SEC Filing | Integral Ad Science

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ias-20230630

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, 2023


☐			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.)

	12 E 49th Street, 20th Floor New York, NY 10017
	(Address of principal executive offices, including zip code)

(646) 278-4871

(Registrant’s telephone number, including area code)

99 Wall Street, #1950, New York, NY 100051

(Former name, former address and former fiscal year, if changed since last report)

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 1, 2023, the Registrant had 156,650,162 shares of common stock, $0.001 par value, outstanding.

1Former mailing address.

Table of Contents

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss ) for the Three and Six Months Ended June 30, 202 3 and 202 2 (Unaudited)

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 202 3 and 202 2 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 202 3 and 202 2 (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, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	98,799	$	86,877
Restricted cash	70		45
Accounts receivable, net	73,187		67,884
Unbilled receivables	39,460		41,550
Prepaid expenses and other current assets	11,766		24,761
Due from related party	20		29
Total current assets	223,302		221,146
Property and equipment, net	3,837		2,412
Internal use software, net	31,746		23,642
Intangible assets, net	198,273		217,558
Goodwill	674,866		674,094
Operating lease right-of-use assets	23,572		22,787
Deferred tax asset, net	1,743		2,020
Other long-term assets	4,711		5,024
Total assets	$	1,162,050	$	1,168,683
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	50,322	$	60,799
Due to related party	13		122
Deferred revenue	431		99
Operating lease liabilities, current	7,982		6,749
Total current liabilities	58,748		67,769
Net deferred tax liability	7,972		45,495
Long-term debt	193,493		223,262
Operating lease liabilities, non-current	22,461		22,875
Other long-term liabilities	1,162		1,066
Total liabilities	283,836		360,467
Commitments and Contingencies (Note 13)
Stockholders’ Equity
Preferred Stock, $0.001 par value, 50,000,000 shares authorized at June 30, 2023; 0 shares issued and outstanding at June 30, 2023 and December 31, 2022.	—		—
Common Stock, $0.001 par value, 500,000,000 shares authorized, 156,279,075 and 153,990,128 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.	156		154
Additional paid-in-capital	867,490		810,186
Accumulated other comprehensive loss	(1,971)		(2,899)
Retained earnings	12,539		775
Total stockholders’ equity	878,214		808,216
Total liabilities and stockholders’ equity	$	1,162,050	$	1,168,683

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)	2023		2022		2023		2022
Revenue	$	113,651	$	100,328	$	219,743	$	189,570
Operating expenses:
Cost of revenue (excluding depreciation and amortization shown below)	23,819		18,132		45,501		34,693
Sales and marketing	31,702		26,691		57,962		49,771
Technology and development	21,110		17,624		36,639		34,611
General and administrative	42,339		19,137		63,062		35,932
Depreciation and amortization	13,521		12,510		26,346		24,968
Foreign exchange gain, net (1)	(631)		(512)		(1,147)		(561)
Total operating expenses	131,860		93,582		228,363		179,414
Operating income (loss)	(18,209)		6,746		(8,620)		10,156
Interest expense, net	(3,221)		(1,814)		(6,638)		(3,240)
Net income (loss) before income taxes	(21,430)		4,932		(15,258)		6,916
Benefit (provision) from income taxes	29,107		(2,971)		26,081		(3,796)
Net income	$	7,677	$	1,961	$	10,823	$	3,120
Net income per share – basic and diluted	$	0.05	$	0.01	$	0.07	$	0.02
Weighted average shares outstanding:
Basic	155,425,264		155,140,684		155,267,531		154,812,037
Diluted	162,634,310		156,973,684		160,850,434		157,309,858
Other comprehensive income (loss):
Foreign currency translation adjustments	(221)		(6,996)		928		(7,970)
Total comprehensive income (loss)	$	7,456	$	(5,035)	$	11,751	$	(4,850)

(1) Prior period amounts have been reclassified to conform to current period presentation.

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended June 30, 2023


	Common Stock
(IN THOUSANDS, EXCEPT SHARES)	Shares	Amount		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders’ equity
Balance, April 1, 2023	154,811,980	$	154	$	824,498	$	(1,750)	$	4,862	$	827,764
RSUs and MSUs vested	1,218,542	2		—		—		—		2
Option exercises	248,553	—		2,878		—		—		2,878
Stock-based compensation	—	—		40,114		—		—		40,114
Foreign currency translation adjustment	—	—		—		(221)		—		(221)
Net income	—	—		—		—		7,677		7,677
Balance, June 30, 2023	156,279,075	$	156	$	867,490	$	(1,971)	$	12,539	$	878,214

Six Months Ended June 30, 2023


	Common Stock
(IN THOUSANDS, EXCEPT SHARES)	Shares	Amount		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders’ equity
Balance, January 1, 2023	153,990,128	$	154	$	810,186	$	(2,899)	$	775	$	808,216
RSUs and MSUs vested	1,590,282	2		—		—		—		2
Option exercises	587,502	—		4,993		—		—		4,993
ESPP purchase	111,163	—		882		—		—		882
Stock-based compensation	—	—		51,429		—		—		51,429
Foreign currency translation adjustment	—	—		—		928		—		928
Adoption of ASC 326, net of tax	—	—		—		—		941		941
Net income	—	—		—		—		10,823		10,823
Balance, June 30, 2023	156,279,075	$	156	$	867,490	$	(1,971)	$	12,539	$	878,214

See notes to the unaudited condensed consolidated financial statements.

INTEGRAL AD SCIENCE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended June 30, 2022


	Common Stock
(IN THOUSANDS, EXCEPT UNITS AND 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 UNITS AND 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 CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
(IN THOUSANDS)	2023		2022
Cash flows from operating activities:
Net income	$	10,823	$	3,120
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	26,346		24,968
Stock-based compensation	51,741		18,860
Foreign currency gain, net	(1,239)		—
Deferred tax benefit	(37,535)		(728)
Amortization of debt issuance costs	232		232
Allowance for credit losses	1,254		485
Impairment of assets	—		49
Changes in operating assets and liabilities:
Increase in accounts receivable	(4,483)		(9,654)
Decrease in unbilled receivables	2,272		1,639
Decrease (increase) in prepaid expenses and other current assets	12,619		(4,560)
Decrease (increase) in operating leases, net	25		(223)
Decrease (increase) in other long-term assets	4		(326)
Decrease in accounts payable and accrued expenses	(10,225)		(10,986)
Increase in deferred revenue	350		221
Increase (decrease) in due to/from related party	(118)		108
Net cash provided by operating activities	52,066		23,205
Cash flows from investing activities:
Payment for acquisitions, net of acquired cash	—		(1,604)
Purchase of property and equipment	(1,810)		(460)
Acquisition and development of internal use software and other	(14,928)		(6,124)
Net cash used in investing activities	(16,738)		(8,188)
Cash flows from financing activities:
Proceeds from the Revolver	75,000		—
Repayment of long-term debt	(105,000)		(10,000)
Repayment of short-term debt	—		(1,885)
Proceeds from exercise of stock options	4,993		3,381
Cash received from Employee Stock Purchase Program	1,409		—
Net cash used in financing activities	(23,598)		(8,504)
Net increase in cash, cash equivalents and restricted cash	11,730		6,513
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(142)		(2,246)
Cash, cash equivalents and restricted cash at beginning of period	89,671		76,078
Cash, cash equivalents and restricted cash at end of period	$	101,259	$	80,345
Supplemental Disclosures:
Cash paid during the period for:
Interest	$	5,862	$	3,025
Taxes	$	5,609	$	10,098
Non-cash investing and financing activities:
Property and equipment acquired included in accounts payable	$	140	$	338
Internal use software acquired included in accounts payable	$	1,159	$	1,130
Lease liabilities arising from right of use assets	$	30,443	$	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” or "IAS"), formerly known as Kavacha Topco, LLC, is a leading global media measurement and optimization platform. 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 media measurement and optimization platform provides actionable data and delivers independent measurement and verification of digital advertising across all devices, channels, and formats, including desktop, mobile, connected TV (“CTV”), social, display, audio, gaming, 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 that include the United Kingdom ("U.K."), Ireland, 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 June 30, 2023, the condensed consolidated statements of operations and comprehensive income (loss), of cash flows and of stockholders’ equity for the three and six months ended June 30, 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 and six months ended June 30, 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 six months ended June 30, 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.

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 (Loss) as a separate line item "Foreign currency translation adjustments" presented on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). Corresponding prior period amounts have also been reclassified to conform to current period presentation.

The Company is an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, Emerging Growth Companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an Emerging Growth Company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. On June 30, 2023, the last day of our second fiscal quarter in 2023, the market value of our common stock held by non-affiliates exceeded $700,000. Accordingly, we will be deemed a large accelerated filer as of December 31, 2023. As such, we will no longer (i) qualify as an Emerging Growth Company, (ii) be able to take advantage of the extended timeline to comply with new or revised accounting standards applicable to public companies beginning with our Annual Report on Form 10-K for the year ending December 31, 2023 and (iii) be exempt from providing an auditor's attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.

(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. 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 and other geopolitical issues.

(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 employee retention credit totaling $6,981 was included within Prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets as of December 31, 2022. As of June 30, 2023, substantially all of the tax credit receivable has received.

(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 (Loss).

For the three months ended June 30, 2023, and 2022, foreign exchange gain, net consists of unrealized foreign exchange gains, net of $561 and $240, respectively, and realized transaction gains of $70 and $272, respectively. For the six months ended June 30, 2023, and 2022, foreign exchange gain, net consists of unrealized foreign exchange gains, net of $1,239 and $326, respectively, and realized transaction losses of $92 and gains of $235, 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.


	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	98,799	$	86,877
Short term restricted cash	70		45
Long term restricted cash (held in other long-term assets)	2,390		2,749
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	101,259	$	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 (Loss).

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


	June 30, 2023		June 30, 2022
Balance, beginning of period	$	6,691	5,883
Additional provision	1,254		485
Receivables written off and impact of exchange rates	92		(678)
Adoption of ASC 326	(1,271)		—
Balance, end of period	$	6,766	5,690

(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 funds affiliated with Vista Equity Partners ("Vista"), the Company’s largest shareholder.

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.

Fair value — Following the pricing of the Initial Public Offering, 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:


	June 30, 2023			June 30, 2022
Estimated fair value	$3.35	-	$21.05	$8.16	-	$14.43
Expected volatility (%)	60%	-	65%	65%	-	80%
Expected term (in years)	0.50	-	4.00	3.00	-	10.00
Risk-free interest rate (%)	3.63%	-	4.79%	0.46%	-	3.35%
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 (Loss) or the Consolidated Statement of Cash Flows.

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.

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 was 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. On December 21, 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which defers the sunset date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC 848.

On June 23, 2023, the Company entered into the First Amendment to Credit Agreement, which changed the market interest rate indices that the Company can elect to accrue interest on outstanding borrowings from LIBOR to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (“SOFR”). First Amendment to Credit Agreement became effective at the end of the applicable interest period for any LIBOR borrowings outstanding on the amendment effective date, which was June 30, 2023. As a result, as of June 30, 2023, the Company no longer has any contracts that reference LIBOR. The change in interest rate indices from LIBOR to SOFR had no impact on the three and six months ended June 30, 2023 as the LIBOR interest rate on outstanding borrowings on the amendment effective date remained in place through the end of June 2023. The Company adjusted the effective interest rate on outstanding borrowings on a prospective basis, which did not have an impact on the condensed consolidated financial statements.

(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.

3. Property and equipment, net

Property and equipment consisted of the following:


	Estimated useful life (in years)			June 30, 2023		December 31, 2022
Computer and office equipment	1	-	3 years	$	3,898	$	3,761
Computer software	3	-	5 years	218		218
Leasehold improvements	Various			2,215		1,060
Furniture	5 years			577		308
Total property and equipment				6,908		5,347
Less: accumulated depreciation				(3,071)		(2,935)
Total property and equipment, net				$	3,837	$	2,412

Depreciation expense of property and equipment for the three months ended June 30, 2023 and 2022 was $287 and $217, respectively. Depreciation expense of property and equipment for the six months ended June 30, 2023 and 2022 was $485 and $435, respectively.

4. Internal use software, net

Internal use software consisted of the following:


	Estimated useful life (in years)			June 30, 2023		December 31, 2022
Internal use software	3	-	5 years	$	62,211	$	47,658
Less: Assets written off				—		(199)
Less: Accumulated amortization				(30,465)		(23,817)
Total internal use software, net				$	31,746	$	23,642

Amortization expense for the three months ended June 30, 2023 and 2022 was $3,521 and $2,320, respectively. Amortization expense for the six months ended June 30, 2023 and 2022 was $6,445 and $4,547, respectively.

5. Intangible assets, net

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


	June 30, 2023
	Estimated useful life (in years)			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	301,981	$	(127,364)	$	174,617	9.0 years
Developed technology	4	-	5 years	137,273		(122,039)		15,234		3.1 years
Trademarks	5	-	9 years	19,700		(11,312)		8,388		3.9 years
Favorable leases	6 years			198		(164)		34		1.0 year
Total				$	459,152	$	(260,879)	$	198,273

	December 31, 2022
	Estimated useful life			Gross book value		Accumulated amortization		Net book value		Weighted average remaining useful life
Customer relationships	5	-	15 years	$	301,955	$	(112,589)	$	189,366	9.5 years
Developed technology	4	-	5 years	137,112		(118,650)		18,462		3.5 years
Trademarks	5	-	9 years	19,700		(10,021)		9,679		4.4 years
Favorable leases	6 years			198		(147)		51		1.5 years
Total				$	458,965	$	(241,407)	$	217,558

Amortization expense related to intangibles for the three months ended June 30, 2023 and 2022 was $9,713 and $9,973, respectively. Amortization expense related to intangibles for the six months ended June 30, 2023 and 2022 was $19,416 and $19,986, 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 rates	772
Goodwill as of June 30, 2023	$	674,866

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

Accounts payable and accrued expenses consisted of the following:


	June 30, 2023		December 31, 2022
Accounts payable	$	9,992	$	10,487
Accrued payroll	7,211		12,623
Accrued professional fees	4,669		3,150
Accrued bonuses and commissions	11,229		16,527
Accrued revenue sharing	3,685		3,522
Taxes payable	2,499		3,130
Accrued hosting fees	3,975		5,949
Other accrued expenses	7,062		5,411
Total accounts payable and accrued expenses	$	50,322	$	60,799

Other long-term liabilities consisted of the following:


	June 30, 2023		December 31, 2022
Security deposit received	$	672	$	672
Fin 48 liability	490		394
Total Other long-term liabilities	$	1,162	$	1,066

8. Long-term debt

On September 29, 2021, the Company entered into a credit agreement with various lenders, which was amended on June 23, 2023 (as amended, the "Credit Agreement”). The Credit Agreement 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 six months ended June 30, 2023, the Company drew down $75,000 and paid down $105,000 on 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 initial proceeds of the Revolver in September 2021, 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 entry into the Revolver, the Company incurred costs of $2,318 that are included in Long-term debt, net, in the Condensed Consolidated Balance Sheets.

The interest rates for the Revolver under the Credit Agreement (i) for U.S. dollar loans are equal to the applicable rate for base rate loans ranging from 0.75% to 1.50% per annum, (ii) for Term SOFR Loans (as defined in the Credit Agreement) ranging from 1.75% to 2.50% per annum, (iii) for RFR Loans (as defined in the Credit Agreement) denominated in sterling ranging from 1.7826% to 2.5326%, and (iv) for RFR Loans denominated in euro range from 1.7956% 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 June 30, 2023 was 7.3%.

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 Total Net Leverage Ratio (as defined in the Credit Agreement) of 3.50 to 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 June 30, 2023, the Company was in compliance with all covenants contained in the Credit Agreement.


	June 30, 2023		December 31, 2022
Revolver	$	195,000	$	225,000
Less: Unamortized debt issuance costs	(1,507)		(1,738)
Total carrying amount	$	193,493	$	223,262

Amortization of debt issuance costs for the three months ended June 30, 2023 and 2022 were $116, respectively. Amortization of debt issuance costs for the six months ended June 30, 2023 and 2022 were $232, respectively. Amortization of debt issuance costs is recorded to interest expense, net on the Company's Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company recognized interest expense of $3,857 and $1,711 during the three months ended June 30, 2023 and 2022, respectively. The Company recognized interest expense of $7,687 and $3,023 during the six months ended June 30, 2023 and 2022, respectively. Future principal payments of long-term debt as of June 30, 2023 are as follows:


Year Ending
2023 (remaining six months)	$	—
2024	—
2025	—
2026	195,000
	$	195,000

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 June 30, 2023 and 2022, the Company recorded an income tax benefit of $29,107 and income tax provision of $2,971, respectively. The Company’s effective tax rate for the three months ended June 30, 2023 and 2022 was 135.8% and 60.2%, respectively. The Company's effective tax rate for the three months ended June 30, 2023 is higher than for the respective three months ended June 30, 2022, primarily due to non-deductible stock-based compensation and other permanent tax differences and discrete items.

For the six months ended June 30, 2023 and 2022, the Company recorded an income tax benefit of $26,081 and income tax provision of $3,796, respectively. The Company’s effective tax rate for the six months ended June 30, 2023 and 2022 was 170.9% and 54.9%, respectively. The Company's effective tax rate for the six months ended June 30, 2023 is higher than for the respective six months ended June 30, 2022, primarily due to non-deductible executive 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
North and South America (“Americas”)	$	78,990	$	68,734	$	153,191	$	129,293
Europe, Middle East and Africa (“EMEA”)	26,489		23,600		50,552		45,258
Asia and Pacific Rim (“APAC”)	8,172		7,994		16,000		15,019
Total	$	113,651	$	100,328	$	219,743	$	189,570

For the three months ended June 30, 2023 and 2022, revenue in the U.S. was $75,351 and $65,036, respectively. For the six months ended June 30, 2023 and 2022, revenue in the U.S. was $145,966 and $122,467, respectively.

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


	June 30, 2023		December 31, 2022
Long lived assets
Americas	$	15,763	$	16,016
EMEA	9,401		6,419
APAC	2,245		2,764
Total	$	27,409	$	25,199

11. Stock-based compensation

Total stock-based compensation expense for all equity arrangements for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	126	$	101	$	210	$	157
Sales and marketing	8,258		3,662		12,145		6,193
Technology and development	7,362		2,276		10,532		3,811
General and administrative	24,689		4,682		28,854		8,699
Total	$	40,435	$	10,721	$	51,741	$	18,860

The Company maintains multiple stock based incentive compensation plans. Expense relating to outstanding awards under such plans is summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Unamortized Expense as of		Weighted Average Vesting Term
	2023		2022		2023		2022		June 30, 2023
Time Based Options
2018 Plan	$	725	$	3,859	$	1,817	$	7,735
2021 Plan	533		877		1,204		1,745
Total Time Based Options Expense	$	1,258	$	4,736	$	3,021	$	9,480	$	7,499	1.7 years

Return Target Options
2018 Plan	$	20,326	$	—	$	20,326	$	—
2021 Plan	3,124		—		3,124		—
Total Return Target Options Expense	$	23,450	$	—	$	23,450	$	—	$	—	0.0 years

LTIP Expense (2018 Plan)	$	317	$	—	$	317	$	—

Other equity awards under 2021 Plan
Restricted Stock Units ("RSUs")	$	9,461	$	5,577	$	16,723	$	8,972	$	108,503	3.2 years
Market Stock Units ("MSUs")	5,676		408		7,562		408		31,583		3.7 years
Expense under 2021 Plan	$	15,137	$	5,985	$	24,285	$	9,380	$	140,086

Employee Stock Purchase Plan "ESPP"	$	273	$	—	$	668	$	—

Total Stock Based Compensation Expense	$	40,435	$	10,721	$	51,741	$	18,860	$	147,585

During the three months ended June 30, 2023, with the filing of a “shelf” registration statement on Form S-3, the market condition and the implied performance condition relating to the Return-Target Options were deemed to be probable and the Company recognized $23,450 of stock-based compensation expense for such options. No Return-Target Options vested or were exercised during the three months ended June 30, 2023.

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 were to 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 could 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. 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.

Vesting of the Time-Based Options accelerates 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 the Return-Target Options vest.

The total number of Time-Based Options and Return Target Options outstanding under the Amended and Restated 2018 Plan as of June 30, 2023 were 2,734,686 and 1,526,777, respectively. The Company does not expect to issue any additional awards under the Amended and Restated 2018 Plan.

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 June 30, 2023, there were 35,121,308 shares reserved for issuance under the 2021 Plan. 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.

As of June 30, 2023, there were 1,147,846 total options outstanding under the 2021 Plan, consisting of 764,908 Time-Based Options and 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 June 30, 2023 is as follows:

Time-Based Options


	Stock options	Weighted average exercise price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding at April 1, 2023	3,748,147	$	7.94	6.71	27,201
Granted	—	—		—	—
Canceled or forfeited	—	—		—	—
Exercised	(248,553)	11.58		—	—
Outstanding at June 30, 2023	3,499,594	$	7.68	6.32	$	36,049
Vested and expected to vest at June 30, 2023	3,499,594	$	7.68	6.32	$	36,049
Exercisable as of June 30, 2023	2,822,114	$	6.28	6.00	$	33,037

Return-Target Options


	Stock options	Weighted average exercise price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding at April 1, 2023	1,909,715	$	7.66	6.56	15,219
Granted	—	—		—	—
Canceled or forfeited	—	—		—	—
Exercised	—	—		—	—
Outstanding at June 30, 2023	1,909,715	$	7.66	6.39	$	19,724
Vested and expected to vest at June 30, 2023	1,909,715	$	7.66	6.39	$	19,724
Exercisable as of June 30, 2023	—	—		—	—

Stock option activity for the six months ended June 30, 2023 is as follows:

Time-Based Options


	Stock options	Weighted average exercise price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding at January 1, 2023	4,251,290	$	8.07	6.97	12,163
Granted	—	—		—	—
Canceled or forfeited	(164,194)	14.85		—	—
Exercised	(587,502)	8.50		—	—
Outstanding at June 30, 2023	3,499,594	$	7.68	6.32	$	36,049
Vested and expected to vest at June 30, 2023	3,499,594	$	7.68	6.32	$	36,049
Exercisable as of June 30, 2023	2,822,114	$	6.28	6.00	$	33,037

Return-Target Options


	Stock options	Weighted average exercise price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding at January 1, 2023	2,153,264	$	8.03	6.97	6,190
Granted	—	—		—	—
Canceled or forfeited	(243,549)	11.00		—	—
Exercised	—	—		—	—
Outstanding at June 30, 2023	1,909,715	$	7.66	6.39	$	19,724
Vested and expected to vest at June 30, 2023	1,909,715	$	7.66	6.39	$	19,724
Exercisable as of June 30, 2023	—	—		—	—

Restricted Stock Units ("RSUs")

RSUs under the 2021 Plan granted prior to May 2022 vest 25% each year and become fully vested after four years of service. RSUs under the 2021 Plan granted during or after May 2022 vest 6.25% at the end of each successive quarter and become fully vested after four years of service.

RSU activity for the three months ended June 30, 2023 is as follows:


	RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of April 1, 2023	8,016,915	$	11.70
Granted	2,869,452	14.38
Canceled or forfeited	(201,745)	12.51
Vested	(892,438)	12.19
Outstanding as of June 30, 2023	9,792,184	$	12.42
Expected to vest as of June 30, 2023	9,792,184

RSU activity for the six months ended June 30, 2023 is as follows:


	RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of January 1, 2023	8,085,367	$	11.88
Granted	3,300,896	13.76
Canceled or forfeited	(329,901)	13.16
Vested	(1,264,178)	12.27
Outstanding as of June 30, 2023	9,792,184	$	12.42
Expected to vest as of June 30, 2023	9,792,184

Market Stock Units ("MSUs")

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 June 30, 2023 is as follows:


	MSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of April 1, 2023	999,694	$	14.58
Granted	1,409,604	21.05
Canceled or forfeited	—	—
Change in awards based on performance	73,255	14.43
Vested	(326,104)	14.43
Outstanding as of June 30, 2023	2,156,449	$	18.83
Expected to vest as of June 30, 2023	2,156,449

MSU activity for the six months ended June 30, 2023 is as follows:


	MSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of January 1, 2023	1,209,262	$	14.55
Granted	1,409,604	21.05
Canceled or forfeited	(209,568)	14.43
Change in awards based on performance	73,255	14.43
Vested	(326,104)	14.43
Outstanding as of June 30, 2023	2,156,449	$	18.83
Expected to vest as of June 30, 2023	2,156,449

2021 Employee Stock Purchase Plan

The Company adopted the ESPP for the primary purpose of incentivizing employees in future periods. As of June 30, 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.

12. Stockholders’ equity

As of June 30, 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 June 30, 2023, the Company issued 1,218,542 shares of common stock for vested RSUs and MSUs and employees exercised stock options in exchange for 248,553 shares of common stock for $2,878. For the six months ended June 30, 2023, the Company issued 1,590,282 shares of common stock for vested RSUs and MSUs, employees exercised stock options in exchange for 587,502 shares of common stock for $4,993 and employees purchased 111,163 shares of common stock through the ESPP.

For the three months ended June 30, 2022, the Company issued 277,119 shares of common stock for vested RSUs and employees exercised stock options in exchange for 205,314 shares of common stock for $850. For the six months ended June 30, 2022, the Company issued 289,213 shares of common stock for vested RSUs and employees exercised stock options in exchange for 810,996 shares of common stock for $3,382.

13. 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 June 30, 2023 were approximately $107,387 for periods through 2026.

14. 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 June 30,		Six Months Ended June 30,
2023	2022