 were 2,898,235 and 1,526,777, respectively. The Company does not expect to issue any additional awards under the Amended and Restated 2018 Plan.

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2021 Omnibus Incentive Plan (“2021 Plan”)

On June 29, 2021, the Company adopted the 2021 Plan to incentivize executive officers, management, employees, consultants and directors of the Company and to align the interests of the participants with those of the Company’s shareholders. As of March 31, 2023, there were 35,121,308 shares reserved for issuance under the 2021 Plan and the total number of shares reserved for issuance under the 2021 Plan is increased on January 1 of each of the first 10 calendar years during the term of the 2021 Plan, by the lesser of (i) 5% of the total number of shares of common stock outstanding on each December 31 immediately prior to the date of increase or (ii) such number of shares of common stock determined by our Board or compensation committee.

During the three months ended March 31, 2023, the Company recognized stock compensation expense of $671 related to the stock options. As of March 31, 2023, there are 1,232,850 total options outstanding under the 2021 Plan, consisting of two-thirds or 849,912 Time-Based Options and one-third or 382,938 Return-Target Options. The vesting conditions for the options issued under the 2021 Plan are identical to the those described under the Amended and Restated 2018 Plan.

Stock option activity for the three months ended March 31, 2023 is as follows:

Time-Based Options
 Stock optionsWeighted
average
exercise price
Weighted average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Outstanding at January 1, 20234,251,290 $8.07 6.97$12,163 
Granted  — — 
Canceled or forfeited(164,194)14.85 — — 
Exercised(338,949)6.24 — — 
Outstanding at March 31, 2023
3,748,147 $7.94 6.71$27,201 
Vested and expected to vest at March 31, 2023
3,748,147 $7.94 6.7127,201 
Exercisable as of March 31, 2023
2,957,245 $6.51 6.32$24,525 

Return-Target Options
 Stock optionsWeighted
average
exercise price
Weighted average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Outstanding at January 1, 20232,153,264 $8.03 6.976,190 
Granted  — — 
Canceled or forfeited(243,549)11.00 — — 
Exercised  — — 
Outstanding at March 31, 2023
1,909,715 $7.66 6.56$15,219 
Vested and expected to vest at March 31, 2023
1,909,715 $7.66 6.5615,219 
Exercisable as of March 31, 2023
  —  

As of March 31, 2023, unamortized stock-based compensation expense related to the Time-Based Options was $8,756, which will be recognized over the weighted average vesting term of 1.9 years. In addition, unamortized stock-based compensation expense related to the Return-Target Options of $23,450 will be recognized when events that trigger vesting are deemed probable.

Restricted Stock Units

The majority of RSUs under the 2021 Plan vest 25% each year and become fully vested after 4 years of service. Beginning in April 2022, new RSU grants began to vest 6.25% at the end of each successive quarter and become fully vested after four years of service.

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The RSU activity for the three months ended March 31, 2023 is as follows:

RSUs
Number of SharesWeighted Average Grant Date Fair Value
Outstanding as of January 1, 20238,085,367 $11.88 
Granted431,444 9.63 
Canceled or forfeited(128,156)13.93 
Vested(371,740)12.46 
Outstanding as of March 31, 2023
8,016,915 $11.70 
Expected to vest as of March 31, 2023
8,016,915 

During the three months ended March 31, 2023, the Company recognized $7,261 of stock-based compensation expense related to these RSU awards. Unamortized stock-based compensation expense related to RSUs was $79,248, which will be recognized over the weighted average vesting term of 3.1 years.

Performance Stock Units

The Company granted Performance Stock Units under the 2021 Plan, which are contingent upon achieving specified revenue performance goals by December 31, 2023. As of March 31, 2023, no stock-based compensation expense has been recognized as performance vesting conditions were not deemed probable to occur. The unrecognized compensation expense is $6,000 assuming performance at the highest tier.

Market Stock Units

The Company granted MSUs under the 2021 Plan to certain executive officers. MSUs vest over four years, 25% on the first anniversary of the vesting commencement date and 6.25% at the end of each quarter thereafter. The number of MSUs eligible to vest is based on the performance of the Company's common stock over each applicable vesting period. The number of shares eligible to vest is calculated based on a payout factor. The payout factor is calculated by dividing (i) the average closing price of the Company's stock during the ten trading days immediately preceding the applicable vesting date by (ii) the closing price of the Company's stock on the vesting commencement date. The payout factor is zero if such quotient is less than 0.60 and is capped at 2.25. Such quotient is then multiplied by the target number of MSUs granted to the relevant officer to determine the number of shares to be issued to the officer at vesting. The grant date fair value of the MSUs was determined using a Monte-Carlo simulation. The Company uses the accelerated attribution method to account for these awards.

MSU activity for the three months ended March 31, 2023 is as follows:

MSUs
Number of SharesWeighted Average Grant Date Fair Value
Outstanding as of January 1, 20231,209,262 $14.55 
Granted  
Canceled or forfeited(209,568)14.43 
Vested  
Outstanding as of March 31, 2023
999,694 $14.58 
Expected to vest as of March 31, 2023
999,694 

During the three months ended March 31, 2023, the Company recognized stock-based compensation expense of $1,887 related to the MSU awards. Unamortized stock-based compensation expense related to MSUs was $7,615, which will be recognized over the weighted average vesting term of 3.3 years.

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2021 Employee Stock Purchase Plan

The Company adopted the ESPP for the primary purpose of incentivizing employees in future periods. As of March 31, 2023, 4,573,457 shares of common stock are reserved for issuance under the ESPP. The number of shares available for issuance under the ESPP is increased on January 1 of each calendar year, ending in and including 2031, by an amount equal to the lesser of (i) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by our Board, subject to a maximum of 16,000,000 shares of our common stock for the portion of the ESPP intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. All Company employees and employees of designated subsidiaries are eligible to participate in the ESPP and may purchase shares through payroll deductions of up to 15% of their eligible compensation, subject to a maximum of $25,000 in any annual period for the portion of the ESPP intended to qualify as an employee purchase plan under Section 423 of the Internal Revenue Code.

The ESPP provides eligible employees the opportunity to purchase shares of the Company's common stock through payroll deductions at a price equal to 85% of the fair market value of the shares on (i) the first business day of the offering period or (ii) the last business day of the offering period, whichever is lower. The ESPP is offered to employees in six-month windows, with phases beginning on February 1 and August 1 of each calendar year. For the window that ended on January 31, 2023, employees purchased 111,163 shares at a price of $7.93 per share. After such purchase, 4,462,294 shares were available for future purchase under the ESPP. Stock-based compensation expense recognized in the three months ended March 31, 2023 was $395.

Total stock-based compensation expense for all equity arrangements for the three months ended March 31, 2023 and 2022 were as follows:
 
Three  Months Ended
March 31,
 20232022
Cost of revenue$84 $56 
Sales and marketing3,887 2,531 
Technology and development3,170 1,536 
General and administrative4,165 4,016 
Total$11,306 $8,139 

12.    Stockholders’ equity

As of March 31, 2023, our authorized common stock consists of 500,000,000 shares of common stock, par value $0.001 per share and 50,000,000 preferred stock, par value $0.001 per share.

For the three months ended March 31, 2023, the Company issued 371,740 shares of common stock for vested RSUs, employees exercised stock options in exchange for 338,949 shares of common stock for $2,115 and employees purchased 111,163 shares of common stock through the ESPP.

For the three months ended March 31, 2022, the Company issued 12,094 shares of common stock for vested RSUs and employees exercised stock options in exchange for 605,682 shares of common stock for $2,532.

13.     Leases

The Company leases office spaces under non-cancelable lease terms, and have a remaining lease term of up to 9.6 years, with a number of month-to-month leases that are accounted for as short-term leases. The weighted-average remaining term of the Company's operating leases was 4.7 years as of March 31, 2023. The weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6% as of March 31, 2023.

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The following table presents components of lease cost recorded in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2023 and 2022.

Three  Months Ended March 31,
Lease costs:20232022
Operating lease costs$2,032 $1,651 
Short-term lease costs809 727 
Variable lease costs123 85 
Sublease income(656)(656)
Total lease costs$2,308 $1,808 

For the three months ended March 31, 2023, operating cash flows included $1,582 of cash paid for operating lease liabilities. For the three months ended March 31, 2023, there was $689 cash received from the sublease. As of March 31, 2023, there is one additional operating lease not yet commenced with a lease liability of $1,149 and a term of 3.6 years.

As of March 31, 2023, the Company has provided $2,326 in security deposits, recorded within Other long-term assets on the Company's Condensed Consolidated Balance Sheets.

As of March 31, 2023, the maturities of remaining lease payments included in the measurement of operating leases are as follows:

Year Ended December 31,
2023 (remaining nine months)5,751 
20247,263 
20257,338 
20266,107 
20272,116 
Thereafter4,027 
Total lease payments32,602 
Less: imputed interest4,495 
Total operating lease liability$28,107 

14.    Commitments and contingencies
Indemnifications

In its normal course of business, the Company has made certain indemnities, commitments, and guarantees under which it may be required to make payments in relation to certain transactions. Those indemnities include intellectual property indemnities to the Company’s customers, indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware, and indemnifications related to the Company’s lease agreements. In addition, the Company’s advertiser and distribution partner agreements contain certain indemnification provisions which are generally consistent with those prevalent in the Company’s industry. The Company has not incurred any obligations under indemnification provisions historically and does not expect to incur significant obligations in the future. Accordingly, the Company has not recorded any liability for these indemnities, commitments, and guarantees in the accompanying balance sheets.

Purchase commitments

In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and data services, and information technology operations. Total non-cancelable purchase commitments as of March 31, 2023 were approximately $108,107 for periods through 2026.

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15.    Net income per share

Basic and diluted income per share is computed by dividing net income by the weighted-average shares outstanding:
 Three Months Ended March 31,
 20232022
Numerator:  
Net income$3,146 $1,159 
Denominator:
Basic Shares:
Weighted-average shares outstanding154,315,219 154,477,403 
Diluted Shares:
Basic weighted-average shares outstanding154,315,219 154,477,403 
Dilutive effect of stock based awards3,569,396 2,681,623 
Weighted-average diluted shares outstanding157,884,615 157,159,026 
Net income per share
Basic$0.02 $0.01 
Diluted$