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Confidential Draft Submission #2 submitted to the Securities and Exchange Commission on May 10, 2013.
This draft registration statement has not been publicly filed with the Securities and Exchange Commission
and all information herein remains strictly confidential.

Registration No. 333-           

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



TREMOR VIDEO, INC.
(Exact name of Registrant as specified in its charter)



Delaware   7311   20-5480343
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

53 West 23rd Street
New York, New York 10010
(646) 723-5300
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



William Day
President and Chief Executive Officer
Tremor Video, Inc.
53 West 23rd Street
New York, New York 10010
(646) 723-5300
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Eric Jensen
Nicole Brookshire
Peyton Worley
Cooley LLP
1114 Avenue of the Americas
New York, New York 10036
Tel: (212) 479-6000
  Adam Lichstein
Senior Vice President, Chief Operating
Officer and General Counsel
53 West 23rd Street
New York, New York 10010
Tel: (646) 723-5300
  Selim Day
Michael Nordtvedt
Wilson Sonsini Goodrich & Rosati
Professional Corporation
1301 Avenue of the Americas
New York, New York 10019
Tel: (212) 999-5800



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o



          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 under the Securities Exchange Act of 1934. (Check one):

Large Accelerated Filer o   Accelerated Filer o   Non-accelerated Filer ý   Smaller Reporting Company o

          The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 10, 2013

             Shares

GRAPHIC

Common Stock



        We are selling             shares of common stock and the selling stockholders are selling             shares of common stock. We will not receive any of the proceeds from the shares of common stock sold by the selling stockholders.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $             and $             per share. We will apply to list our common stock on             under the symbol "TRMR."

        We are an "emerging growth company" as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings.

        The underwriters have an option to purchase a maximum of                                        additiona l shares to cover over-allotments of shares.


Investing in our common stock involves risks. See "Risk Factors" on page 11.

 
  Price to
Public
  Underwriting
Discounts and
Commissions
  Proceeds to
Tremor
 
Per Share   $     $     $    
Total   $     $     $    

        Delivery of the shares of common stock will be made on or about                           ,              .

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



Credit Suisse       Jefferies

Canaccord Genuity

 

 

 

Oppenheimer & Co.



   

The date of this prospectus is                           , 2013.


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TABLE OF CONTENTS

 
  Page  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    11  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    38  

USE OF PROCEEDS

    40  

DIVIDEND POLICY

    40  

CAPITALIZATION

    41  

DILUTION

    43  

SELECTED CONSOLIDATED FINANCIAL DATA

    46  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    49  

BUSINESS

    74  

MANAGEMENT

    94  

EXECUTIVE COMPENSATION

    102  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    118  

PRINCIPAL AND SELLING STOCKHOLDERS

    125  

DESCRIPTION OF CAPITAL STOCK

    128  

SHARES ELIGIBLE FOR FUTURE SALE

    134  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

    137  

UNDERWRITING

    141  

NOTICE TO CANADIAN RESIDENTS

    144  

LEGAL MATTERS

    146  

EXPERTS

    146  

CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    146  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    146  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  



        You should rely only on the information contained in this document or to which we have referred you. We have not, the selling stockholders have not and the underwriters have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Dealer Prospectus Delivery Obligation

        Until                        , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

        For investors outside the United States: We have not, the selling stockholders have not and the underwriters have not done anything that would permit this offering, or possession or distribution of this prospectus, in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the sections titled "Risk Factors," "Special Note Regarding Forward-Looking Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case included in this prospectus. Unless the context otherwise requires, we use the terms "Tremor Video," "company," "our," "us," and "we" in this prospectus to refer to Tremor Video, Inc. and, where appropriate, our consolidated subsidiaries.

Mission

        Our mission is to bring the certainty of science to the art of brand marketing.

Our Company

        We are a leading provider of technology-driven video advertising solutions enabling brand advertisers to engage consumers across multiple internet-connected devices including computers, smartphones, tablets and connected TVs. Our clients include some of the largest brand advertisers in the world including all of the top 10 automakers and 9 of the top 10 consumer packaged goods companies. Our relationships with leading brand advertisers and their agencies have helped us create a robust online video ecosystem that includes more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. Our proprietary technology, VideoHub, analyzes in-stream video content, detects viewer and system attributes, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics. VideoHub also provides advertisers and agencies with advanced analytics and measurement tools enabling them to understand why, when and where viewers engage with their video ads.

        Online video advertising is amongst the fastest growing advertising formats in the United States. According to eMarketer, while overall advertising spend is expected to grow by 3.5% on a compounded annual basis between 2012 and 2016, online video advertising spend is expected to grow by 28.9%. eMarketer estimated total U.S. advertising spend in 2012 to be $165.8 billion, of which online video advertising spend was $2.9 billion, or only 1.7%. As online audiences continue to spend more time watching videos, online video advertising spend is projected to reach $8.0 billion in 2016. Within online video advertising, mobile video advertising spend is expected to grow from $244 million to $2.1 billion, reflecting a 71.1% compounded annual growth rate from 2012 to 2016. Despite this tremendous growth, several factors including audience and device fragmentation, inadequate brand-centric measurement and optimization technology, and lack of performance and placement transparency have made it challenging to effectively deliver online video advertising. Our technology is designed to address these challenges.

        Our VideoHub technology is the backbone of the Tremor Video Network through which we offer advertisers access to engaged consumers at scale in brand safe environments across multiple devices. We specialize in delivering in-stream video advertisements, which are served to viewers immediately prior to or during the publisher's content when viewers are most engaged. This is in contrast to traditional in-banner video advertising, which is served on the periphery of publisher content where viewers may not be directing their attention. We further enhance advertisers' campaigns with innovative ad formats specifically developed to harness the creative aspects of online video, which often result in consumers choosing to extend their interaction with a brand's message significantly past the original ad experience. To align our solutions with the goals of brand advertisers, we offer a number of brand performance-based pricing models for in-stream video advertising such as cost per engagement, or CPE, pricing where we are compensated only when viewers actively engage with advertisers' campaigns.

 

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As a result, we enable our clients to effectively purchase measurable brand results rather than just impressions or clicks. We also license VideoHub technology to advertisers and their agencies through an intuitive and customizable console, which we call VideoHub for Advertisers, or VHA.

        We have developed strong relationships with brand advertisers and their agencies, who we believe view us as a strategic and trusted partner with a deep understanding of their industry-specific needs. We have also developed strong relationships with publishers due to our ability to provide consistent yield and monetization for their video content. We continuously evaluate and refine our publisher network to ensure that our advertisers have access to premium video inventory in brand safe environments. We believe these relationships have created a network effect whereby advertisers increase their spend with us because of the results we deliver utilizing our proprietary technology and our publishers' premium inventory, which in turn allows us to attract additional high quality publishers and thereby additional advertising spend.

        From 2011 to 2012, our revenue increased from $90.3 million to $105.2 million. This included an increase in revenue derived from the delivery of in-stream video advertising from $75.5 million to $99.7 million, or 32.1%. Additionally, over this period, our gross margin improved from 35.2% to 41.7%, driven in part by the adoption of our performance-based pricing models, while our net loss has decreased from $21.0 million to $16.6 million. For the three months ended March 31, 2013 as compared to the same period of 2012, our revenue increased from $17.3 million to $24.8 million, or 43.4%, our gross margin improved from 31.9% to 44.1% and our net loss decreased from $9.1 million to $5.2 million. For the three months ended March 31, 2012 and 2013, our revenue from the delivery of in-stream video advertising increased from $15.7 million to $24.0 million, or 52.4%. As a percentage of total revenue, revenue attributable to performance-based pricing for 2011, 2012 and the three months ended March 31, 2013 was 7.9%, 22.7% and 36.1%, respectively.

Industry Background and Market Opportunity

        Advertisers often view the advertising market as a funnel that maps a potential consumer's purchase decision process from the moment he or she is introduced to a brand to the point of purchase. At the top of the marketing funnel, advertisers are focused on building brand awareness amongst the largest possible number of potential consumers and use reach as the primary metric to measure success. Traditionally, advertisers have preferred national television and outdoor media, such as a Super Bowl commercial or Times Square billboard, to achieve brand awareness. At the bottom of the marketing funnel, advertisers are focused on generating specific actions by a consumer in a short period of time. At this stage of the funnel, advertisers have generally relied on direct response marketing, such as newspaper inserts and coupons, as well as online search and display advertising, where conversions are used to measure campaign success.

        In the middle of the marketing funnel, advertisers seek to engage consumers and educate them about their brand in order to differentiate themselves from competitors and drive consumer preferences toward a particular branded product to influence future purchase decisions, which we refer to as brand lift. Historically, advertisers have sought to achieve middle of the funnel objectives through print, which can tell a deeper story about a product and its benefits, and allows the reader to linger as long as he or she likes, and to a lesser extent through local and cable television, which offers a more targeted audience for a product's message than national television. Traditional solutions for middle of the funnel marketing have significant limitations because they lack interactivity, the ability to measure and analyze the results of brand-centric ad campaigns in real-time and the ability to adjust campaigns in real-time to optimize for desired performance.

        We believe in-stream video is a highly effective channel for brand advertisers to meet their middle of the funnel objectives by combining the rich "sight, sound and motion" of television, the opt-in engagement of print and the real-time measurement and optimization capabilities of online.

 

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        Several factors, including the availability of high-speed broadband and mobile network infrastructure, growth of internet-connected devices capable of video consumption, an increase in online video content and a behavioral shift towards online video viewing, are driving robust growth in online video consumption and creating a significant opportunity for in-stream video advertising. As a result, online video advertising is amongst the fastest growing advertising formats in the United States.

Tremor Video Technology and Solutions

        VideoHub powers our video advertising solutions to effectively address the challenges faced by brand advertisers to achieve their middle of the funnel objectives.

        Through VideoHub we deliver:

    Brand-centric key performance indicators.  We have developed a suite of brand-centric key performance indicators, or KPIs, such as engagement (i.e., the interaction of a viewer with a video ad), brand lift (i.e., a positive shift in preference towards a brand or branded product driven by exposure to a video ad and brand education), and time spent (i.e., the amount of time a viewer spends with a video ad), which are tailored to the needs of brand advertisers.

    Brand-centric optimization.  Using a proprietary algorithm, VideoHub builds a decision tree that predicts performance of the video ad campaign for the chosen KPI based on its analysis of a series of attributes, which we call signals. VideoHub optimizes the campaign for the selected KPI by analyzing the signals of each ad request, such as video player size, geography, publisher, content category and length, browser type and viewer data, and prioritizing the delivery of ads that are more likely to perform.

    In-stream video analysis and categorization.  VideoHub performs an analysis on every video stream and categorizes it among one of approximately 72 video content categories enabling us to further optimize a video ad campaign.

    Ad performance transparency.  VideoHub offers advertisers transparency into the workings of its decision tree so that they can understand what signals are driving the performance of their video ad campaigns.

    Ad placement transparency.  VideoHub tracks the number of impressions served to a specific publisher site and whether a video ad placement is fully, partially, or not visible to a viewer. With this functionality, advertisers know where an ad campaign is running and can validate that their video ads are viewable.

    Cross site and channel measurement.  Our proprietary metric, eQ score+, allows advertisers to compare video inventory quality across different publisher sites by measuring attributes such as viewability, the size of the video player and ad completion rate. In addition, VideoHub provides advertisers and agencies access to metrics that measure audience reach and frequency of viewing by a particular audience, similar to what is used in the television industry, enabling them to compare the brand performance of their online and offline video ad campaigns.

        The Tremor Video Network offers advertisers access to premium video inventory at scale across multiple internet-connected devices in brand safe environments.

        Through the Tremor Video Network we deliver:

    Scale and reach across multiple devices.  The Tremor Video Network delivers scale and reach across multiple internet-connected devices, including computers, smartphones, tablets, and connected TVs, enabling our clients to use our solutions to address their online video advertising needs across these devices. We have partnered with more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis.

 

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    Premium video content.  We continuously evaluate and refine our publisher network to ensure that our advertisers have access to high performing content in a brand safe environment.

    Brand safety.  Our technology prevents video ads from being served within content that is identified as objectionable for the brand advertiser, including content that contains accidents, distasteful or obscene language, substance abuse, violence, gambling, sex or crime.

    In-stream video focus.  We specialize in delivering in-stream video advertisements, which can be served to viewers immediately prior to or during the publisher's content when they are most engaged.

    Advanced ad formats.  Our proprietary ad formats give brand advertisers the ability to create a more engaging experience across multiple internet-connected devices, allowing viewers to explore content within the ad itself and learn more about the brand.

    Innovative pricing models.  We offer innovative brand performance-based pricing for in-stream video advertising, such as CPE and cost per video completion, or CPVC, pricing where we are compensated only if the video is completed.

        We also license VideoHub technology, packaged with an intuitive and customizable user interface, to advertisers and their agencies through our VHA solution.

Competitive Strengths

        Our key competitive strengths include:

    Differentiated and proprietary technology that analyzes in-stream video content, detects viewer and system signals and leverages our large repository of stored data to effectively optimize video ad campaigns for brand-centric metrics, while reducing operational complexity and cost.

    Our focus on innovation, which has allowed us to develop advanced ad formats, brand-centric performance-based pricing models, in-stream video analysis and categorization, and advanced analytical tools.

    Our strong multi-channel capabilities, which allow brand advertisers to deliver their video ad campaigns and publishers to monetize their content across multiple internet-connected devices. This alleviates their need to pursue an ad hoc approach with multiple providers.

    Strategic relationships with brand advertisers and their agencies that we serve through our highly experienced sales force and creative teams. Our clients include some of the largest brand advertisers in the world, including all of the top 10 automakers and 9 of the top 10 consumer packaged goods companies.

    A publisher network consisting of more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. Under our exclusive arrangements, the publishers' video inventory is only available through our sales force and our exclusive publishers' sales forces.

    A large repository of data generated from over 20 billion in-stream video ad impressions delivered through the Tremor Video Network. We leverage this data asset and the insights we have gained from the billions of video impressions we have previously delivered to continuously refine our algorithms and improve our optimization capabilities.

 

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Growth Strategy

        The key elements of our growth strategy are to:

    continue to develop innovative solutions that improve the transparency and enhance the effectiveness of online video advertising;

    attract new advertisers and agencies and increase our share of advertising budgets from existing advertisers and agencies, and encourage advertisers to adopt performance-based pricing models;

    increase our penetration in mobile and connected TV;

    attract new premium publisher partners and enter into new exclusive relationships where appropriate;

    pursue high margin licensing opportunities;

    extend our technology to brand-focused, programmatic buying for online video advertising; and

    selectively expand our presence internationally.

Risks Related to Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the section of this prospectus captioned "Risk Factors." These risks include, among others:

    The market in which we compete and our business model is continuing to develop, therefore our past operating results may not be indicative of future performance and our future operating results may fluctuate materially and may increase your investment risk.

    Unfavorable conditions in the global economy or reductions in digital advertising spend could limit our ability to grow our business and negatively affect our operating results.

    If we fail to adapt and respond effectively to rapidly changing technology and changing client needs, our solutions may become less competitive or obsolete.

    The market in which we participate is intensely competitive and fragmented, and we may not be able to compete successfully with our current or future competitors.

    We may not be able to maintain our access to premium advertising inventory, and our growth could be impeded if we fail to acquire new advertising inventory.

    If we are unable to protect our intellectual property rights or if it is alleged or determined that our solutions or another aspect of our business infringe the intellectual property rights of others, our business could be harmed.

Corporate Information

        Tremor Video, Inc. was originally organized as Tremor Media, LLC in November 2005 and converted into a corporation named "Tremor Media, Inc." under the laws of the State of Delaware in September 2006. We changed our name to Tremor Video, Inc. in June 2011.

        Our principal executive office is located at 53 West 23rd Street, New York, New York 10010. Our telephone number is (646) 723-5300. Our website address is www.tremorvideo.com. Information contained in, or accessible through, our website does not constitute a part of, and is not incorporated into, this prospectus.

        The Tremor Video logo and names Tremor Video, Tremor Video Network, VideoHub, Video Hub for Advertisers, VHA, eQ score+ and other trademarks or service marks of Tremor Video, Inc. appearing in this prospectus are the property of Tremor Video, Inc. and its consolidated subsidiaries. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners.

 

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The Offering

Common stock offered by Tremor Video

                  shares

Common stock offered by the selling stockholders

 

                shares

Total common stock offered

 

                shares

Total common stock to be outstanding after this offering

 

                shares

Over-allotment option

 

                shares

Use of proceeds

 

The principal purposes of this offering are to create a public market for our common stock and to facilitate our future access to the public equity markets, as well as to obtain additional capital. We intend to use the net proceeds from this offering for general corporate purposes. In addition, we may use a portion of the proceeds from this offering for acquisitions of complementary businesses, technologies or other assets, although we do not currently have any plans for any acquisitions. We will not receive any of the proceeds from the sale of shares to be offered by the selling stockholders. See the section of this prospectus titled "Use of Proceeds."

Risk factors

 

See the section of this prospectus titled "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

            symbol

 

"TRMR"

        The number of shares of our common stock that will be outstanding after this offering is based on the number of shares outstanding as of March 31, 2013, and excludes:

    10,503,925 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2013, at a weighted-average exercise price of $2.26 per share;

    237,000 shares of common stock issuable upon the exercise of options that were granted after March 31, 2013, at a weighted-average exercise price of $5.43 per share;

                    shares of our common stock reserved for future issuance pursuant to our 2013 Equity Incentive Plan, or 2013 Plan, and our 2013 Employee Stock Purchase Plan, or 2013 ESPP, which will each become effective prior to the completion of this offering and which will each contain provisions that automatically increase their share reserves each year; and

    213,802 shares of common stock issuable upon the exercise of preferred stock warrants that were outstanding as of March 31, 2013, at a weighted-average exercise price of $2.14 per share.

        Unless otherwise indicated, this prospectus reflects and assumes the following:

    a      -for-      reverse stock split of our common stock expected to be completed prior to the completion of this offering;

    the reclassification of 10,055,275 shares of our Series I common stock into 10,055,275 shares of our common stock expected to be completed prior to the completion of this offering;

 

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    the reclassification of 8,603,580 outstanding options to acquire shares of Series I common stock into options to acquire an aggregate of 8,603,580 shares of our common stock expected to be completed prior to the completion of this offering;

    the reclassification of 213,802 shares of preferred stock issuable upon the exercise of outstanding preferred stock warrants upon the closing of this offering into 213,802 shares of common stock issuable upon the exercise of such warrants which reclassification is expected to be completed prior to the completion of this offering;

    the reclassification of 1,900,345 outstanding options to acquire shares of Series II common stock into options to acquire an aggregate of 1,900,345 shares of our common stock, expected to be completed prior to the completion of this offering;

    the automatic conversion of 1,571,068 outstanding shares of Series II common stock into an aggregate of 1,571,068 shares of our common stock, which will occur automatically upon the closing of this offering;

    the automatic conversion of 48,844,874 outstanding shares of our preferred stock into an aggregate of 48,881,266 shares of our common stock, which will occur automatically upon the closing of this offering (assuming a conversion ratio equal to            common shares for each Series F preferred share based on an initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus);

    the filing and effectiveness of our certificate of incorporation in Delaware and the adoption of our bylaws, each of which will occur upon the completion of this offering; and

    no exercise by the underwriters' of their over-allotment option.

        The number of shares of our common stock to be issued upon the automatic conversion of all outstanding shares of our Series F preferred stock depends in part on the anticipated initial public offering price of our common stock. The terms of our Series F preferred stock provide that the ratio at which each share of such series automatically converts into shares of our common stock in connection with this offering will increase if the anticipated initial public offering price is below $            per share, which would result in additional shares of our common stock being issued upon conversion of our Series F preferred stock immediately prior to the closing of this offering. Based upon the anticipated initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, the outstanding shares of our Series F preferred stock will convert into an aggregate of            shares of our common stock immediately prior to the closing of this offering. For illustrative purposes only, the table below shows the number of shares of our common stock that would be issuable upon conversion of the Series F preferred stock at various initial public offering prices and the resulting total number of outstanding shares of our common stock as a result:

Assumed Public Offering Price ($)
  Series F Preferred
Stock Conversion Ratio
(#)
  Shares of Common
Stock Issuable upon
Conversion of Series F
Preferred Stock
(#)
  Total Common Stock
Outstanding After this
Offering
(#)
 

                   

 

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Summary Consolidated Financial Data

        In the following tables, we provide our summary consolidated financial data. We have derived the summary consolidated statements of operations data for the years ended December 31, 2011 and 2012 and our consolidated balance sheet data as of December 31, 2012 from our audited consolidated financial statements appearing elsewhere in this prospectus, which have been audited by Ernst & Young LLP, our independent registered public accounting firm. We have derived the summary consolidated statements of operations data for the three months ended March 31, 2012 and 2013 and our consolidated balance sheet data as of March 31, 2013 from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have prepared the unaudited consolidated financial data on the same basis as the audited consolidated financial statements. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results that should be expected for the full year. When you read this summary consolidated financial data, it is important that you read it together with the historical financial statements and related notes to those statements, as well as the sections of this prospectus titled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Year Ended December 31,   Three Months Ended
March 31,
 
 
  2011   2012   2012   2013  
 
  (in thousands, except per share and share data)
 
 
   
   
  (unaudited)
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 90,301   $ 105,190   $ 17,272   $ 24,765  

Cost of revenue

    58,502     61,317     11,769     13,841  
                   

Gross profit

    31,799     43,873     5,503     10,924  

Operating expenses:

                         

Technology and development(1)

    5,900     8,144     1,651     2,697  

Sales and marketing(1)

    28,829     35,042     8,522     8,843  

General and administrative(1)

    10,880     10,824     2,795     2,920  

Depreciation and amortization

    6,088     5,992     1,478     1,502  
                   

Total operating expense

    51,697     60,002     14,446     15,962  
                   

Loss from operations

    (19,898 )   (16,129 )   (8,943 )   (5,038 )

Interest and other expense:

                         

Interest expense

    (321 )   (227 )   (75 )   (56 )

Other (expense) income

    (583 )   (8 )   (39 )   5  
                   

Total interest and other expense

    (904 )   (235 )   (114 )   (51 )
                   

Loss before income taxes

    (20,802 )   (16,364 )   (9,057 )   (5,089 )

Income tax expense

    (223 )   (280 )   (70 )   (70 )
                   

Net loss

  $ (21,025 ) $ (16,644 ) $ (9,127 ) $ (5,159 )
                   

Net loss per share—basic and diluted

  $ (2.02 ) $ (1.48 ) $ (0.83 ) $ (0.44 )
                   

Pro forma net loss per share of common stock—basic and diluted(2)

        $           $    
                       

Weighted-average shares of common stock outstanding used in computing net loss per share—basic and diluted

    10,429,429     11,249,980     10,977,480     11,593,827  
                   

Weighted-average shares of common stock outstanding used in computing pro forma net loss per share—basic and diluted(2)

                         
                       

Other Financial Data:

                         

In-stream advertising revenue(3)

    75,500     99,678   $ 15,745   $ 23,996  

Adjusted EBITDA(4)

  $ (10,927 ) $ (7,218 ) $ (6,665 ) $ (2,797 )

 

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  As of March 31, 2013  
 
  As of
December 31,
2012
  Actual   Pro forma
as
adjusted(4)
 
 
  (in thousands)
 
 
   
  (unaudited)
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 32,533   $ 31,533   $    

Working capital

    39,892     37,334        

Total assets

    129,723     122,196        

Mandatorily redeemable convertible preferred stock

    162,466     162,561        

Total liabilities

    30,729     27,670        

Total stockholders' (deficit) equity

    (63,472 )   (68,035 )      

(1)
Includes stock-based compensation expense as follows:

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2011   2012   2012   2013  
 
  (in thousands)
 
 
   
   
  (unaudited)
 

Technology and development

  $ 507   $ 422   $ 115   $ 115  

Sales and marketing

    670     1,020     292     279  

General and administrative

    1,706     1,477     393     345  
                   

Total stock-based compensation expense

  $ 2,883   $ 2,919   $ 800   $ 739  
                   
(2)
Pro forma basic and diluted net loss per share represents net loss divided by the pro forma weighted-average shares of common stock outstanding. Pro forma weighted-average shares outstanding reflects the conversion of our preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the first day of the relevant period (assuming a conversion ratio equal to                    common shares for each Series F preferred share based on an initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus). See the section of this prospectus titled "—Offering" for a description of the number of shares issuable upon conversion of our Series F preferred stock depending on the price at which our shares are sold to the public.

(3)
In-stream advertising revenue is the revenue we generate solely from the sale of in-stream video ads.

(4)
We define Adjusted EBITDA as net loss plus (minus): other (income) expense, net, interest expense, income tax expense, depreciation and amortization expense and stock-based compensation expense. We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, we believe that the exclusion of the expenses eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA is a non-GAAP financial measure. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash and capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

 

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    Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net loss and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated:

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2011   2012   2012   2013  
 
  (in thousands)
 

Net loss

  $ (21,025 ) $ (16,644 ) $ (9,127 ) $ (5,159 )

Adjustments:

                         

Other expense (income), net

    583     8     39     (5 )

Interest expense

    321     227     75     56  

Income tax expense

    223     280     70     70  

Depreciation and amortization expense

    6,088     5,992     1,478     1,502  

Stock-based compensation expense

    2,883     2,919     800     739  
                   

Total net adjustments

    10,098     9,426     2,462     2,362  
                   

Adjusted EBITDA

  $ (10,927 ) $ (7,218 ) $ (6,665 ) $ (2,797 )
                   
(4)
Reflects on a pro forma basis the conversion described in footnote (2) above and, on an as adjusted basis, our sale of                    shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information presented in the summary balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

The pro forma as adjusted information presented in the summary balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, working capital, total assets and total stockholders' deficit on a pro forma as adjusted basis by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each increase or decrease of                in the number of shares offered by us would increase or decrease each of cash and cash equivalents, working capital, total assets and total stockholders' deficit by approximately $             million, assuming that the assumed initial price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information included in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects could be harmed. In that case, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business and Industry

         Because our business model is continuing to develop, our past operating results may not be indicative of future performance, and our future operating results may fluctuate materially and may increase your investment risk.

        We were formed in November 2005 and have a limited operating history. In 2011, we made the strategic decision to focus our media business on in-stream video advertising and to move away from in-banner video advertising, which may not prove to be a successful strategy. As a result of our focus on delivering in-stream video advertising, we have experienced a significant reduction in our in-banner revenue. Substantially all of our revenue in 2012 was generated by the sales of in-stream video ads through the Tremor Video Network. Additionally, in 2012, we began licensing our VHA solution to brand advertisers and their agencies. Although we have experienced significant growth in revenue generation in recent periods, our relatively short operating history and developing business model make it difficult to assess our future prospects. The success of our business faces a number of challenges, including:

    continuing to innovate and improve the technologies that enable us to provide our solutions;

    expanding our existing relationships, and developing new relationships with, brand advertisers and premium publishers;

    increasing the level of spending by our brand advertisers;

    the growth, evolution and rate of adoption of industry standards;

    offering competitive pricing to brand advertisers;

    offering competitive rates to premium publishers;

    delivering online video advertising campaign performance results that are superior to those that brand advertisers receive through the use of competing providers or technologies;

    competing effectively against traditional and online media companies to increase our share of brand advertising spend;

    ensuring that our clients' video ads are shown in brand-safe environments;

    maintaining and increasing the value of our brand and goodwill with brand advertisers and premium publishers;

    effectively controlling our costs as we grow our business;

    responding to evolving government regulations relating to the internet, telecommunications, privacy, marketing and advertising aspects of our business;

    developing market acceptance for our VHA solution; and

    identifying, attracting, retaining and motivating qualified personnel.

        Our ability to meet these challenges will help determine whether we can successfully leverage our business model to achieve profitability and growth in the future. We cannot assure our ability to achieve this goal, to generate consistent and improving operating results, or even to maintain the same

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level of success that we have had to date. If we fail to meet these challenges, our operating results may fluctuate materially and may increase your investment risk.

         We have incurred significant net losses since inception, and we expect our operating expenses to increase significantly in the foreseeable future. Accordingly, we may never achieve or sustain profitability.

        We have incurred losses since we were formed and expect to incur losses in the future. We incurred net losses of $21.0 million, $16.6 million and $5.2 million in 2011, 2012 and the three months ended March 31, 2013, respectively, and we had an accumulated deficit of $86.7 million as of March 31, 2013. We do not know if we will be able to achieve profitability or maintain profitability on a continued basis. Although our revenue has increased substantially in recent periods, we may not be able to maintain this rate of revenue growth. We anticipate that our operating expenses will continue to increase as we scale our business and expand our operations. In particular, we plan to continue to invest in our technology and development efforts and sales and marketing efforts and further increase the number of our licensing solution focused sales and marketing professionals. We also expect our general and administrative expenses to increase in absolute dollars as a result of our preparation to become and operate as a public company. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control. We may never be able to generate sufficient revenue to achieve or sustain profitability.

         Unfavorable conditions in the global economy or the vertical markets we serve could limit our ability to grow our business and negatively affect our operating results.

        General worldwide economic conditions have experienced significant instability in recent years. These conditions make it extremely difficult for brand advertisers and us to accurately forecast and plan future business activities, and could cause our brand advertisers to reduce or delay their advertising spending. Historically, economic downturns have resulted in overall reductions in advertising spending. For example, our operating results for the second and third quarters of 2011 were adversely affected by a reduction in video advertising spending because of uncertainty and volatility caused by the U.S. budget and European financial crises. Additionally, our operating results for the first quarter of 2012 were adversely affected by the challenging global economic outlook. If macroeconomic conditions deteriorate, advertisers may curtail or freeze spending on advertising in general and for solutions such as ours specifically. Furthermore, we generally sell through insertion orders with ad agencies. These insertion orders generally do not include long-term obligations and are cancelable upon short notice and without penalty in accordance with standard terms and conditions for the purchase of internet advertising published by the Interactive Advertising Bureau. Any reduction in advertising spending could limit our ability to grow our business and negatively affect our operating results.

        In addition, our business may be materially and adversely affected by weak economic conditions in the specific vertical markets that we serve. In 2012, we derived the majority of our revenue from advertisers in the consumer packaged goods, entertainment and automotive industries.

        We cannot predict the timing, strength or duration of any economic slowdown or recovery. In addition, even if the overall economy improves, we cannot assure you that the market for online video advertising solutions will experience growth or that we will experience growth.

         If we fail to adapt and respond effectively to rapidly changing technology and client needs, our solutions may become less competitive or obsolete.

        Our future success will depend on our ability to adapt and innovate. To attract new brand advertisers and increase spend by existing brand advertisers, we will need to expand and enhance our solutions to meet client needs, add functionality and address technological advancements. If we fail to develop new solutions that address brand advertiser needs, or enhance and improve our solutions in a timely manner or conform to industry standards, we may not be able to achieve or maintain adequate market acceptance of our solutions, and our solutions may become less competitive or obsolete.

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        Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver video advertising solutions at lower prices or more efficiently or effectively than our solutions, such technologies could adversely impact our ability to compete. For example, if we fail to successfully implement a programmatic media buying solution or if our mobile solution is not considered effective, our business and growth prospects could be harmed.

         The market in which we participate is intensely competitive and fragmented, and we may not be able to compete successfully with our current or future competitors.

        The online video advertising market is highly competitive. We compete with large online video publishers such as Hulu, LLC and YouTube, LLC, which is owned by Google Inc., as well as advertising networks and exchanges, such as BrightRoll, Inc. and YuMe, Inc. Our VHA solution competes with ad tech infrastructure companies, such as Adap.tv, Inc. and Videology, Inc. They, or other companies that offer competing advertising solutions, may establish or strengthen cooperative relationships with brand advertisers, ad agencies, agency holding companies or publishers, thereby limiting our ability to promote our solutions and generate revenue. Competitive pressures could require us to reduce the prices we charge advertisers or increase the prices we pay to publishers. For example, the online video advertising industry has recently experienced and may continue to experience price erosion due to the influx of online video ad inventory as well as the automation of ad buying.

        In the traditional media space, our primary competitors for middle of the funnel advertising spend are mainly cable TV broadcasters, radio broadcasters and print media publishers. Across the digital media landscape, we compete for advertising spend with large entities such as Facebook, Inc., Microsoft Corporation and Yahoo! Inc. as well as Adobe Systems Incorporated and Google Inc. that offer video advertising services as part of a larger solution for digital media buying. Many of these competitors and potential competitors have significant client relationships, much larger financial resources and longer operating histories than we have and may be less severely affected by changes in consumer preferences, regulations or other developments that may impact the online video advertising industry as a whole.

        Our business may suffer to the extent that our advertisers and publishers purchase and sell online video advertising directly from each other or through other companies that are able to become intermediaries between advertisers and publishers. New technologies and methods of buying advertising present a dynamic competitive challenge, as market participants offer multiple new products and services, such as analytics, programmatic media buying and exchanges, aimed at capturing advertising spend. If the market shifts towards such new technologies and we are unable to either provide such solutions in a compelling manner or otherwise compete with such shift in ad spending, we may incur increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share.

        We believe we compete for brand advertiser spend primarily on the basis of proven technology and optimization capabilities, pricing, quality and scale of online video inventory, depth and breadth of relationships with brand advertisers and premium publishers, multi-channel capabilities, brand-centric measurement, ability to ensure brand safety and transparency into ad performance and placement. Our competitors or potential competitors may adopt certain aspects of our business model, which could reduce our ability to differentiate our solutions. As market dynamics change, or as new and existing competitors introduce more competitive pricing or new or disruptive technologies, we may be unable to maintain our brand advertisers' existing spend with us, renew our agreements with existing exclusive premium publishers, or attract new advertisers or publishers at the same price or based on the same pricing model as previously used. As a result, we may be required to change our pricing model and incur additional expenses in response to competitive pressures, which could harm our revenue, profitability and operating results. For all of these reasons, we may not be able to compete successfully against our current and future competitors.

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         We operate in a new and rapidly evolving industry. If the online video advertising industry does not develop or develops more slowly than we expect, our operating results and growth prospects could be harmed.

        Online video advertising is an emerging industry, and future demand and market acceptance for online video advertising is uncertain. Many brand advertisers have limited experience with online brand advertising, generally, and online video advertising specifically, and may continue to devote more significant portions of their advertising budgets to traditional, offline-based advertising, such as television and print, and may not devote significant portions of their advertising budgets to online video advertising. Additionally, we compete for online advertising spend with other products and technologies such as search, display and in-banner video as well as advertising networks and exchanges.

        We believe that the continued growth and acceptance of online video ad spending by brand advertisers generally will depend on the perceived effectiveness and the acceptance of our solutions, which are still emerging and evolving, and the continued growth in commercial use of online media, as well as other factors. Additionally, brand advertisers may find online video advertising to be less effective than traditional offline channels, such as television, newspapers, radio and billboards, or other online methods for promoting their products and services, and they may reduce their spending on online video advertising from current levels as a result. Accordingly, if the market for online video advertising deteriorates, or develops more slowly than we expect, our operating results and growth prospects could be harmed.

         We generate substantially all of our revenue from the Tremor Video Network.

        We generate substantially all of our revenue from the Tremor Video Network. Due to the concentration in our revenue, we are potentially subject to greater risks than more diversified companies. While we began licensing VHA in 2012, there can be no assurance that a market will develop for this solution or that licensing revenue will increase. Additionally, we may develop other solutions from time to time, such as a publisher-focused solution and a programmatic buying solution, but there can be no assurance that we will successfully develop these solutions or that a market will develop for them. As a result, we expect to be substantially dependent upon revenue generated from the Tremor Video Network for the foreseeable future. Due to our limited historical experience, we may not be able to accurately predict future usage trends.

         We may be unable to retain key advertisers, attract new advertisers or replace departing advertisers with advertisers that can provide comparable revenue to us.

        Our success requires us to maintain and expand our relationships with our existing brand advertisers, including the ad agencies that represent them, and to develop new relationships with other brand advertisers and ad agencies. Generally, we sell through insertion orders with ad agencies. These insertion orders generally do not include long-term obligations requiring them to purchase from us and are cancelable upon short notice and without penalty in accordance with standard terms and conditions for the purchase of internet advertising published by the Interactive Advertising Bureau. As a result, we have limited visibility as to our future advertising revenue streams from our advertisers.

        Our advertisers' usage may decline or fluctuate as a result of a number of factors, including, but not limited to:

    the performance of their video ad campaigns and their perception of the efficacy and efficiency of their advertising spend through the Tremor Video Network;

    changes in the economic prospects of advertisers or the economy generally, which could alter current or prospective advertisers' spending priorities;

    our access to premium inventory;

    our ability to deliver video ad campaigns in full, i.e., our ability to serve each requested impression;

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    their satisfaction with our solutions and our client support;

    the ability of our optimization algorithms underlying our solutions to deliver better rates of return on video ad spend dollars than competing solutions;

    seasonal patterns in advertisers' spending, which tend to be discretionary;

    the pricing of our or competing solutions; and

    reductions in spending levels or changes in brand advertisers' strategies regarding video advertising spending.

        If a major advertiser decides to materially reduce its advertising spend through the Tremor Video Network, it could do so on short or no notice. We cannot assure that our advertisers will continue to use the Tremor Video Network or that we will be able to replace in a timely or effective manner departing advertisers with new advertisers from whom we generate comparable revenue.

         If an advertiser fails to pay for ad requests that we have fulfilled, we would still be required to pay the publisher for its ad inventory.

        We purchase video ad inventory from our publishers to connect our advertiser clients with engaged audiences through the Tremor Video Network. If advertisers fail to pay for ad requests we have filled, we would still be required to pay the publisher for its ad inventory. Any significant failure by advertisers to pay us could adversely affect our operating results.

         We are highly dependent on advertising agencies and their holding companies as intermediaries, and this may adversely affect our ability to attract and retain business.

        Our business focuses on brand advertisers that rely upon advertising agencies in planning and purchasing advertising. Although we maintain relationships with the owners of brands, we do not contract with them directly. Instead, we sell to advertising agencies that utilize our solutions on behalf of their clients. Each advertising agency allocates advertising spend from brand advertisers across numerous channels. We do not have exclusive relationships with advertising agencies and we depend on agencies to work with us as they embark on marketing campaigns for brands.

        If we fail to maintain satisfactory relationships with an advertising agency, we risk losing business from the brand advertisers represented by that agency. If the advertising agency is owned by a holding company, this risk is magnified because we also risk losing business from the other agencies owned by such holding company and the brand advertisers those agencies represent. Because advertising agencies act as intermediaries for multiple brand advertisers, our client base is more concentrated than might be reflected by the number of brand advertisers that run campaigns through the Tremor Video Network.

        Further, our revenue could be adversely impacted by industry changes relating to the use of advertising agencies. For example, if brand advertisers seek to bring their marketing campaigns in-house rather than using an advertising agency, we would need to enter agreements with the brand advertisers directly, which we might not be able to do and which could increase our sales and marketing expense. Moreover, as a result of dealing primarily with advertising agencies, advertisers may attribute the value we provide to the advertising agency rather than to us, further limiting our ability to develop long term relationships directly with brand advertisers. Brand advertisers may move from one advertising agency to another, and, accordingly, even if we have a positive relationship with an advertising agency, we may lose the underlying business when an advertiser switches to a new agency. The presence of advertising agencies as intermediaries between us and the advertisers thus creates a challenge to building our own brand awareness and affinity with the advertisers that are the ultimate source of our revenue.

        In addition, advertising agencies that are our clients also offer or may offer some of the components of our solutions, including selling ad inventory through their own trading desks. As such, these advertising agencies are, or may become, our competitors. If they further develop their

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capabilities, they may be more likely to offer their own solutions to advertisers, and our ability to compete effectively could be compromised.

         If brand advertisers do not perceive meaningful benefits from performance-based advertising solutions, then our revenue and gross margins may be adversely affected.

        The Tremor Video Network enables brand advertisers to only pay for advertising that "performed," i.e., on a cost per engagement, or CPE, basis, or cost per video completion, or CPVC, basis. The market for performance-based advertising solutions is evolving and has not yet been widely adopted by brand advertisers. A significant and growing portion of our revenue is generated from ad campaigns that are priced on a performance basis. Under performance-based pricing models, advertisers only pay us if the applicable engagement metrics are satisfied. For example, under our CPE pricing model, we bill the advertiser only for instances in which the viewer actively engages with the video ad, such as by interacting with the elements of the video ad through clicks or screen touches or by rolling over certain elements of the video ad for at least three seconds. We believe performance-based pricing generally provides greater margins than CPM priced campaigns, because we are often able to serve our advertisers' engagement goals with a lower number of purchased impressions. Historically, a larger portion of brand advertisers' online advertising budgets have been based on the number of impressions served, such as cost per thousand impressions, or CPM, without regard to performance, and such advertisers may be reluctant or slow to adopt performance-based pricing solutions. We are subject to the risk that we may purchase ad inventory that we are unable to monetize if the purchased inventory does not perform for our advertisers. If brand advertisers do not perceive meaningful benefits from our performance-based advertising solutions, our revenue and gross margins may be adversely affected.

         If we fail to maintain or increase our access to premium advertising inventory, our operating results may be harmed.

        Our success requires us to maintain and expand our access to premium video advertising inventory. We do not own or control the video ad inventory upon which our business depends. We purchase this ad inventory from our publishers generally either in exclusive one year agreements or by spot purchases. These publishers are generally not required to provide us with a specified level of inventory, and we cannot assure you that our exclusive publishers will renew their agreements with us or continue to make their ad inventory available to us. In addition, we review our publishers and have removed, and may in the future remove, publishers from our network based on the quality of the inventory, viewer experience and our confidence in the integrity of their ad requests. As a result, we may have limited visibility as to our future access to inventory from publishers. If a publisher decides not to make video ad inventory available to us or if we decide to remove a publisher from our network, we may not be able to replace this ad inventory with comparable ad inventory quickly enough to fulfill our brand advertisers' requests.

        Publishers have a variety of channels in which to sell their video ad inventory, including direct sales forces and ad exchanges. Under our exclusive arrangements, a publisher's direct sales force may sell their own video ad inventory, and many of our exclusive publishers maintain significant direct sales forces. Furthermore, the scope of exclusivity with respect to the third party monetization of video ad inventory varies with publishers, with some publishers imposing geographical, device, or inventory type limitations. Any increase in a publisher's direct sales efforts may negatively impact our access to that publisher's inventory. Additionally, if publishers sell their inventory through ad exchanges, or if our competitors offer higher prices for their ad inventory, our ability to obtain ad inventory on a cost-effective basis may be affected.

        If we are unable to maintain or increase our access to premium video ad inventory, our operating results may be harmed.

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         We may not be able to adequately satisfy the supply from our exclusive publishers with demand from our advertisers.

        Substantially all of our exclusive publisher agreements obligate us to fill a specified percentage of the video ad inventory that they make available to us, which we refer to as an ad request. In some cases, there is no cap on our fill obligation. If we are unable to deliver ad campaigns to this inventory, we will bear the loss on those unfilled ad requests. This risk can be magnified during certain times of the year when we see increased ad requests from our exclusive publishers coupled with reduced purchase demand from our advertisers.

        Additionally, in order to satisfy our required fill obligations, we may have to serve less optimized inventory to our advertisers. This may negatively impact the performance of an ad campaign, which could particularly impact us with respect to our campaigns that are priced on a performance basis. As a result, our margins may be negatively impacted even if we are able to fully satisfy the fill obligation.

        Any significant failure to adequately match demand from our advertisers with supply from our publishers would harm our operating results.

         If we fail to detect fraud or other actions that impact video ad campaign performance, we could lose the confidence of advertisers or agencies, which would cause our business to suffer.

        Our business relies on effectively and efficiently delivering video ad campaigns for brand advertisers. We have in the past, and may in the future, be subject to fraudulent and malicious activities. An example of such activities would be the use of bots, non-human traffic delivered by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given video ad campaign and could harm our reputation. It may be difficult to detect fraudulent or malicious activity because we do not own content and rely in part on our publisher partners for controls with respect to such activity. While we assess the campaign performance on our publishers' websites, such assessments may not detect or prevent fraudulent or malicious activity. Further, we may need to improve over time our processes for assessing the quality of publisher ad requests. If fraudulent or other malicious activity is perpetrated by others, and we fail to detect or prevent it, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund demands or withdrawal of future business. If we fail to detect fraud or other actions that impact the performance of our video ad campaigns, we could lose the confidence of our advertisers or agencies, which could cause our business to suffer.

         We only recently began licensing VHA and if a market for this solution fails to develop, our growth prospects could be adversely affected.

        We only recently began licensing VHA to advertisers and their agencies and are developing a licensed solution for publishers. Licensing these solutions is a key element of our growth strategy. Demand for these solutions by advertisers, agencies or publishers may not develop or may develop more slowly than we expect. Third parties from which we license certain data utilized by these solutions may terminate such licenses or be unwilling to renew such licenses on terms that are satisfactory to us. Additionally, our ability to measure campaigns running through publishers that do not provide inventory to the Tremor Video Network depends on such publishers accepting our tags on their sites. If a publisher does not accept our tags, VHA will not be able to track video ad campaign performance across these sites. This inability could potentially diminish the value of VHA for non-Tremor Video Network video ad campaigns. Additionally, our competitors may develop competitive solutions that gain greater market acceptance than our licensed solutions. If the market for these solutions fails to develop, our growth prospects could be adversely affected.

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         Our sales efforts with advertisers, agencies and publishers require significant time and expense.

        Attracting new brand advertisers, ad agencies and premium publishers requires significant time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing our current relationships. For example, certain brand advertisers may have no or limited experience with online video advertising or may be unfamiliar with our solutions. In addition, brand advertisers' purchasing decisions typically are made and coordinated by their advertising agencies and require input from multiple constituencies. The process of selling our solutions to brand advertisers and ad agencies can therefore be time-consuming. With respect to our publishers, we often seek to establish exclusive long-term relationships to ensure access to premium content for our brand advertisers. As a result, we invest significant time in cultivating relationships with our publishers to ensure they understand the potential benefits of monetization of their inventory with us rather than with third-party media networks and exchanges. The relationship building process can take many months and may not result in us winning an opportunity with any given advertiser, agency or publisher.

        Our technology and online video brand advertising are relatively new and often require us to spend substantial time and effort educating potential advertisers and publishers about our solutions, including providing demonstrations and comparisons against other available services. This process can be costly and time-consuming. If we are not successful in streamlining our sales processes with advertisers and publishers, our ability to grow our business may be adversely affected.

         We experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and could cause our operating results to fall below expectations.

        Our operating results have historically fluctuated and our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. Period-to-period comparisons of our operating results should not be relied upon as an indication of our future performance. Given our relatively short operating history and the rapidly evolving online video advertising industry, our historical operating results may not be useful in predicting our future operating results.

        Factors that may affect our quarterly operating results include the following:

    changes in the economic prospects of advertisers, the industries we primarily serve, or the economy generally, which could alter current or prospective advertisers' spending priorities, or could increase the time it takes us to close sales with advertisers;

    the addition of new advertisers or the loss of existing advertisers;

    changes in demand for our solutions;

    changes in the amount, price and quality of available video advertising inventory from publishers;

    the timing and amount of sales and marketing expenses incurred to attract new advertisers and publishers;

    the cancellation or delay of campaigns by brand advertisers;

    changes in our pricing policies, the pricing policies of our competitors or the pricing of online video advertising generally;

    timing differences at the end of each quarter between our payments to publishers for advertising inventory and our collection of advertising revenue related to that inventory; and

    costs related to acquisitions of other businesses.

        Our operating results may fall below the expectations of market analysts and investors in some future periods. If this happens, even just temporarily, the market price of our common stock may fall.

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         Our revenue tends to be seasonal in nature.

        Our revenue tends to be seasonal in nature, with the third and fourth quarters of each calendar year historically representing the largest percentage of our total revenue for the year and the first quarter of each calendar year historically representing the lowest percentage of our total revenue for the year. Many of the brand advertisers in the verticals we serve spend significant portions of their advertising budgets during the third quarter, in connection with summer, back to school and entertainment events, and in the fourth quarter, in connection with the holiday season. During the first quarter, brand advertisers generally devote less of their budgets to ad spending, and as a result, our exclusive publishers generally make a larger proportion of their ad inventory available to us. This combination generally results in lower revenue and gross margins for us during the first quarter of each calendar year. Our operating cash flows could also fluctuate materially from period to period as a result of these seasonal fluctuations.

         We have made and may make additional acquisitions that could entail significant execution, integration and operational risks.

        As part of our business strategy, we have in the past acquired, and may in the future acquire, companies, technologies and solutions that we believe complement our business. Acquisitions involve numerous risks, any of which could harm our business, including:

    difficulties in integrating the technologies, solutions, operations, existing contracts and personnel of a target company;

    difficulties in supporting and transitioning clients, if any, of a target company;

    diversion of financial and management resources from existing operations or alternative acquisition opportunities;

    failure to realize the anticipated benefits or synergies of a transaction;

    failure to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology, or solution, including issues related to intellectual property, solution quality or architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues;

    risks of entering new markets in which we have limited or no experience;

    potential loss of key employees, brand advertisers and publishers from either our current business or a target company's business;

    inability to generate sufficient revenue to offset acquisition costs; and

    possible write-offs or impairment charges relating to acquired businesses.

        In addition, we may incur indebtedness to complete an acquisition, which may impose operational limitations, or issue equity securities, which would dilute our stockholders' ownership. We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and are not adequately covered by indemnities. Additionally, acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results.

        Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic political and regulatory risks associated with specific countries. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address the risks described above could materially harm our business and financial results.

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         We have limited international operations and any future international expansion may expose us to several risks, such as difficulty adapting our solutions for international markets.

        We have limited experience in marketing, selling and supporting our solutions abroad. During 2011 and 2012, more than 95% of our revenue was generated in the United States. While we have offices outside of North America in Singapore and the United Kingdom, substantially all of our operations are located in the United States.

        Any future international expansion of our business will involve a variety of risks, including:

    localization of our solutions, including translation into foreign languages and adaptation for local practices;

    unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

    differing labor regulations where labor laws may be more advantageous to employees as compared to the United States;

    more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information, particularly in the European Union;

    reluctance to allow personally identifiable data related to non-U.S. citizens to be stored in databases within the United States, due to concerns over the U.S. government's right to access information in these databases or other concerns;

    changes in a specific country's or region's political or economic conditions;

    challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

    risks resulting from changes in currency exchange rates;

    limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

    different or lesser intellectual property protection; and

    exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions.

        Operating internationally requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing and expanding our international operations will produce desired levels of revenue or profitability. If we invest substantial time and resources to establish and expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.

        We have not engaged in currency hedging activities to limit risk of exchange rate fluctuations. Changes in exchange rates affect our costs and earnings, and may also affect the book value of our assets located outside the United States and the amount of our stockholders' equity.

         Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

        Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to expand our marketing and sales and technology development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of

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our marketing and sales and technology development efforts or take advantage of acquisition or other opportunities, which could harm our business and results of operations. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

         Provisions of our debt instruments may restrict our ability to pursue our business strategies.

        Our credit facility requires us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

    dispose of assets;

    complete mergers or acquisitions;

    incur indebtedness;

    encumber assets;

    pay dividends or make other distributions to holders of our capital stock;

    make specified investments;

    change certain key management personnel; and

    engage in transactions with our affiliates.

        These restrictions could inhibit our ability to pursue our business strategies. We are also subject to a financial covenant with respect to minimum monthly working capital levels. If we default under our credit facility, and such event of default is not cured or waived, the lender could terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under other debt instruments.

        Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon a default. We may incur additional indebtedness in the future. The debt instruments governing such indebtedness could contain provisions that are as, or more, restrictive than our existing debt instruments. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.

         We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, our financial performance may suffer.

        We have expanded our revenue, solutions, scale, employee headcount and overall business operations in recent periods. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, operational, product development, sales and marketing, administrative, financial and other resources. For instance, we expect to be substantially dependent on our direct sales force to obtain new clients, and we plan to continue to expand our direct sales force both domestically and internationally. Newly hired sales personnel may not become productive as quickly as we would like, or at all, thus representing increased operating costs and lost opportunities which in turn would adversely affect our business, financial condition and operating results.

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        If we do not manage our growth effectively, successfully forecast demand for our solutions or manage our expected expenses accordingly, our operating results will be harmed. If we fail to manage our growth effectively, our financial performance may suffer.

         We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

        In addition to the continued services of William Day, our President and Chief Executive Officer, and Steven Lee, a Senior Vice President and our Chief Technology Officer, we believe that our future success is highly dependent on the contributions of our senior management, as well as our ability to attract and retain highly skilled and experienced technical and other personnel in the United States and abroad. We do not have key person insurance on any of our executives. All of our employees, including our senior management, are free to terminate their employment relationship with us at any time, and their knowledge of our business, technology and industry may be difficult to replace. In addition, we believe that our senior management has developed highly successful and effective working relationships. If one or more of these individuals leave, we may not be able to fully integrate new executives or replicate the current dynamic and working relationships that have developed among our executive officers and other key personnel, and our operations could suffer. Qualified technical personnel are in high demand, particularly in the digital media industry, and we may incur significant costs to attract them. Many of the companies with which we compete for experienced personnel also have greater resources than us. Additionally, volatility or lack of performance in our stock price may also affect our ability to attract employees and retain our key employees. If we are unable to attract and retain our senior management and key employees, our ability to develop and successfully grow our business could be harmed.

         Defects or errors in our solutions could harm our reputation, result in significant costs to us, impair our advertisers' ability to deliver effective advertising campaigns and impair our ability to meet our fill obligations with publishers.

        The technology underlying our solutions, including our proprietary technology and technology provided by third-parties, may contain material defects or errors that can adversely affect our ability to operate our business and cause significant harm to our reputation. This risk is compounded by the complexity of the technology underlying our solutions and the large amounts of data we utilize. Errors, defects, disruptions in service or other performance problems in our solutions could result in the incomplete or inaccurate delivery of an ad campaign, including serving an ad campaign in an incomplete or inaccurate manner, in an incorrect geographical location or in an environment that is detrimental to the advertiser's brand health. Any such failure, malfunction, or disruption in service could result in damage to our reputation, our advertising clients withholding payment to us, advertisers or publishers making claims or initiating litigation against us, and our giving credits to our advertiser clients toward future advertising spend. In addition, the terms of our exclusive publisher agreements generally require us to pay for a percentage of the ad requests delivered by such publishers, even if we are unable to deliver our solutions due to disruptions in our technology. As a result, defects or errors in our solutions could harm our reputation, result in significant costs to us, impair our advertisers' ability to deliver effective advertising campaigns and impair our ability to meet our fill obligations with publishers.

         System failures could significantly disrupt our operations and cause us to lose advertisers or publishers.

        Our success depends on the continuing and uninterrupted performance of our solutions, which we utilize to place video ads, monitor the performance of advertising campaigns, manage our advertising inventory and respond to publisher ad calls. Our revenue depends on our ability to categorize video content and deliver ads as well as measure campaigns on a real-time basis. Sustained or repeated

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system failures that interrupt our ability to deliver ads through the Tremor Video Network and provide access to our licensed solutions, including technological failures affecting our ability to deliver video ads quickly and accurately and to process viewers' responses to ads or fill publisher ad requests, could significantly reduce the attractiveness of our solutions and reduce our revenue. Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. In addition, any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful in preventing system failures. Any such system failures could significantly disrupt our operations and cause us to lose advertisers or publishers.

         Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations.

        We collect, store and transmit information of, or on behalf of, our advertisers and publishers. We take steps to protect the security, integrity and confidentiality of the information we collect, store or transmit, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry and may occur on our systems or those of our information technology vendors in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, or the inadvertent transmission of computer viruses or other harmful software code could result in the unauthorized disclosure, misuse, or loss of information, legal claims and litigation, indemnity obligations, regulatory fines and penalties, contractual obligations and liabilities, and other liabilities. In addition, if our security measures or those of our vendors are breached or unauthorized access to consumer data otherwise occurs, our solutions may be perceived as not being secure, and advertisers or publishers may reduce the use of or stop using our solutions.

        While we and our publishers have security measures in place, these systems and networks are subject to ongoing threats and, therefore, these security measures may be breached as a result of employee error, failure to implement appropriate processes and procedures, malfeasance, third-party action, including cyber attacks or other international misconduct by computer hackers or otherwise. This could result in one or more third parties obtaining unauthorized access to our publishers' or advertisers' data or our data, including personally identifiable information or other viewer data, intellectual property and other confidential business information. Third parties may also attempt to fraudulently induce employees into disclosing sensitive information such as user names, passwords or other information in order to gain access to our advertisers' data or our data, including intellectual property and other confidential business information.

        Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure or otherwise to maintain the confidentiality, security, and integrity of data that we store or otherwise maintain on behalf of third parties may harm our reputation and our relationships with advertisers, agencies or publishers or harm our ability to retain existing clients and attract new clients. Any of these could harm our business, financial condition and results of operations.

        If such unauthorized disclosure or access does occur, we may be required to notify our advertisers, agencies or publishers or those persons whose information was improperly used, disclosed or accessed. We may also be subject to claims of breach of contract for such use or disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was improperly

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used or disclosed. The unauthorized use or disclosure of information may result in the termination of one or more of our commercial relationships or a reduction in advertiser, agency or publisher confidence and usage of our solutions. We may also be subject to litigation and regulatory action alleging the improper use, transmission or storage of confidential information, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

         Interruptions or delays in service from our third-party data center hosting facility and other third parties could impair the delivery of our solutions and harm our business.

        We currently utilize a single third-party data center hosting facility located in Boston, Massachusetts. All of our data storage and analytics are conducted on, and the video ad campaigns we deliver are processed through, servers in this facility. We also rely on bandwidth providers, internet service providers and mobile networks to deliver video ads. Any damage to, or failure of, the systems of our third-party data center or our other third-party providers could result in interruptions to the availability or functionality of our service. If for any reason our arrangements with our data center or third-party providers are terminated, we could experience additional expense in arranging for new facilities, technology, services and support. In addition, the failure of our data center or any other third-party providers to meet our capacity requirements could result in interruptions in the availability or functionality of our solutions or impede our ability to scale our operations.

        The occurrence of a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close our third-party data center or the facilities of any third-party provider without adequate notice, or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our solutions. While we have disaster recovery arrangements in place, they have not been tested under actual disasters or similar events and may not effectively permit us to continue to provide our solutions in the event of any problems with respect to our data center or any other third-party facilities. To date, we have not experienced these types of events, but we cannot provide any assurances that they will not occur in the future. If any such event were to occur to our business, the delivery of our solutions could be impaired and our business harmed.

         Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

        We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal income tax purposes. At March 31, 2013, we had U.S. federal and state net operating loss carryforwards, or NOLs, of $84.0 million, which expire in various years beginning in 2026. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe that we experienced an ownership change under Section 382 of the Internal Revenue Code in prior years that may limit our ability to utilize a portion of the NOLs in the future. In addition, future changes in our stock ownership, including this or future offerings, as well as other changes that may be outside of our control, could result in additional ownership changes under Section 382 of the Internal Revenue Code. Our NOLs may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related to our NOLs and other net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. Our NOLs may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

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Risks Relating to Our Data Collection and Intellectual Property

         Our ability to generate revenue depends on our ability to collect and use significant amounts of data to deliver video ads, and any limitations on the collection and use of this data could significantly diminish the value of our solutions.

        Our ability to optimize the placement and scheduling of video advertisements for our advertisers and to grow our revenue depends on our ability to successfully leverage data that we collect from our advertisers, publishers, and third parties such as data providers. Our ability to successfully leverage such data, in turn, depends on our ability to collect and obtain rights to utilize such data.

        When we deliver a video ad, we are often able to collect anonymous information about the placement of the video ad and the interaction of the user with the video ad. We currently employ cookies to conduct online video ad campaigns. Cookies are small files of non-personalized information placed on an internet consumer's computer. The cookies are used to collect information related to the consumer, such as demographic information and history of the consumer's interactions with our advertisers' and our publishers' websites, and any video ads we deliver. We also employ cookies and mobile tracking technology to deliver reporting on ads on web publishers' sites and in mobile applications. We may also be able to collect information about the user's location. As we collect and aggregate this data provided by billions of video ad impressions, we analyze it in order to optimize the placement and delivery of video ads across the advertising inventory provided to us by publishers. For example, we may use the collected information to limit the number of times a specific video ad is presented to the user, to provide a video ad to only certain types of users, or to provide a report to an advertiser or publisher regarding the performance of an advertising campaign or inventory, respectively.

    Risks Related to Data Collected from Consumers

        We participate in industry self-regulatory programs under which, in addition to other compliance obligations, we provide consumers with notice about our use of cookies and our collection and use of data in connection with the delivery of targeted advertising. In addition, consumers can currently opt out of the placement or use of our cookies for online targeted advertising purposes by either deleting or disabling cookies on their browsers, visiting websites that allow consumers to place an opt-out cookie on their browsers, which instructs advertisers and their service providers not to use certain data about the consumer's online activity for the delivery of targeted advertising, or by downloading browser plug-ins and other tools that can be set to: (1) identify cookies and other tracking technologies used on websites; (2) prevent websites from placing third-party cookies and other tracking technologies on the consumer's browser; or (3) block the delivery of online advertisements on websites and applications.

        If consumer sentiment regarding privacy issues or the development and deployment of new browser solutions or other mechanisms that limit the use of cookies or other tracking technologies or data collected through use of such technologies results in a material increase in the number of consumers who choose to opt out or are otherwise using browsers where they need to, and fail to, configure the browser to accept cookies, our ability to collect valuable and actionable data would be impaired. Consumers may become increasingly resistant to the collection, use, and sharing of information used to deliver targeted advertising and may take steps to prevent such collection and use of information. Consumers may elect not to allow data collection, use, or sharing for targeted advertising for a number of reasons, such as privacy concerns or pricing mechanisms that may charge the user based upon the amount or types of data consumed on the device. Consumers may also elect to opt out of receiving targeted advertising specifically from our solutions.

    Risks Related to Data Collected from Publishers and Advertisers

        In order to effectively operate our video advertising campaigns, we collect data from advertisers, publishers, and other third parties. If we are not able to obtain sufficient rights to data from these third parties, we may not be able to utilize data in our solutions. Although our arrangements with advertisers and publishers generally permit us to collect non-personally identifiable and aggregate data from

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advertising campaigns, some of our advertisers and publishers do not allow us to collect some or all of this data or limit our use of this data, and future advertisers and publishers may do so in the future. For example, publishers may not agree to permit us to place our data collection tags on their sites or agree to provide us with the data generated by interactions with the content on their sites. It would be difficult to comply with these requests, and to do so would cause us to spend significant amounts of resources. It could also make it difficult for us to deliver effective advertising campaigns that meet the demands of our advertisers.

        We and many of our advertisers and publishers voluntarily participate in several trade associations and industry self-regulatory groups that promulgate best practice guidelines or codes of conduct addressing the delivery of promotional content to users, and tracking of users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these guidelines and codes in ways that are inconsistent with our practices or in conflict with the laws and regulations of U.S. or international regulatory authorities. If we are perceived as not operating in accordance with industry best practices or any such guidelines or codes with regard to privacy, our reputation may suffer, we could lose relationships with advertisers or publishers, and we could be subject to proceedings or actions against us by governmental entities or others as described below. Any limitation on our ability to collect data about user behavior and interaction with content could make it more difficult for us to deliver effective video advertising campaigns that meet the demands of our advertisers.

    Risks Related to Data Collection Technology

        Changes in device and software features and new technologies could make it easier for internet consumers to prevent the placement of cookies. In particular, the default settings of consumer devices and software may be set to prevent the placement of cookies unless the consumer actively elects to allow them. For example, Apple Inc.'s Safari browser currently does not accept third-party cookies as a default, and consumers must activate a browser setting to enable cookies to be set. Mozilla Corporation and Microsoft Inc. also have announced plans to adopt similar defaults in future versions of their respective Firefox and Internet Explorer browsers. On February 22, 2012, the Digital Advertising Alliance announced that its members will work to add browser-based header signals to the set of tools by which consumers can express their preferences not to be tracked online. On March 26, 2012, the U.S. Federal Trade Commission, or the FTC, issued a report on consumer privacy, which calls for the development and implementation of a persistent Do Not Track mechanism to enable consumers to choose whether to allow the tracking of their online search and browsing activities. Various industry participants have worked to develop and finalize standards relating to a Do Not Track mechanism, and such standards may be implemented and adopted by industry participants at any time.

        Network carriers, providers of mobile device operating systems, and device manufacturers may also impact our ability to collect data on internet-connected devices. These carriers, operating system providers, and device manufacturers are increasingly promoting features that allow device users to disable some of the functionality of the device or its operating system, which may impair or disable the collection of data on their devices.

        Any interruptions, failures, or defects in our data collection, mining, analysis, and storage systems could limit our ability to aggregate and analyze user data from our clients' advertising campaigns. If that happens, we may not be able to optimize the placement of advertising for the benefit of our advertisers, which could make our solutions less valuable, and, as a result, we may lose clients and our revenue may decline.

         If web, smartphones, tablet and connected TV devices, their operating systems or content distribution channels, including those controlled by our competitors, develop in ways that prevent our advertising from being delivered to their users, our ability to grow our business could be impaired.

        Our business model depends upon the continued compatibility of our solutions with most internet-connected devices across online, mobile, tablet and connected TV distribution channels, as well as the

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major operating systems that run on them. The design of these devices and operating systems are controlled by third parties with whom we do not have any formal relationships. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones. In some cases, the parties that control the development of internet-connected devices and operating systems include companies that we regard as our competitors, including some of our most significant competitors. For example, Google Inc. controls the Android operating system and also controls a significant number of mobile devices. If our solutions were unable to work on these devices or operating systems, either because of technological constraints or because a maker of these devices or developer of these operating systems wished to impair our ability to provide video ads on them, our ability to grow our business could be impaired.

         Our business practices with respect to data could give rise to liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

        U.S. and foreign governments have enacted, considered, or are considering legislation or regulations that could significantly restrict our ability to collect, augment, analyze, use, and share anonymous data, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tools to track people online. Federal, state, and international laws and regulations govern the collection, use, retention, sharing, and security of data that we collect across our solutions. We strive to comply with all applicable laws, regulations, self-regulatory requirements, policies, and legal obligations relating to privacy and data protection. However, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. As we expand our operations globally, compliance with regulations that differ from country to country may also impose substantial compliance burdens on our business. In particular, the European Union has traditionally taken a broader view as to what is considered personal information and has imposed greater obligations under data privacy laws and regulations. In addition, individual EU member countries have had discretion with respect to their interpretation and implementation of the regulations, which has resulted in variation of privacy standards from country to country. We may be subject to foreign laws regulating online and mobile advertising even in jurisdictions where we do not have any physical presence to the extent a digital media content provider has advertising inventory that we manage or to the extent that we collect and use data from consumers in those jurisdictions. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international laws, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, self-regulatory requirements or legal obligations could result in proceedings or actions against us by governmental entities or others. We are aware of several ongoing lawsuits filed against companies in our industry alleging various violations of privacy- or data security-related laws.

        Our subsidiary ScanScout was in the past subject to an FTC inquiry regarding its use of "Flash" cookies. As a result of our acquisition of ScanScout in December 2010, we are now subject to an FTC order regarding certain notice, disclosure and choice obligations regarding the use of cookies and our collection and use of data in connection with the delivery of targeted advertising. See the section titled "Business—Government Regulation; Industry Alliances" for a more complete description of this order. In addition, ScanScout was subject to a putative class action legal proceeding regarding its use of "Flash" cookies, which was settled in March 2012 and dismissed with prejudice.

        The regulatory framework for privacy issues worldwide is evolving, and various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices, including some directed at the advertising industry in particular. It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways that would affect our business particularly with regard to collection or use of data to target ads to consumers.

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        A number of U.S. state and federal bills have been proposed and are under consideration that contain provisions that would regulate how companies, such as ours, can use cookies and other tracking technologies to collect and use information about individuals and their online behaviors. At least one such bill presently has been proposed in the U.S. Congress. The U.S. government, including the FTC and the Department of Commerce, has announced that it is reviewing the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. The FTC has also adopted revisions to its rules implementing the Children's Online Privacy Protection Act, or COPPA Rules, effective July 1, 2013, that broaden the applicability of the COPPA Rules, including the types of information that would be subject to these regulations, and could effectively limit the information that we or our advertisers collect and use through certain online publishers and the content of video ads our advertisers may display.

        Many European Union member states are in the process of or have already enacted legislation to implement the European Union ePrivacy Directive (Directive 2009/136/EC amending Directive 2009/136/CE) requiring advertisers to obtain specific types of notice and consent from individuals before using cookies or other technologies to track individuals and their online behavior and deliver targeted advertisements. In particular, to comply with certain of these requirements, the use of cookies or other similar technologies may require the user's affirmative, opt-in consent. Further, the European Commission has proposed a General Data Protection Regulation that may strengthen EU laws regarding notice and consent for tracking technology. The EU proposals, if implemented, may result in a greater compliance burden with respect to collecting information about persons in Europe. Complying with any new regulatory requirements could force us to incur substantial costs or require us to change our business practices in a manner that could compromise our ability to effectively pursue our growth strategy.

        Any proceeding or action brought against us by a governmental entity or others relating to noncompliance with U.S federal, state, or international laws, self-regulatory requirements, policies, or other legal obligations relating to privacy or data protection could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, adversely affect the demand for our solutions, and ultimately result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless our advertisers and publishers from the costs or consequences of noncompliance with privacy-related laws, regulations, self-regulatory requirements or other legal obligations, or inadvertent or unauthorized use or disclosure of data that we store or handle as part of providing our solutions.

        Changes in global privacy-related laws and regulations and self-regulatory regimes may also impact our advertisers and publishers and adversely affect the demand for our solutions or otherwise harm our business, results of operations, and financial condition. For instance, privacy laws or regulations could require digital media content providers to take additional measures to facilitate consumer privacy preferences, in which case we will be reliant upon them to do so. In addition, digital media content providers could become subject to regulatory restrictions that would require them to limit or cease altogether the collection and/or use of data by third parties such as ourselves. For example, one potential form of restriction on the use of cookies would allow the website that the consumer has elected to visit, a first-party website, to continue to place cookies on the user's browser or device without explicit consent, but would require the user's explicit consent for a third party to place its cookies on the user's browser or device. Additionally, the March 2012 FTC staff report recommends that websites offer consumers a choice about whether the owner of the website can use third parties like us to track the activity for marketing purposes (e.g., delivery of targeted advertising). We are a third party in this context, and therefore currently depend on the ability to place our cookies on browsers and devices of users that visit the websites of our digital media content providers and to track devices for the purpose of ad delivery reporting on mobile devices, and if we were restricted from doing so because of compliance with laws or regulatory and industry best practices or recommendations

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by digital media content providers, our ability to gather the data on which we rely would be impaired. Further, we could be placed at a competitive disadvantage to large competitors such as Google, Facebook, Microsoft, and Yahoo! who have heavily trafficked, first-party properties that would continue to have greater ability to collect visitor data and use such data for marketing purposes.

         Any failure to protect our intellectual property rights could negatively impact our business.

        We regard the protection of our intellectual property, which includes trade secrets, copyrights, trademarks, domain names, one patent and several patent applications, as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our intellectual property. Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our intellectual property, or deter independent development of similar intellectual property by others. Breaches of the security of our solutions, databases or other resources could expose us to a risk of loss or unauthorized disclosure of information collected, stored, or transmitted for or on behalf of advertisers or publishers, or of cookies, data stored in cookies, other user information, or other proprietary or confidential information.

        We currently own one granted European patent, which we registered in France, Germany and Great Britain. Additionally, we currently own eight pending U.S. patent applications that we are currently prosecuting with the U.S. Patent and Trademark Office, although there can be no assurance that any of these patent applications will ultimately be issued a patent. We also register certain domain names, trademarks and service marks in the United States and in certain locations outside the United States. We also rely upon common law protection for certain marks, such as "Tremor Video." Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have a patent and certain patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, our existing patents and any patents that may be issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Our competitors and others could attempt to capitalize on our brand recognition by using domain names or business names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring or using domain names and other trademarks that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks. Effective trade secret, copyright, trademark, domain name and patent protection are expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. We may be required to protect our intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through additional patent filings that could be expensive and time-consuming.

        Additionally, in the United States, the central provisions of the Leahy-Smith America Invents Act, or AIA, became effective recently. Among other things, this law switched U.S. patent rights from the former "first-to-invent" system to a "first inventor-to-file" system. This may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions. This may favor larger competitors that have the resources to file more patent applications.

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        Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not be adequate to prevent their misappropriation or misuse. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solutions or technology are hosted or available. Further, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors offering solutions that incorporate our most technologically advanced features, which could seriously reduce demand for our solutions. In addition, we may in the future find it necessary or appropriate to initiate infringement claims or litigation, whether to protect our intellectual property or to determine the enforceability, scope and validity of the intellectual property rights of others. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

         Our business may suffer if it is alleged or determined that our solutions or another aspect of our business infringes the intellectual property rights of others.

        The online advertising industry is characterized by the existence of large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in this industry are often required to defend against litigation claims that are based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims or rights against their use.

        Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement or misappropriation without major financial expenditures or adverse consequences. We currently face, and expect to face in the future, claims by, third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. Such claims may be made by competitors or other parties. We cannot assure you that we are not infringing or violating any third-party intellectual property rights. From time to time, we or our clients may be subject to legal proceedings relating to our solutions or underlying technology and the intellectual property rights of others, particularly as we expand the complexity and scope of our business. As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties.

        Regardless of whether claims that we are infringing patents or infringing or misappropriating other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend, and can impose a significant burden on management and employees. The outcome of any litigation is inherently uncertain, and we may receive unfavorable interim or preliminary rulings in the course of litigation. There can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle lawsuits and disputes on terms that are unfavorable to us. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of

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complex intellectual property litigation to a greater degree and for longer periods of time than we could. Claims that we are infringing patents or other intellectual property rights could:

    subject us to significant liabilities for monetary damages, which may be tripled in certain instances;

    prohibit us from developing, commercializing or continuing to provide some or all of our solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all;

    subject us to indemnification obligations or obligations to refund fees to, and adversely affect our relationships with, our current or future advertisers, agencies, and publishers;

    result in injunctive relief against us, or otherwise result in delays or stoppages in providing all or certain aspects of our solutions;

    cause advertisers, agencies, or publishers to avoid working with us;

    divert the attention and resources of management and technical personnel; and

    require technology or branding changes to our solutions that would cause us to incur substantial cost and that we may be unable to execute effectively or at all.

        In addition, we may be exposed to claims that the content contained in ad campaigns violates the intellectual property or other rights of third parties. Such claims could be made directly against us or against the publishers from whom we purchase ad inventory. Generally, under our agreements with publishers, we are required to indemnify the publisher against any such claim with respect to an ad we served. We attempt to mitigate this exposure by generally requiring our advertisers and/or ad agencies to indemnify us for any damages from any such claims. There can be no assurance, however, that our advertisers will have the ability to satisfy their indemnification obligations to us, and pursuing any claims for indemnification may be costly or unsuccessful. As a result, we may be required to satisfy our indemnification obligations to our publishers or claims against us with our assets. This result could harm our reputation, business, financial condition and results of operations.

         We use open source software in our solutions that may subject our technology to general release or require us to re-engineer our solutions, which may cause harm to our business.

        Our technology incorporates or is distributed with software or data licensed from third parties, including some software distributed under so-called "open source" licenses, which we use without charge. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in certain manners. Although we monitor our use of open source software, we cannot be sure that all open source software is reviewed prior to use in our proprietary software, that our programmers have not incorporated open source software into our proprietary software, or that they will not do so in the future. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our solutions to our clients. In addition, the terms of open source software licenses may require us to provide software that we develop, using such open source software, to others on unfavorable license terms. As a result of our current or future use of open source software, we may

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face claims or litigation, be required to release our proprietary source code, pay damages for breach of contract, re-engineer our technology, discontinue sales in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, financial condition or operating results.

         We rely on data, other technology, and intellectual property licensed from other parties, the failure or loss of which could increase our costs and delay or prevent the delivery of our solutions.

        We utilize various types of data, other technology, and intellectual property licensed from unaffiliated third parties in order to provide certain elements of our solutions. Any errors or defects in any third-party data or other technology could result in errors in our solutions that could harm our business. In addition, licensed technology, data, and intellectual property may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of these on commercially reasonable terms, or at all, could result in delays in producing or delivering our solutions until equivalent data, other technology, or intellectual property is identified and integrated, which delays could harm our business. In this situation we would be required to either redesign our solutions to function with technology, data or intellectual property available from other parties or to develop these components ourselves, which would result in increased costs. Furthermore, we might be forced to limit the features available in our current or future solutions. If we fail to maintain or renegotiate any of these technology or intellectual property licenses, we could face significant delays and diversion of resources in attempting to develop similar or replacement technology, or to license and integrate a functional equivalent of the technology or intellectual property. The occurrence of any of these events may have an adverse effect on our business, financial condition and operating results.

Risks Related to Being a Public Company

         If we fail to maintain proper and effective internal and disclosure controls, our ability to produce accurate financial statements and other disclosures on a timely basis could be impaired.

        The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Commencing January 1, 2014, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. As an "emerging growth company" under the Jumpstart Our Business Startups, or JOBS Act, we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting; however, we may no longer avail ourselves of this exemption when we cease to be an "emerging growth company." This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to this offering, we were never required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner. Moreover, if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

        We may in the future discover areas of our internal control over financial reporting that need improvement. Our internal control over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations

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in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

        If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective disclosure controls and procedures or proper and effective internal control over our financial reporting, we may not be able to produce timely and accurate financial statements and other disclosures, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by                        , the SEC or other regulatory authorities.

    Risks associated with being a public company.

        As a public company, and particularly after we cease to be an "emerging growth company," we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and                                    impose numerous requirements on public companies, including requiring changes in corporate governance practices. Also, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

         As an "emerging growth company" under the JOBS Act we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

        We are an "emerging growth company" and, for as long as we continue to be an "emerging growth company," we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and not being required to hold a nonbinding advisory vote on executive compensation or obtain stockholder approval of "golden parachute" payments. We could be an "emerging growth company" for up to five years following the completion of this offering, although, if we have more than $1.0 billion in annual revenue, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or we issue more than $1.0 billion of non-convertible debt over a three year period before the end of that five-year period, we would cease to be an "emerging growth company" as of the December 31 following such occurrence. Investors may find our common stock less attractive if we choose to rely on these exemptions, in which case the price of our common stock may suffer or there may be a less active trading market for our common stock and our stock price may be more volatile.

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Risks Related to This Offering and Ownership of Our Common Stock

         An active public trading market may not develop or be sustained following this offering, and you may not be able to sell your shares at or above the initial public offering price.

        Before this offering, there was no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. The initial public offering price of our common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after the offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell and may reduce the fair market value of their shares. We cannot predict the prices at which our common stock will trade.

         The market price of our common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

        The market price of our common stock could be subject to significant fluctuations after this offering in response to various factors, some of which are beyond our control including:

    price and volume fluctuations in the overall stock market, or in the market for the stock of comparable companies, from time to time;

    adverse changes in the regulatory environment;

    actual or anticipated changes in our earnings or fluctuations in our operating results or the results of our competitors;

    changes in the market perception of online video advertising platforms generally or in the effectiveness of our solutions in particular;

    announcements of technological innovations, new solutions, acquisitions, strategic alliances or significant agreements by us or by our competitors;

    issuance of new or changed securities analysts' reports or recommendations for our or our competitors' stock;

    litigation involving us;

    changes in general economic, industry and market conditions and trends;

    expiration of contractual lock-up agreements with our executive officers, directors and security holders;

    recruitment or departure of key personnel; and

    the other factors described in this section of the prospectus titled "Risk Factors."

        In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business.

         Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

        Sales of a substantial number of shares of our common stock, or the perception that a substantial number of shares could be sold, could reduce the market price of our common stock. After the closing

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of this offering, we will have                        shares of common stock outstanding (or                                    shares assuming exercise of the underwriters' over-allotment option in full) based on the                        shares of common stock outstanding at March 31, 2013. All of the shares expected to be sold in this offering will be freely-tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, unless they are held by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The resale of the remaining                        shares, or        % of our outstanding shares after this offering, are currently, and will be following the closing of this offering, restricted as a result of securities laws or lock-up agreements; however, subject to applicable securities law restrictions, these shares will be able to be sold in the public market beginning 180 days after the date of this prospectus. In addition, the shares subject to outstanding options and warrants, for which 6,243,243 shares and 213,802 shares, respectively, were exercisable as of March 31, 2013 will become available for sale immediately upon the exercise of such options or warrants and the expiration or waiver of any applicable lock-up agreements. For more information, see the section of this prospectus titled "Shares Eligible for Future Sale."

        Moreover, after this offering, holders of an aggregate of approximately                        shares of our common stock (including shares underlying the warrants described in the section of this prospectus titled "Shares Eligible for Future Sale") or        % of our common stock, will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register for offer and sale all shares of common stock that we may issue under our stock-based compensation plans. Once we register the offer and sale of these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the section of this prospectus titled "Underwriting."

        Additionally, Credit Suisse Securities (USA) LLC and Jefferies LLC, on behalf of the underwriters, may in their sole discretion and only with our consent, at any time with or without notice, release all or any portion of the shares subject to the lock-up agreements, which would result in more shares being available for sale in the public market at earlier dates. Sales of common stock by existing stockholders in the public market, the availability of these shares for sale, our issuance of securities or the perception that any of these events might occur could materially and adversely affect the market price of our common stock. In addition, the sale of these securities could impair our ability to raise capital through the sale of additional stock.

        In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.

         Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

        Our executive officers, directors and principal stockholders and their respective affiliates beneficially owned, in the aggregate, approximately 72.9% of our outstanding common stock as of April 15, 2013, and we expect that upon completion of this offering, that same group will beneficially own at least        % of our common stock. These persons, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.

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         Our management will have broad discretion over the use of the proceeds we receive from this offering and might not apply the proceeds in ways that increase the value of your investment.

        The primary purposes of the offering are to create a public market for our common stock and to facilitate access to public equity markets. Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds of this offering in ways that increase the value of your investment. We intend to use the net proceeds from this offering for general corporate purposes. In addition, we may use a portion of the proceeds from this offering for acquisitions of complementary businesses, technologies or other assets. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

         If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, if they publish negative evaluations of our stock, or if we fail to meet the expectations of analysts, the price of our stock and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business issues an adverse opinion of our company because we fail to meet their expectations or otherwise, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

         Anti-takeover provisions in our certificate of incorporation and bylaws to be in effect upon completion of this offering, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress the price of our common stock.

        Our certificate of incorporation and bylaws to be in effect upon completion of this offering and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock or transactions that our stockholders might otherwise deem to be in their best interests. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors or our management. Therefore, these provisions could adversely affect the price of our stock. Our corporate governance documents include provisions:

    establishing a classified board of directors with staggered three-year terms so that not all members of our board of directors are elected at one time;

    providing that directors may be removed by stockholders only for cause;

    preventing the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

    requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

    permitting the board of directors to issue up to 5,000,000 shares of preferred stock with any rights, preferences and privileges as they may designate;

    limiting the liability of, and providing indemnification to, our directors and officers;

    providing that vacancies may be filled by remaining directors;

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    preventing cumulative voting; and

    providing for a supermajority requirement to amend our bylaws.

        As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in a broad range of business combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "objective," "ongoing," "plan," "predict," "project," "potential," "should," "will," or "would," and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

    the expansion of the online video advertising market;

    the adoption of brand-centric metrics, advanced ad formats and performance-based pricing models;

    our ability to increase revenue from new and existing advertisers with respect to the Tremor Video Network and VHA solution;

    the increase in broadband speed, sales of internet-connected devices and time spent viewing online video;

    our ability to ensure a high level of brand safety for our clients;

    our ability to acquire an adequate supply of premium video advertising inventory from publishers on terms that are favorable to us;

    the effects of increased competition as well as innovations by new and existing competitors in our market;

    our ability to effectively innovate and scale our technology;

    our ability to effectively manage our growth;

    our ability to successfully expand our reach beyond current core verticals and manage our international expansion;

    our ability to protect viewers' information and adequately address privacy concerns;

    the effect of regulatory developments and industry standards regarding internet privacy and other matters;

    our ability to maintain, protect and enhance our intellectual property;

    costs associated with defending intellectual property infringement and other claims;

    potential acquisition and integration of complementary business and technologies;

    our expected use of proceeds;

    statements regarding future revenue, gross margins, hiring plans, expenses, capital expenditures, capital requirements and stock performance;

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    our ability to detect fraudulent or malicious activity; and

    our ability to attract and retain qualified employees and key personnel.

        You should refer to the "Risk Factors" section of this prospectus for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.

        You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise.

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USE OF PROCEEDS

        We estimate that the net proceeds from our issuance and sale of                        shares of our common stock in this offering will be approximately $             million, or approximately $             million if the underwriters exercise their over-allotment option in full, based upon an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares by the selling stockholders, although we will bear the costs, other than underwriting discounts and commissions, associated with those sales.

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each increase or decrease of shares in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by approximately $            , assuming that the assumed initial price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial price to the public or the number of shares by these amounts would have a material effect on uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

        The principal purposes of this offering are to create a public market for our common stock and to facilitate our future access to the public equity markets, as well as to obtain additional capital. We intend to use the net proceeds from this offering for general corporate purposes. In addition, we may use a portion of the proceeds from this offering for acquisitions of complementary businesses, technologies or other assets, although we do not currently have any plans for any acquisitions. We may allocate funds from other sources to fund some or all of these activities.

        The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering.

        The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term, interest-bearing, investment-grade securities.


DIVIDEND POLICY

        We have never declared or paid any dividends on our common stock or any other securities. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of the agreements governing our credit facility. Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2013:

    on an actual basis; and

    on a pro forma basis as adjusted to reflect (1) the conversion of the outstanding shares of our preferred stock into common stock, which will occur automatically upon the closing of this offering, (2) the reclassification of our preferred stock warrant liability to additional paid-in-capital upon the automatic conversion of our preferred stock warrants into warrants exercisable for common stock, which will occur automatically upon the closing of this offering, and (3) our sale of                        shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        You should read this table together with the sections of this prospectus titled "Selected Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

 
  As of March 31, 2013  
 
  Actual   Pro forma as
adjusted(1)
 
 
  (unaudited)
   
 
 
  (in thousands, except share and per share data)
 

Cash and cash equivalents

  $ 31,533   $       
           

Mandatorily redeemable convertible preferred stock, $0.0001 par value(2):

             

49,114,398 shares authorized, 48,844,874 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma as adjusted

  $ 162,561   $    

Stockholders' deficit:

             

Preferred stock, $0.0001 per share; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted

           

Common stock, $0.0001 par value; 78,500,000 shares authorized, 11,626,343 shares issued and outstanding, actual;            shares authorized,            shares issued and outstanding, pro forma as adjusted(2)

    1        

Additional paid-in-capital(2)

    18,442        

Accumulated other comprehensive income

    251        

Accumulated deficit

    (86,729)        
           

Total stockholders' (deficit) equity

    (68,035)        
           

Total capitalization

  $ 94,526   $       
           

(1)
Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders' (deficit) equity and total capitalization by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each increase or decrease of            shares in the number of shares offered by us would increase or decrease each of additional paid-in capital, total stockholders' (deficit) equity and total capitalization by approximately $            , assuming that the assumed initial price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial price to public and other terms of this offering determined at pricing.

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(2)
The number of shares of our common stock to be issued upon the automatic conversion of all outstanding shares of our Series F preferred stock depends in part on the anticipated initial public offering price of our common stock. The terms of our Series F preferred stock provide that the ratio at which each share of these series of preferred stock automatically convert into shares of our common stock in connection with this offering will increase if the anticipated initial public offering price is below $9.33 per share, which would result in additional shares of our common stock being issued upon conversion of our Series F preferred stock immediately prior to the closing of this offering. Based upon the anticipated initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, the outstanding shares of our Series F preferred stock will convert into an aggregate of                        shares of our common stock immediately prior to the closing of this offering. See the section of this prospectus titled "Prospectus Summary—Offering" for a description of the number of shares issuable upon conversion of our Series F preferred stock depending on the price at which our shares are sold to the public.

        The number of shares of our common stock that will be outstanding after this offering excludes:

    10,503,925 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2013, at a weighted-average exercise price of $2.26 per share;

    237,000 shares of common stock issuable upon the exercise of options that were granted after March 31, 2013, at a weighted-average exercise price of $5.43 per share;

              shares of our common stock reserved for future issuance pursuant to the 2013 Plan and the 2013 ESPP which will each become effective prior to the completion of this offering and which each contain provisions that automatically increase their share reserves each year; and

    213,802 shares of common stock issuable upon the exercise of preferred stock warrants that were outstanding as of March 31, 2013, at a weighted-average exercise price of $2.14 per share.

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DILUTION

        If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering.

        As of March 31, 2013, our net tangible book value was $40.6 million, or $0.67 per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of March 31, 2013, assuming and after giving effect to (1) the conversion of outstanding shares of preferred stock into shares of our common stock (assuming a conversion ratio equal to                common shares for each Series F preferred share based on an initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus), (2) the reclassification of the preferred stock warrant liability to stockholders' deficit upon the closing of this offering, (3) the issuance of                shares of common stock in this offering and (4) receipt of the net proceeds from the sale of shares of common stock in this offering at an assumed initial price to public of $            per share (the midpoint of the price range set forth on the cover of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. This represents an immediate increase in pro forma net tangible book value of $            per share to our existing stockholders and an immediate dilution of $            per share to investors purchasing shares in this offering.

        The following table illustrates this per share dilution:

Assumed initial public offering price per share

        $    

Historical net tangible book value per share as of March 31, 2013

  $ 0.67        

Pro forma increase per share attributable to conversion of preferred stock

             

Pro forma increase per share attributable to reclassification of preferred stock warrant liability

             
             

Pro forma net tangible book value per share before this offering

  $          

Pro forma increase in pro forma net tangible book value per share attributable to new investors participating in this offering

             
             

Pro forma net tangible book value per share after this offering

             
             

Dilution per share to investors participating in this offering

        $    
             

        The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $            per share would increase or decrease our pro forma net tangible book value by approximately $             million, or approximately $            per share, and the dilution per share to investors participating in this offering by approximately $            per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of in the number of shares offered by us by                would increase the pro forma net tangible book value by approximately $            , or $            per share, and the pro forma dilution per share to investors in this offering would be $            per share, assuming that the assumed initial price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a decrease in the number of shares offered by us by                       shares would decrease the pro forma net tangible book value by approximately $            , or $            per share, and the pro forma dilution per share to investors in this offering would be $            per share, assuming that the assumed initial

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price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will adjust based on the actual initial price to public and other terms of this offering determined at pricing. See the section of this prospectus titled "Prospectus Summary—Offering" for a description of the number of shares issuable upon conversion of our Series F preferred stock depending on the price at which our shares are sold to the public.

        If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share after the offering would be $            per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $            per share and the dilution to new investors purchasing common stock in this offering would be $            per share.

        The following table sets forth as of March 31, 2013, on a pro forma basis as described above, the number of shares of common stock purchased or to be purchased from us, the total consideration paid by or to be paid and the weighted-average price per share paid or to be paid by existing stockholders and by the new investors purchasing shares of our common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page on this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
  Shares purchased   Total consideration    
 
 
  Weighted-
average price
per share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

            % $         % $    

New investors

                               
                         

Total

          100 % $       100 %      
                         

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase or decrease of                in the number of shares offered by us would increase or decrease total consideration paid by new investors by $            , assuming that the assumed initial price to public remains the same.

        The foregoing table does not reflect the sales by existing stockholders in connection with sales made by them in this offering. Sales by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to                shares, or        % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to                shares, or        % of the total number of shares of our common stock outstanding after this offering.

        In addition, if the underwriters exercise their over-allotment option in full, the number of shares held by the existing stockholders after this offering would be reduced to                 , or        % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to                , or        % of the total number of shares of our common stock outstanding after this offering.

        The number of shares of common stock to be outstanding following this offering is based on 60,507,609 shares of common stock outstanding as of March 31, 2013, giving effect to the conversion of all outstanding shares of Series II and preferred stock into an aggregate of 50,452,334 shares of

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common stock upon the closing of this offering. The outstanding share information in the table above excludes as of March 31, 2013:

    10,503,925 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2013, at a weighted-average exercise price of $2.26 per share;

    237,000 shares of common stock issuable upon the exercise of options that were granted after March 31, 2013, at a weighted-average exercise price of $5.43 per share;

                    shares of our common stock reserved for future issuance pursuant to the 2013 Plan and the 2013 ESPP which will each become effective prior to the completion of this offering and which each contain provisions that automatically increase their share reserves each year; and

    213,802 shares of common stock issuable upon the exercise of preferred stock warrants that were outstanding as of March 31, 2013, at a weighted-average exercise price of $2.14 per share.

        The shares of our common stock reserved for future issuance under our equity incentive plans will be subject to automatic annual increases in accordance with the terms of the plans. To the extent that options or warrants are exercised, new options are issued under our equity incentive plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following tables set forth our selected consolidated financial data. The following selected consolidated financial data for the years ended December 31, 2011 and 2012 and the selected consolidated balance sheet data as of December 31, 2011 and 2012 are derived from our audited consolidated financial statements, which have been audited by Ernst & Young LLP, our independent registered public accounting firm. The selected consolidated financial data for the three months ended March 31, 2012 and 2013 and the selected consolidated balance sheet data as of March 31, 2013 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. The data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in conjunction with the consolidated financial statements, related notes, and other financial information included elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited financial statements. The unaudited consolidated financial data includes, in the opinion of our management, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of the financial information set forth in these statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results that should be expected for the full year.

 
  Year Ended December 31,   Three Months Ended
March 31,
 
 
  2011   2012   2012   2013  
 
  (in thousands, except share and per share data)
 
 
   
   
  (unaudited)
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 90,301   $ 105,190   $ 17,272   $ 24,765  

Cost of revenue

    58,502     61,317     11,769     13,841  
                   

Gross profit

    31,799     43,873     5,503     10,924  

Operating expenses:

                         

Technology and development(1)

    5,900     8,144     1,651     2,697  

Sales and marketing(1)

    28,829     35,042     8,522     8,843  

General and administrative(1)

    10,880     10,824     2,795     2,920  

Depreciation and amortization

    6,088     5,992     1,478     1,502  
                   

Total operating expenses

    51,697     60,002     14,446     15,962  
                   

Loss from operations

    (19,898 )   (16,129 )   (8,943 )   (5,038 )

Interest and other expense:

                         

Interest expense

    (321 )   (227 )   (75 )   (56 )

Other (expense) income

    (583 )   (8 )   (39 )   5  
                   

Total interest and other expense

    (904 )   (235 )   (114 )   (51 )
                   

Loss before income taxes

    (20,802 )   (16,364 )   (9,057 )   (5,089 )

Income tax expense

    (223 )   (280 )   (70 )   (70 )
                   

Net loss

  $ (21,025 ) $ (16,644 ) $ (9,127 ) $ (5,159 )
                   

Net loss per share—basic and diluted

  $ (2.02 ) $ (1.48 ) $ (0.83 ) $ (0.44 )
                   

Pro forma net loss per share of common stock—basic and diluted(2)

        $           $    
                       

Weighted-average shares of common stock outstanding used in computing net loss per share—basic and diluted

    10,429,429     11,249,980     10,977,480     11,593,827  
                   

Weighted-average shares of common stock outstanding used in computing pro forma net loss per share—basic and diluted(2)

                         
                       

Other Financial Data:

                         

In-stream advertising revenue(3)

  $ 75,500   $ 99,678   $ 15,745   $ 23,996  

Adjusted EBITDA(4)

  $ (10,927 ) $ (7,218 ) $ (6,665 ) $ (2,797 )

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  As of December 31,   As of March 31,  
 
  2011   2012   2013  
 
  (in thousands)
 
 
   
   
  (unaudited)
 

Consolidated Balance Sheet Data:

                   

Cash, cash equivalents and short-term investments

  $ 40,366   $ 32,533   $ 31,533  

Working capital

    49,601     39,892     37,334  

Total assets

    137,980     129,723     122,196  

Mandatorily redeemable convertible preferred stock

    162,082     162,466     162,561  

Total liabilities

    26,506     30,729     27,670  

Total stockholders' deficit

    (50,608 )   (63,472 )   (68,035 )

(1)
Includes stock-based compensation expense as follows:

 
  Year Ended December 31,   Three Months Ended
March 31,
 
 
  2011   2012   2012   2013  
 
  (in thousands)
 

Technology and development

  $ 507   $ 422   $ 115   $ 115  

Sales and marketing

    670     1,020     292     279  

General and administrative

    1,706     1,477     393     345  
                   

Total stock-based compensation expense

  $ 2,883   $ 2,919   $ 800   $ 739  
                   
(2)
Pro forma basic and diluted net loss per share represents net loss divided by the pro forma weighted-average shares of common stock outstanding, as though the conversion of the preferred stock into common stock occurred on the first day of the relevant period. Pro forma weighted-average shares outstanding reflects the conversion of the preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the first day of the relevant period (assuming a conversion ratio equal to                    common shares for each Series F preferred share based on an initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus). See the section of this prospectus titled "Offering" for a description of the number of shares issuable upon conversion of our Series F preferred stock depending on the price at which our shares are sold to the public.

(3)
In-stream advertising revenue is the revenue we generate solely from the sale of in-stream video ads.

(4)
We define Adjusted EBITDA as net loss plus (minus): other (income) expense, net, interest expense, income tax expense, depreciation and amortization expense and stock-based compensation expense. We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, we believe that the exclusion of the expenses eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA is a non-GAAP financial measure. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash and capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

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    Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net loss and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated:

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2011   2012   2012   2013  
 
  (in thousands)
 

Net loss

  $ (21,025 ) $ (16,644 ) $ (9,127 ) $ (5,159 )

Adjustments:

                         

Other expense (income), net

    583     8     39     (5 )

Interest expense

    321     227     75     56  

Income tax expense

    223     280     70     70  

Depreciation and amortization expense

    6,088     5,992     1,478     1,502  

Stock-based compensation expense

    2,883     2,919     800     739  
                   

Total net adjustments

    10,098     9,426     2,462     2,362  
                   

Adjusted EBITDA

  $ (10,927 ) $ (7,218 ) $ (6,665 ) $ (2,797 )
                   

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to those statements included later in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in "Risk Factors" and "Special Note Regarding Forward-Looking Statements."

Overview

        We are a leading provider of technology-driven video advertising solutions enabling brand advertisers to engage consumers across multiple internet-connected devices including computers, smartphones, tablets and connected TVs. Our clients include some of the largest brand advertisers in the world including all of the top 10 automakers and 9 of the top 10 consumer packaged goods companies. Our relationships with leading brand advertisers and their agencies have helped us create a robust online video ecosystem that includes more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. Our proprietary technology, VideoHub, analyzes in-stream video content, detects viewer and system attributes, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics. VideoHub also provides advertisers and agencies with advanced analytics and measurement tools enabling them to understand why, when and where viewers engage with their video ads.

        We derive substantially all of our revenue by delivering in-stream video advertising on behalf of a diversified base of brand advertisers in the United States through the Tremor Video Network. We also recently began licensing VideoHub technology to advertisers and agencies through an intuitive, customizable user interface, which we call VideoHub for Advertisers, or VHA.

        We were organized in 2005 and initially we delivered both video display and banner ads, which we refer to as in-banner video ads, and in-stream video ads. In late 2010, we completed the acquisition of ScanScout, Inc., or ScanScout, through which we acquired our differentiating video analysis and optimization technology. In 2011, we enhanced and integrated this technology into our solutions and, consistent with our focus on being a strategic partner for brand advertisers, we decided to focus our business solely on in-stream video advertising and to move away from in-banner video advertising. In-stream video ads are better suited for brand advertisers because they can be served to viewers immediately prior to or during the publisher's content commanding attention when viewers are most engaged as opposed to in-banner video ads, which are served on the periphery of publisher content where viewers may not direct their attention. We believe our market opportunity and growth prospects will be enhanced by our focus on in-stream video ads because such ads are better suited to address advertisers' brand-centric goals. As such, we have increased our technology investments and sales focus on our in-stream products and deemphasized investments in and sales of in-banner products. As a result of our focus on delivering in-stream advertising coupled with our differentiated optimization technology, we have experienced significant growth in our in-stream video advertising revenue. From 2011 to 2012, our in-stream video advertising revenue grew from $75.5 million to $99.7 million, or 32.1%, and for the three months ended March 31, 2012 and 2013, our in-stream video advertising revenue grew from $15.7 million to $24.0 million, or 52.4%. Consistent with our strategy, our revenue from in-banner advertising revenue declined from $14.8 million to $3.8 million from 2011 to 2012. Our revenue from in-banner video ads was $1.2 million and less than $0.1 million for the three months ended March 31, 2012 and 2013, respectively. We do not expect revenue from in-banner video ads to be meaningful in future periods.

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        To further align the Tremor Video Network with the needs of brand advertisers, we offer a number of performance-based pricing models. These models include cost per engagement, or CPE, pricing where we are compensated only when viewers actively engage with advertisers' campaigns, such as by interacting with the elements of the video ad through clicks or screen touches or by rolling over certain elements of the video ad for at least three seconds, and cost per video completion, or CPVC, pricing where we are compensated only when a viewer completes the video ad. We believe our performance-based pricing models offer higher gross margins than traditional cost per thousand impressions, or CPM, pricing models, which are based solely on the number of ad impressions delivered, because we are often able to serve our advertisers' performance goals with a lower number of purchased impressions. As viewers increase time spent viewing video on internet-connected devices such as smartphones and tablets, we expect brand advertisers to devote increasing amounts of advertising spend to these channels. Smartphones and tablets are inherently interactive and we believe that our in-stream advertising capabilities and higher margin CPE pricing model is well suited to address the growing market for mobile video ads. As a percentage of total revenue, revenue attributable to performance-based pricing, such as CPE and CPVC, for 2011 and 2012 was 7.9% and 22.7%, respectively, and for the three months ended March 31, 2012 and 2013, was 14.2% and 36.1% respectively. We intend to continue to increase the sales of video ad campaigns with performance-based pricing to drive revenue growth and increased margins.

        In 2012, we also began licensing Video Hub technology to advertisers and agencies through VHA. VHA affords advertisers transparency and analytical tools to measure the effectiveness of video ad campaigns across all of their video ad buys, whether or not those campaigns are run through the Tremor Video Network. We are also investing in the development of an enterprise solution for publishers to enable their direct sales force to better monetize their video ad inventory. In 2012 and the three months ended March 31, 2013, we generated $1.7 million and $0.6 million, respectively, of licensing revenue from our advertiser and publisher solutions, and we expect licensing revenue to increase in future periods. We believe that our margins on our licensing revenue will be higher than those for the Tremor Video Network.

        We have increased our revenue from $90.3 million in 2011 to $105.2 million in 2012. Over the same period, our gross margin improved from 35.2% to 41.7% due in part to the contribution of revenue derived from CPE and CPVC sales. Our net loss decreased from $21.0 million in 2011 to $16.6 million in 2012. Our Adjusted EBITDA improved from a loss of $10.9 million in 2011 to a loss of $7.2 million in 2012, as we improved the operating leverage in our business. For the three months ended March 31, 2013 as compared to the same period of 2012, our revenue increased from $17.3 million to $24.8 million, or 43.4%, our gross margin improved from 31.9% to 44.1% due in part to the contribution of revenue derived from CPE and CPVC sales, our net loss decreased from $9.1 million to $5.2 million and our Adjusted EBITDA improved from a loss of $6.7 million to a loss of $2.8 million as we continued to improve the operating leverage in our business.

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Key Metrics

        We monitor the key metrics set forth in the table below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess our operational efficiencies.

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2011   2012   2012   2013  
 
  (dollars in thousands)
 

Revenue

  $ 90,301   $ 105,190   $ 17,272   $ 24,765  

Gross margin

    35.2 %   41.7 %   31.9 %   44.1 %

Net loss

  $ (21,025 ) $ (16,644 ) $ (9,127 ) $ (5,159 )

In-stream advertising revenue

  $ 75,500   $ 99,678   $ 15,745   $ 23,996  

Adjusted EBITDA

  $ (10,927 ) $ (7,218 ) $ (6,665 ) $ (2,797 )

    Revenue and Gross Margin

        In the past, we generated a significant portion of revenue from the delivery of in-banner video ads. Beginning in 2011, we shifted our focus to in-stream video ads. As a result, revenue from the delivery of in-stream video ads has increased year over year as a percentage of our total revenue, and revenue from the delivery of in-banner video ads has decreased. By the end of 2013, we do not expect to have meaningful revenue from in-banner ads.

        Historically, gross margin has been positively affected by campaigns priced on a performance basis. As a percentage of total revenue, revenue attributable to performance-based pricing, such as CPE and CPVC, for 2011 and 2012 was 7.9% and 22.7%, respectively, and for the three months ended March 31, 2012 and 2013, was 14.2% and 36.1%, respectively. We anticipate that there will be a continued shift towards performance-based pricing.

        In 2012, we also began to license VideoHub technology to advertisers and agencies through VHA. In the near-term, we are investing in the development of our publisher solution and programmatic buying solution, the enhancement of our VHA solution, and the expansion of our sales and support for these solutions. Over time we expect the licensing portion of our business to become a more significant contributor to our operating results, which we believe would have a positive impact on our gross margin.

    Adjusted EBITDA

        Adjusted EBITDA represents our net loss before net interest and other expense, taxes, and depreciation and amortization, and adjusted to eliminate the impact of stock-based compensation expense, which is a non-cash item. Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation, excludes an item that we do not consider to be indicative of our core operating performance. Adjusted EBITDA is not a measure calculated in accordance with GAAP. Please see footnote (4) to the table in the section titled "Selected Consolidated Financial Data—Adjusted EBITDA" in this prospectus for a discussion of the limitations of Adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most comparable GAAP measurement, for the years ended December 31, 2011 and 2012, and for the three months ended March 31, 2012 and 2013.

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Components of Operating Results

        We operate in one segment, online video advertising services. The key elements of our operating results include:

    Revenue

        We generate revenue primarily by delivering in-stream video advertisements for brand advertisers and agencies through the Tremor Video Network. In 2012, we also began selling licenses to advertisers to use VHA.

        We generally price delivery of our video ads on a CPM, CPE or CPVC basis. We recognize revenue for video ad delivery through the Tremor Video Network upon the delivery of impressions served for CPM ad campaigns, engagement by the consumer with a video ad for CPE ad campaigns and the completion of a video ad for CPVC ad campaigns. The prices we charge our clients also vary depending upon the ad format chosen and the device type through which the campaign runs. We offer our Tremor Video Network solution to advertisers by entering into insertion orders with ad agencies on behalf of advertisers. These insertion orders are cancellable upon short notice and without penalty consistent with standard terms and conditions for the purchase of internet advertising for media buys one year or less published by the Interactive Advertising Bureau.

        We recently began generating revenue from licenses of VHA to advertisers and agencies. We provide basic VHA access to advertisers with respect to their video ad campaigns running through the Tremor Video Network and charge a license fee for advanced analytics. We also license VHA to advertisers and agencies for video advertising campaigns running outside the Tremor Video Network. The license fee varies depending upon the level of access to our video advertising analytics and the volume of impressions being analyzed through VHA. We recognize revenue with respect to this solution on a CPM basis based upon the number of impressions being analyzed in a given month. In limited cases, we charge a minimum monthly fee. Typically, our license terms are for one year periods. In 2012, we also generated licensing revenue from a publisher focused solution based on assets acquired from Tube Mogul, Inc., or TubeMogul, in January 2012.

        Our revenue recognition policies are discussed in more detail in the section below titled "—Critical Accounting Policies and Significant Judgments and Estimates."

    Cost of Revenue

        Our cost of revenue primarily represents the video advertising inventory costs under our publisher contracts, third party hosting fees, and third party serving fees incurred to deliver the video ads run through the Tremor Video Network. Cost of revenue also includes costs from our licenses from third party data providers utilized in our VHA solution. Substantially all of our cost of revenue is attributable to video advertising inventory costs under our publisher contracts. We recognize cost of revenue on a publisher-by-publisher basis at the same time as we recognize the associated advertising revenue. Substantially all of our exclusive publisher contracts contain minimum percentage fill rates on qualified video ad requests, which effectively means that we must purchase this inventory from our exclusive publishers even if we lack a video advertising campaign to deliver. We recognize the difference between our contractually required fill rate and the number of video ads actually delivered by us on the publisher's website, if any, as a cost of revenue as of the end of each applicable monthly period. Historically, the impact of the difference between the contractually required fill rate and the number of ads delivered has not been material. Costs owed to publishers but not yet paid are recorded in our consolidated balance sheets as accounts payable and accrued expenses.

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    Operating Expenses

        Operating expenses consist of technology and development, sales and marketing, general and administrative and depreciation and amortization expenses. Salaries, incentive compensation, stock-based compensation and other personnel-related costs are the most significant components of each of these expense categories other than depreciation and amortization expenses. We grew from 185 employees at January 1, 2011 to 249 employees at March 31, 2013, and we expect to continue to hire new employees in order to support our anticipated revenue growth. We include stock-based compensation expense in connection with the grant of stock options in the applicable operating expense category based on the respective equity award recipient's function.

        Technology and Development Expense.    Technology and development expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for development, network operations and engineering personnel. Additional expenses in this category include costs related to the development, quality assurance and testing of new technology and maintenance and enhancement of existing technology and infrastructure as well as consulting, travel and other related overhead. We engage third-party consulting firms for various technology and development efforts, such as documentation, quality assurance and support. Due to the rapid development and changes in our business, we have expensed technology and development expenses in the same year that the costs are incurred. The number of employees in technology and development functions grew from 44 at January 1, 2011 to 68 at March 31, 2013. We intend to continue to invest in our technology and development efforts by hiring additional personnel and by using outside consulting firms for various initiatives. We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.

        Sales and Marketing Expense.    Sales and marketing expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for our marketing and creative employees and our advertiser focused, publisher focused and licensing solution focused sales and sales support employees. Additional expenses in this category include marketing programs, consulting, travel and other related overhead. The number of employees in sales and marketing functions grew from 115 at January 1, 2011 to 154 at March 31, 2013. We expect our sales and marketing expense to increase in the foreseeable future as we continue to grow the Tremor Video Network, further increase the number of our licensing solution focused sales and marketing professionals and expand our marketing activities.

        General and Administrative Expense.    General and administrative expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for business operations, administration, finance and accounting, legal, information systems and human resources employees. Additional expenses in this category include consulting and professional fees, travel, insurance and other corporate expenses. The number of employees in general and administrative functions grew from 26 at January 1, 2011 to 27 at March 31, 2013. We expect our general and administrative expenses to increase in absolute dollars as a result of our preparation to become and operate as a public company and the continuing growth of our business. After the completion of this offering, these expenses will also include costs associated with compliance with the Sarbanes-Oxley Act and other regulations governing public companies, directors' and officers' liability insurance, increased professional services and an enhanced investor relations function.

        Depreciation and Amortization Expense.    Depreciation and amortization expense primarily consists of our depreciation expense related to investments in property, equipment and software as well as the amortization of intangible assets originating from our acquisitions of ScanScout in December 2010 and Transpera, Inc., or Transpera, in February 2011 and certain intangible assets from TubeMogul in January 2012. These acquired intangible assets include technology, customer relationships, trademarks and trade names and non-competition agreements.

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    Interest and Other Expense

        Interest and other expense consists primarily of interest income, interest expense, foreign exchange transaction gains and losses, changes in the fair value of our preferred stock warrant liability, and changes in the fair value of a contingent consideration payment associated with the Transpera acquisition. Interest income is derived from interest received on our cash and cash equivalents. Interest expense consists primarily of the interest incurred on outstanding borrowings under our credit facility.

        The fair value of our preferred stock warrant liability is re-measured at the end of each reporting period and any changes in fair value are recognized on our statements of operations as other income or expense. Upon completion of this offering, our preferred stock warrants will automatically, in accordance with their terms, become warrants to purchase our common stock, which will result in the reclassification of the preferred stock warrant liability to additional paid-in capital, and no further changes in fair value will be recognized in other income or expense.

Results of Operations

        The following table is a summary of our consolidated statement of operations data for each of the periods indicated. The period-to-period comparisons of the results are not necessarily indicative of our results for future periods.

 
  Year Ended December 31,   Quarter Ended March 31,  
 
  2011   2012   2012   2013  
 
  Amount   Percentage
of Revenue
  Amount   Percentage
of Revenue
  Amount   Percentage
of Revenue
  Amount   Percentage
of Revenue
 
 
  (dollars in thousands)
 

Consolidated Statement of Operations Data:

                                                 

Revenue

  $ 90,301     100.0 % $ 105,190     100.0 % $ 17,272     100.0 % $ 24,765     100.0 %

Cost of revenue

    58,502     64.8     61,317     58.3     11,769     68.1     13,841     55.9  
                                   

Gross profit

    31,799     35.2     43,873     41.7     5,503     31.9     10,924     44.1  

Operating expenses:

                                                 

Technology and development

    5,900     6.5     8,144     7.7     1,651     9.6     2,697     10.9  

Sales and marketing

    28,829     31.9     35,042     33.3     8,522     49.3     8,843     35.7  

General and administrative

    10,880     12.0     10,824     10.3     2,795     16.2     2,920     11.8  

Depreciation and amortization

    6,088     6.8     5,992     5.7     1,478     8.6     1,502     6.1  
                                   

Total operating expenses

    51,697     57.2     60,002     57.0     14,446     83.7     15,962     64.5  
                                   

Loss from operations

    (19,898 )   (22.0 )   (16,129 )   (15.3 )   (8,943 )   (51.8 )   (5,038 )   (20.4 )

Interest and other expense

    (904 )   (1.0 )   (235 )   (0.2 )   (114 )   (0.7 )   (51 )   (0.2 )
                                   

Loss before income taxes

    (20,802 )   (23.0 )   (16,364 )   (15.5 )   (9,057 )   (52.5 )   (5,089 )   (20.6 )

Income tax expense

    (223 )   (0.3 )   (280 )   (0.3 )   (70 )   (0.3 )   (70 )   (0.3 )
                                   

Net loss

  $ (21,025 )   (23.3 )% $ (16,644 )   (15.8 )% $ (9,127 )   (52.8 )% $ (5,159 )   (20.9 )%
                                   

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    Comparison of Quarters Ended March 31, 2012 and 2013

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Revenue

  $ 17,272   $ 24,765   $ 7,493     43.4 %

        Revenue.    The increase in revenue from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was primarily attributable to a $8.3 million increase in our in-stream video advertising revenue, representing 52.4% growth period-over-period, which included an increased mix of our performance-based ad products compared to our CPM-priced ad products, and a $0.3 million increase in revenue from licensing solutions. The increase in revenue was partially offset by a $1.1 million reduction in in-banner video advertising revenue to less than $0.1 million due to our decision in 2011 to focus solely on the sale of in-stream video advertising and de-emphasize in-banner advertising.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Cost of revenue

  $ 11,769   $ 13,841   $ 2,072     17.6 %

Gross profit

    5,503     10,924     5,421     98.5  

Gross margin

    31.9 %   44.1 %            

        Cost of Revenue, Gross Profit and Gross Margin.    The increase in cost of revenue from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was driven primarily by $1.5 million of increased video advertising inventory costs, resulting from our revenue increase, and a $0.4 million increase in data, ad serving and hosting costs. The increase in our gross profit from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was driven by a 43.4% increase in revenue partially offset by a 17.6% increase in our cost of revenue.

        Historically, our performance-priced ad campaigns have offered higher gross margins than our traditional CPM priced campaigns. The 12.2 percentage point improvement in our gross margin from 2012 to 2013 was primarily attributable to the relative mix of our performance-priced ad campaigns compared to our CPM-priced ad campaigns as well as greater operational efficiency.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Technology and development

  $ 1,651   $ 2,697   $ 1,046     63.4 %

% of Total revenue

    9.6 %   10.9 %            

        Technology and Development.    The increase in technology and development expense from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was primarily attributable to a $0.8 million increase in salaries, incentive compensation, stock-based compensation

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costs and other personnel-related costs associated with the increase in headcount and a $0.2 million increase in consulting expense, professional fees and overhead costs.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Sales and marketing

  $ 8,522   $ 8,843   $ 321     3.8 %

% of Total revenue

    49.3 %   35.7 %            

        Sales and Marketing.    The increase in sales and marketing expense from the three months ended March 31, 2012 to the three months ended March 31, 2013 was primarily attributable to a $0.4 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, as we increased the number of sales and marketing personnel to support our expanding advertiser base offset by a $0.1 million decrease in consulting and recruiting fees.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

General and administrative

  $ 2,795   $ 2,920   $ 125     4.5 %

% of Total revenue

    16.2 %   11.8 %            

        General and Administrative.    The increase in general and administrative expense from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was primarily attributable to a $0.4 million increase in salaries, incentive compensation, stock-based compensation costs and other personnel-related costs associated with the increase in headcount offset by a $0.3 million decrease in consulting, recruiting and travel and entertainment expense.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Depreciation and amortization

  $ 1,478   $ 1,502   $ 24     1.6 %

% of Total revenue

    8.6 %   6.1 %            

        Depreciation and Amortization.    The increase in depreciation and amortization expense from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was primarily attributable by the increase in amortization due to our acquisition of certain intangible assets from TubeMogul, which we completed in January 2012.

 
  Quarter Ended
March 31,
  Change
Increase/(Decrease)
 
 
  2012   2013   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Interest and other expense

  $ (114 ) $ (51 ) $ (63 )   (55.3 )%

% of Total revenue

    0.7 %   0.2 %            

        Interest and Other Expense.    The decrease in interest and other expense from the three months ended March 31, 2012 compared to the three months ended March 31, 2013 was primarily attributable to $24,000 related to a reduction in the interest rate related to our revolving credit facility and a $46,000 reduction in mark-to-market expense related to our preferred stock warrant liability.

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    Comparison of Years Ended December 31, 2011 and 2012

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Revenue

  $ 90,301   $ 105,190   $ 14,889     16.5 %

        Revenue.    The increase in revenue from 2011 to 2012 was primarily attributable to a $24.2 million increase in our in-stream video advertising revenue, representing 32.1% growth, which included an increased mix of our performance-based ad products compared to our CPM priced ad products, and $1.7 million in revenue from licensing solutions. The increase in revenue was partially offset by a $11.0 million reduction to $3.8 million in in-banner video advertising revenue due to our decision at the beginning of 2011 to increase our focus on the sale of in-stream video advertising and de-emphasize in-banner advertising.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Cost of revenue

  $ 58,502   $ 61,317   $ 2,815     4.8 %

Gross profit

    31,799     43,873     12,074     38.0  

Gross margin

    35.2 %   41.7 %            

        Cost of Revenue, Gross Profit and Gross Margin.    The increase in cost of revenue from 2011 to 2012 was driven primarily by $2.2 million of increased video advertising inventory costs, resulting from our revenue increase, and a $0.6 million increase in data and hosting costs. The increase in our gross profit from 2011 to 2012 was driven by a 16.5% increase in revenue partially offset by a 4.8% increase in our cost of revenue.

        Historically, our performance-priced ad campaigns have offered higher gross margins than our traditional CPM pricing. The 6.5 percentage point improvement in our gross margin from 2011 to 2012 was primarily attributable to the relative mix of our performance-priced ad campaigns compared to our CPM-priced ad campaigns as well as greater operational efficiency.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Technology and development

  $ 5,900   $ 8,144   $ 2,244     38.0 %

% of Total revenue

    6.5 %   7.7 %            

        Technology and Development.    The increase in technology and development expense from 2011 to 2012 was primarily attributable to a $2.0 million increase in salaries, incentive compensation, stock-based compensation costs and other personnel-related costs associated with the increase in headcount described above and a $0.2 million increase in consulting expense and travel and entertainment expense.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Sales and marketing

  $ 28,829   $ 35,042   $ 6,213     21.6 %

% of Total revenue

    31.9 %   33.3 %            

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        Sales and Marketing.    The increase in sales and marketing expense from 2011 to 2012 was primarily attributable to a $6.3 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, as we increased the number of sales and marketing personnel to support our expanding advertiser base. In addition, we experienced a $0.2 million increase in travel and entertainment expense as a result of increased marketing activities as well as our increased sales and marketing headcount. This was offset by a $0.3 million decrease in professional development expenses.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

General and administrative

  $ 10,880   $ 10,824   $ (56 )   (0.5 )%

% of Total revenue

    12.0 %   10.3 %            

        General and Administrative.    General and administrative expense was relatively flat from 2011 to 2012.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Depreciation and amortization

  $ 6,088   $ 5,992   $ (96 )   (1.6 )%

% of Total revenue

    6.8 %   5.7 %            

        Depreciation and Amortization.    The decrease in depreciation and amortization expense from 2011 to 2012 was primarily attributable to the completion of amortization of certain intangible assets acquired in the ScanScout acquisition and the Transpera acquisition, which we completed in February 2011, partially offset by the increase in amortization due to our acquisition of certain intangible assets from TubeMogul, which we completed in January 2012.

 
  Year Ended December 31,   Change
Increase/(Decrease)
 
 
  2011   2012   Amount   Percentage  
 
  (dollars in thousands)
   
   
 

Interest and other expense

  $ 904   $ 235   $ (669 )   (74.0 )%

% of Total revenue

    (1.0 )%   (0.2 )%            

        Interest and Other Expense.    The decrease in interest and other expense from 2011 to 2012 was primarily attributable to $0.1 million related to a reduction in the interest rate related to our revolving credit facility and a $0.4 million reduction in mark-to-market expense related to our preferred stock warrant liability.

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Quarterly Results of Operations

        The tables below show our unaudited consolidated quarterly results of operations for each of our eight most recently completed quarters as well as the percentage of total revenue for each line item shown. This information has been derived from our unaudited financial statements, which, in the opinion of management, have been prepared on the same basis as our audited financial statements and include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the financial information for the quarters presented. This information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Three Months Ended  
 
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
 
 
  (in thousands)
 

Consolidated Statement of Operations Data:

                                                 

Revenue

  $ 22,274   $ 22,723   $ 26,834   $ 17,272   $ 25,206   $ 30,174   $ 32,538   $ 24,765  

Cost of revenue

    13,917     15,178     17,483     11,769     14,980     16,704     17,864     13,841  
                                   

Gross profit

    8,357     7,545     9,351     5,503     10,226     13,470     14,674     10,924  

Operating expenses:

                                                 

Technology and development

    1,484     1,403     1,452     1,651     1,996     2,215     2,282     2,697  

Sales and marketing

    7,511     7,107     7,252     8,522     8,688     8,869     8,963     8,843  

General and administrative

    2,524     2,562     2,986     2,795     2,735     2,461     2,833     2,920  

Depreciation and amortization

    1,554     1,558     1,511     1,478     1,480     1,510     1,524     1,502  
                                   

Total operating expenses

    13,073     12,630     13,201     14,446     14,899     15,055     15,602     15,962  
                                   

Loss from operations

    (4,716 )   (5,085 )   (3,850 )   (8,943 )   (4,673 )   (1,585 )   (928 )   (5,038 )

Interest and other income (expense)

    58     (989 )   (347 )   (114 )   (37 )   (20 )   (64 )   (51 )
                                   

Loss before income taxes

    (4,658 )   (6,074 )   (4,197 )   (9,057 )   (4,710 )   (1,605 )   (992 )   (5,089 )

Income tax expense

    (50 )   (65 )   (45 )   (70 )   (70 )   (70 )   (70 )   (70 )
                                   

Net loss

  $ (4,708 ) $ (6,139 ) $ (4,242 ) $ (9,127 ) $ (4,780 ) $ (1,675 ) $ (1,062 ) $ (5,159 )
                                   

Other Financial Data:

                                                 

In-stream advertising revenue(1)

  $ 18,466   $ 19,807   $ 23,749   $ 15,745   $ 23,649   $ 28,895   $ 31,389   $ 23,996  

Adjusted EBITDA(2)

  $ (2,404 ) $ (2,875 ) $ (1,482 ) $ (6,665 ) $ (2,502 ) $ 653   $ 1,296   $ (2,797 )

(1)
In-stream revenue is the revenue we generate solely attributable to the sale of in-stream video ads.
(2)
We define Adjusted EBITDA as net loss plus (minus): other (income) expense, net, interest expense, income tax expense, depreciation and amortization expense and stock-based compensation expense. Please see footnote (4) to the table of the section of this prospectus titled "Selected Consolidated Financial Data" for more information. Adjusted EBITDA is a non-GAAP financial measure. Below is a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States, or GAAP.

 
  Three Months Ended  
 
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
 
 
  (in thousands)
 

Reconciliation of Adjusted EBITDA to Net Loss:

                                                 

Net loss

  $ (4,708 ) $ (6,139 ) $ (4,242 ) $ (9,127 ) $ (4,780 ) $ (1,675 ) $ (1,062 ) $ (5,159 )

Adjustments:

                                                 

Other (income), expense, net

    (58 )   989     347     114     37     20     64     51  

Income tax expense

    50     65     45     70     70     70     70     70  

Depreciation and amortization expense

    1,554     1,558     1,511     1,478     1,480     1,510     1,524     1,502  

Stock-based compensation expense

    758     652     857     800     691     728     700     739  
                                   

Total net adjustments

    2,304     3,264     2,760     2,462     2,278     2,328     2,358     2,362  
                                   

Adjusted EBITDA

  $ (2,404 ) $ (2,875 ) $ (1,482 ) $ (6,665 ) $ (2,502 ) $ 653   $ 1,296   $ (2,797 )
                                   

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  Three Months Ended  
 
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
 
 
  (as a percentage of revenue)
 

Consolidated Statement of Operations Data:

                                                 

Revenue

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %

Cost of revenue

    62.5     66.8     65.2     68.1     59.4     55.4     54.9     55.9  
                                   

Gross profit

    37.5     33.2     34.8     31.9     40.6     44.6     45.1     44.1  

Operating expenses:

                                                 

Technology and development

    6.7     6.2     5.4     9.6     7.9     7.3     7.0     10.9  

Sales and marketing

    33.7     31.3     27.0     49.3     34.5     29.4     27.5     35.7  

General and administrative

    11.3     11.3     11.1     16.2     10.8     8.2     8.7     11.8  

Depreciation and amortization

    7.0     6.8     5.6     8.6     5.9     5.0     4.8     6.1  
                                   

Total operating expenses

    58.7     55.6     49.1     83.7     59.1     49.9     48.0     64.5  
                                   

Loss from operations

    (21.2 )   (22.4 )   (14.3 )   (51.8 )   (18.5 )   (5.3 )   (2.9 )   (20.4 )

Interest and other income (expense)

    0.3     (4.4 )   (1.3 )   (0.7 )   (0.1 )   (0.1 )   (0.1 )   (0.2 )
                                   

Loss before income taxes

    (20.9 )   (26.8 )   (15.6 )   (52.5 )   (18.6 )   (5.4 )   (3.0 )   (20.6 )

Income tax expense

    (0.2 )   (0.2 )   (0.2 )   (0.3 )   (0.4 )   (0.2 )   (0.3 )   (0.3 )
                                   

Net loss

    (21.1 )%   (27.0 )%   (15.8 )%   (52.8 )%   (19.0 )%   (5.6 )%   (3.3 )%   (20.9 )%
                                   

In-stream advertising revenue(1)

    82.9 %   87.2 %   88.5 %   91.2 %   93.8 %   95.8 %   96.5 %   96.9 %

Adjusted EBITDA(2)

    (10.8 )%   (12.7 )%   (5.5 )%   (38.6 )%   (9.9 )%   2.2 %   4.0 %   (11.3 )%

(1)
In-stream revenue is the revenue we generate solely attributable to the sale of in-stream video ads.
(2)
We define Adjusted EBITDA as net loss plus (minus): other (income) expense, net, interest expense, income tax expense, depreciation and amortization expense, and stock-based compensation expense. Please see footnote (4) to the table of the section of this prospectus titled "Selected Consolidated Financial Data" for more information. Adjusted EBITDA is a non-GAAP financial measure. Below is a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

 
  Three Months Ended  
 
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
 
 
  (as a percentage of revenue)
 

Reconciliation of Adjusted EBITDA to Net Loss:

                                                 

Net loss

    (21.1 )%   (27.0 )%   (15.8 )%   (52.8 )%   (19.0 )%   (5.6 )%   (3.3 )%   (20.9 )%

Adjustments:

                                                 

Other (income), expense, net

    (0.3 )   4.4     1.3     0.7     0.1     0.1     0.1     0.2  

Income tax expense

    0.2     0.2     0.2     0.3     0.4     0.2     0.3     0.3  

Depreciation and amortization expense

    7.0     6.8     5.6     8.6     5.9     5.0     4.8     6.1  

Stock-based compensation expense

    3.4     2.9     3.2     4.6     2.7     2.5     2.1     3.0  
                                   

Total net adjustments

    10.3     14.3     10.3     14.2     9.1     7.8     7.3     9.6  
                                   

Adjusted EBITDA

    (10.8 )%   (12.7 )%   (5.5 )%   (38.6 )%   (9.9 )%   2.2 %   4.0 %   (11.3 )%
                                   

Quarterly Trends; Seasonality

        Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, some of which are outside our control. We have experienced rapid growth since our inception. For instance, we migrated our business from in-banner video advertising to in-stream video advertising and placed a greater focus on performance-based pricing over the last two years. These changes have resulted in substantial growth in our revenue and corresponding increases in operating expenses to support our growth. Our operating results were impacted by relationships with new and existing advertisers and publishers, changes in our investment in sales and marketing and technology and development from quarter to quarter, and increases in employee headcount. Our historical results are not necessarily indicative of the results to be expected in the future.

        Our quarterly revenue has increased from $22.3 million for the quarter ended June 30, 2011 to $24.8 million for the quarter ended March 31, 2013, and our gross margin has increased from 37.5% to 44.1% over the same period. Our increase in quarterly revenue was mainly due to an increased number of advertisers using the Tremor Video Network and increased spending from our existing advertisers as well an increased percentage of our campaigns priced on a performance basis. We believe revenue for the second and third quarters of 2011 was relatively flat due to a reduction in video advertising spending because of uncertainty and volatility caused by the U.S. budget and European financial crises during the third quarter of 2011. Our increase in gross margin in 2012 has been largely the result of an

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increased percentage of our campaigns priced on a performance basis. Our in-stream advertising revenue as a percentage of revenue has increased for each quarter from June 30, 2011 through March 31, 2013, as we shifted our focus away from the delivery of in-banner video ads to in-stream video ads.

        Our revenue also tends to be seasonal in nature, with the third and fourth quarters of each calendar year historically representing the largest percentage of our total revenue for the year and the first quarter of each calendar year historically representing the lowest percentage of our total revenue for the year. Many of the brand advertisers in the verticals we serve spend significant portions of their advertising budgets during the third quarter, in connection with summer, back to school and entertainment events, and in the fourth quarter, in connection with the holiday season. During the first quarter, our brand advertisers generally devote less of their budgets to ad spending, and as a result, our exclusive publishers generally make a larger proportion of their ad inventory available to us. This combination generally results in lower revenue and gross margins for us during the first quarter of each calendar year. Our revenue for the first quarter of 2012 was adversely impacted by the level of overall spending in the video advertising industry as well as by the seasonal spending trends in the video advertising industry.

Liquidity and Capital Resources

    Working Capital

        The following table summarizes our cash, cash equivalents and short-term investments, accounts receivable and working capital for the periods indicated:

 
  As of
December 31,
  As of
March 31,
 
 
  2011   2012   2013  
 
   
   
  (unaudited)
 
 
  (dollars in thousands)
 

Cash, cash equivalents and short-term investments

  $ 40,366   $ 32,533   $ 31,533  

Accounts receivable, net of allowances

    33,839     36,011     30,363  

Working capital

    49,601     39,892     37,334  

        Our cash and cash equivalents at March 31, 2013 were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts and money market funds that are currently providing only a minimal return.

    Sources of Liquidity

        To date, we have funded our operations principally through private placements of our capital stock and bank borrowings. We have raised $118.6 million, net of costs and expenses, from the sale of preferred stock.

        We are party to a loan and security agreement with Silicon Valley Bank, which we refer to as our credit facility. Pursuant to the credit facility, we can incur revolver borrowings up to the lesser of $25.0 million and a borrowing base equal to 80.0% of eligible accounts receivable. Any outstanding principal amount must be paid at maturity. Interest accrues at a floating rate equal to the lender's prime rate plus 0.5% and is payable monthly. We are charged a fee of 0.2% of any unused borrowing capacity. This fee is payable quarterly but no fee is charged for a particular quarter if the average principal amount of borrowings during such quarter is more than $10.0 million. The credit facility matures in December 2014. As of March 31, 2013, we had $6.0 million aggregate principal amount of revolver borrowings outstanding which accrued interest at 3.75%.

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        The credit facility contains customary conditions to borrowings, events of default and negative covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness, incur encumbrances, make distributions to holders of our capital stock, make investments or engage in transactions with our affiliates. We are also subject to a financial covenant with respect to minimum monthly working capital levels. Our obligations under the credit facility are secured by substantially all of our assets other than our intellectual property, although we have agreed not to encumber any of our intellectual property without the lender's prior written consent. We were in compliance with all covenants as of March 31, 2013.

        We have issued the lender (1) a warrant to acquire 53,280 shares of our Series A preferred stock at an exercise price of $0.8446, (2) a warrant to acquire 50,896 shares of our Series B-1 preferred stock at an exercise price of $3.2419 and (3) a warrant to acquire 47,489 shares of our Series C preferred stock at an exercise price of $2.526.

    Operating and Capital Expenditure Requirements

        We believe our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months. During this period, we expect our capital expenditure requirements to be approximately $2.0 million. If our available cash balances, net proceeds from this offering and available borrowings under our credit facility are insufficient to satisfy our liquidity requirements, we will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.

    Historical Cash Flows

        The following table summarizes our historical cash flows for the periods indicated:

 
  As of and for the
Year Ended
December 31,
  As of and for the
Three Months Ended
March 31,
 
 
  2011   2012   2012   2013  
 
   
   
  (unaudited)
 
 
  (dollars in thousands)
 

Cash (used in) provided by:

                         

Operating activities

  $ (18,797 ) $ (5,103 ) $ 3,747   $ (814 )

Investing activities

    (1,197 )   5,547     3,652     (138 )

Financing activities

    35,940     433     44     46  

    Operating Activities

        Cash used in operating activities is primarily influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and the increase in the number of advertisers using our solutions. Cash used in operating activities has typically been generated from net losses and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable and accounts payable and accrued expenses, adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation.

        For the three months ended March 31, 2013, our net cash used in operating activities was $0.8 million and consisted of a net loss of $5.2 million, partially offset by $2.3 million in adjustments for non-cash items and $2.1 million of cash provided by working capital. Net loss was primarily driven by expansion of our operations and by our investment in technology and development personnel to facilitate our growth. Adjustments for non-cash items primarily consisted of depreciation and

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amortization expense of $1.5 million, non-cash stock compensation expense of $0.7 million and bad debt expense of $0.1 million. The increase in cash resulting from changes in working capital primarily consisted of an increase in operating cash flow due to a $5.6 million decrease in accounts receivable, as well as a $0.2 million increase in deferred revenue as a result of more clients prepaying for the delivery of video ads. This was partially offset by a $3.3 million decrease in accounts payable and accrued expenses and accrued cost of revenue, driven primarily by an decrease in inventory costs under our publisher contracts, offset by an increase in accrued payroll and payroll related expenses resulting from an increase in the number of our employees. In addition, there was an increase in prepaid expenses and other current assets of $0.5 million, primarily the result of additional deposit requirements for new office space and future advertising and marketing events and professional development events.

        In 2012, our net cash used in operating activities was $5.1 million and consisted of a net loss of $16.6 million, partially offset by $9.0 million in adjustments for non-cash items and $2.5 million of cash provided by working capital. Net loss was primarily driven by expansion of our operations and by our investment in technology and development personnel to facilitate our growth. Adjustments for non-cash items primarily consisted of non-cash stock compensation expense of $2.9 million, depreciation and amortization expense of $6.0 million and bad debt expense of $0.1 million. The increase in cash resulting from changes in working capital primarily consisted of an increase in operating cash flow due to a $4.8 million increase in accounts payable and accrued expenses and accrued cost of revenue, driven primarily by an increase in inventory costs under our publisher contracts, and an increase in accrued payroll and payroll related expenses resulting from an increase in the number of our employees. In addition there was a $0.2 million increase in deferred revenue as a result of more clients prepaying for the delivery of video ads. This was partially offset by an increase in accounts receivable of $2.2 million, primarily driven by increased revenue during the year as we continue to expand our operations, an increase in prepaid expenses and other current assets of $0.3 million, primarily the result of additional deposit requirements for new office space and future advertising and marketing events and professional development events.

        In 2011, our net cash used in operating activities was $18.8 million and consisted of a net loss of $21.0 million and a $7.1 million decrease in cash resulting from changes in working capital, partially offset by $9.3 million in adjustments for non-cash items. Net loss was primarily driven both by expansion of our operations and by our investment in technology and development and personnel to facilitate our growth. Adjustments for non-cash items primarily consisted of non-cash stock compensation expense of $2.9 million, depreciation and amortization expense of $6.1 million and mark-to-market expense of $0.3 million. The increased depreciation and amortization expense primarily related to increased capital expenditure requirements and our intangible assets resulting from the acquisition of a business. The decrease in cash resulting from changes in working capital primarily consisted of an increase in accounts receivable of $4.4 million, primarily driven by increased revenue during the year as we continued to expand our operations. Additionally, there was a $3.1 million decrease in accounts payable and accrued expenses and accrued cost of revenue, driven primarily by an increase in inventory costs under our publisher contracts, and an increase in accrued payroll and payroll related expenses resulting from an increase in the number of our employees. This was partially offset by an increase in cash flow due to a $0.4 million increase in deferred rent primarily due to several new office leases contracted during 2012.

    Investing Activities

        Our investing activities have consisted primarily of purchases of property and equipment, as well as business acquisitions.

        For the three months ended March 31, 2013, our net cash used in investing activities was $0.1 million used in the purchase of property and equipment.

        In 2012, net cash provided by investing activities was $5.5 million and consisted of $8.7 million in maturities of short-term investments, partially offset by $2.0 million paid as part of an acquisition and $1.2 million used in the purchase of property and equipment.

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        In 2011, net cash used in investing activities was $1.2 million and consisted of $0.5 million of net purchases of short-term investments and $0.7 million used in the purchase of property and equipment.

    Financing Activities

        Our financing activities have consisted primarily of the issuance of preferred stock, proceeds from the exercise of stock options, and borrowings and repayments under our credit facility.

        For the three months ended March 31, 2013, our net cash provided by financing activities was $46,000 received upon the exercise of stock options.

        In 2012, net cash provided by financing activities was $0.4 million received upon the exercise of stock options.

        In 2011, net cash provided by financing activities was $35.9 million and consisted of $35.7 million in net proceeds from our Series F preferred stock financing and $0.3 million in cash received upon the exercise of stock options, partially offset by $0.1 million used to repurchase common stock from three of our employees.

Contractual Obligations

        The following table discloses aggregate information about material contractual obligations and periods in which payments were due as of December 31, 2012. Future events could cause actual payments to differ from these estimates.

 
  Payment due by period  
Contractual Obligations
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 
 
  (in thousands)
 

Operating lease obligations

  $ 9,924   $ 1,615   $ 3,948   $ 3,003   $ 1,358  

Purchase obligations

    620     281     339          
                       

Total

  $ 10,544   $ 1,896   $ 4,287   $ 3,003   $ 1,358  
                       

        The amounts in the table above are associated with agreements that are enforceable and legally binding, which specify significant terms including payment terms related to services and the approximate timing of the transaction. Obligations under the contract that we can cancel without a significant penalty are not included in the table.

        The table above does not reflect revolver borrowings under our credit facility.

Off-Balance Sheet Arrangements

        As of March 31, 2013, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Critical Accounting Policies and Significant Judgments and Estimates

        Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on

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historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

        Critical accounting policies and estimates are those we consider to be the most important to the portrayal of our financial condition and results of operations because they require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to the following:

    Revenue Recognition

        We generate revenue primarily from the delivery of in-stream video advertisements for brand advertisers and agencies through the Tremor Video Network. We also generate revenue from selling licenses to advertisers, agencies and publishers. Revenue is recognized when the related services are delivered based on the specific terms of the contract, which are commonly based on the number of impressions delivered or by the actions of viewers. We recognize revenue when four basic criteria are met: (1) persuasive evidence exists of an arrangement with the client reflecting the terms and conditions under which the services will be provided; (2) services have been provided or delivery has occurred; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. Collectability is assessed based on a number of factors, including the creditworthiness of a client and transaction history. Amounts billed or collected in excess of revenue recognized are included as deferred revenue.

        We recognize revenue from the delivery of video ads in the period in which the video ads are delivered. Specifically, we recognize revenue for video ad delivery through the Tremor Video Network upon the delivery of each impression served for CPM ad campaigns, engagement by the consumer with a video ad for CPE ad campaigns or the completion of a video ad by the consumer for CPVC ad campaigns. These actions are verified primarily by a combination of third party reporting systems and, to a lesser extent, our internal systems.

        In the normal course of business, we act as an intermediary in executing transactions with third parties. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether we are acting as the principal or an agent in our transactions. In determining whether we act as the principal or an agent, we follow the accounting guidance for principal-agent considerations. The determination of whether we are acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of each arrangement. While none of the factors individually are considered presumptive or determinative, because we are the primary obligor and are responsible for (1) identifying and contracting with third-party advertisers, (2) establishing the selling prices of the video ads sold, (3) performing all billing and collection activities, including retaining credit risk, and (4) bearing sole responsibility for fulfillment of the advertising, we act as the principal in these arrangements and therefore report revenue earned and costs incurred related to these transactions on a gross basis.

        The license fees for our VHA and publisher solutions are based on the number of impressions being analyzed through these solutions. We recognize revenue with respect to these solutions on a CPM basis based on the number of impressions being analyzed in a given month. Typically, our license terms are for one year periods.

    Accounts Receivable, Net of Allowances for Doubtful Accounts

        We carry our accounts receivable at net realizable value. On a periodic basis, our management evaluates our accounts receivable and determines whether to provide an allowance or if any accounts should be written down and charged to expense as a bad debt. The evaluation is based on a past history of collections, current credit conditions, the length of time the account is past due and a past

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history of write-downs. A receivable is considered past due if we have not received payments based on agreed-upon terms. We generally do not require any security or collateral to support our receivables

    Business Combinations

        In business combinations, we determine the acquisition purchase price as the sum of the consideration we provide. The underlying principles require that we recognize separately from goodwill the assets acquired and the liabilities assumed, generally at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. The direct transaction costs associated with the business combination are expensed as incurred.

        When we issue stock-based awards to an acquired company's selling stockholders, we evaluate whether the awards are contingent consideration or compensation for post-business combination services. Our evaluation includes, among other things, whether the vesting of the stock-based awards is contingent on the continued employment of the selling stockholder beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as future compensation expense over the required service period.

    Goodwill and Intangible Assets

        Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is subject to an impairment test.

        Goodwill acquired in business combinations are assigned to the reporting unit that is expected to benefit from the combination as of the acquisition date. We assesses goodwill for impairment, using a qualitative process, annually as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We operate as one operating segment as a singular reporting unit for goodwill impairment testing purposes. We adopted Accounting Standards Update, or ASU, 2011-08, "Testing Goodwill for Impairment," which gives companies the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary. If it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the goodwill must be tested using a two-step process based on prior accounting guidance, and if the carrying value of a reporting unit's goodwill exceeds its implied fair value, an impairment loss equal to the excess is recorded. In performing our qualitative assessment, we considered a number of factors, including macroeconomic conditions, the market for our industry, any developments with respect to our operating costs, the financial performance of our reporting unit, any changes to management or key personnel, and any changes to our intangible assets and their value. We concluded that there were no negative developments with respect to these factors that indicated that any goodwill is at risk of impairment.

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        For 2011 and 2012, no impairment losses have been identified, and no reporting unit was at risk of impairment, including under the first step of the two-step impairment determination process.

        Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives on a straight-line method as follows:

Technology

  5 to 7 years

Customer relationships

  5 to 10 years

Trademarks and trade names

  5 to 7 years

Non-competition agreements

  1 year

        Intangible assets are reviewed for impairment whenever events or changes in circumstances such as, but not limited to, significant declines in revenue, earnings or cash flows or material adverse changes in the business climate indicate that the carrying amount of an asset may be impaired. There were no indicators of impairment to intangible assets for 2011 and 2012.

    Stock-Based Compensation

        We have granted stock options with the following exercise prices for the dates reflected below:

Grant Date
  Number of
Options Granted
  Exercise Price
Per Share
  Common Stock Fair
Market Value Per Share at Grant Date
  Aggregate Fair Market Value
of Options Granted
 

April 19, 2012

    214,500 (1)(2) $ 3.34   $ 3.34   $ 716,430  

April 25, 2012

    50,000 (2)   3.34     3.34     167,000  

July 26, 2012

    1,844,008 (2)   3.34     3.34     6,158,987  

August 7, 2012

    50,000     3.34     3.34     167,000  

August 8, 2012

    55,000 (2)   3.34     3.34     183,700  

November 16, 2012

    644,500     3.73     3.73     2,403,985  

December 7, 2012

    90,000     3.73     3.73     335,700  

March 5, 2013

    400,000     3.93     3.93     1,572,000  

May 9, 2013

    237,000     5.43     5.43     1,286,910  

(1)
Options exercisable for an additional 33,000 shares of our common stock granted on this date with an exercise price of $4.04 per share were cancelled prior to our option repricing on July 26, 2012 as a result of employee terminations.
(2)
On July 26, 2012 and August 8, 2012, we repriced options to purchase 1,634,008 and 55,000 shares of our common stock, respectively, to $3.34 per share, the estimated fair market value of our common stock on such dates, from $4.04 per share. Of the 1,634,008 options repriced on July 26, 2012, 159,500 of such options were originally granted on April 19, 2012 and 50,000 of such options were originally granted on April 25, 2012 and the remaining options were granted prior to April 2012. These options had a Black-Scholes option fair values ranging from $1.47 to $1.56. In accordance with ASC Topic 718, we incurred a one-time stock compensation charge of approximately $11,000 on the incremental value of the vested repriced options. In addition, we recorded an additional incremental value of $0.3 million related to the unvested repriced options, which will be amortized over their remaining vesting period.

        Based upon the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the aggregate intrinsic value of options outstanding as of March 31, 2013 was $             million, of which $             million related to vested options and $             million related to unvested options.

        We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

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        Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, the expected term of the options, our expected stock price volatility, risk-free interest rates, and expected dividends, which are estimated as follows:

    Fair value of our common stock.  Because our stock is not publicly traded, we must estimate the fair value of common stock, as discussed in "—Common Stock Valuations" below.

    Expected term.  The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award.

    Expected volatility.  As we do not have a trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our industry peers' common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

    Risk-free rate.  The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

    Dividend yield.  We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

        If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

        The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:

 
  Year Ended December 31,   Three Months
Ended
March 31,
 
  2011   2012   2013
 
   
   
  (unaudited)

Volatility

  54%–56%   56%–57%   47%

Risk-free interest rate

  1.36%–2.87%   0.60%–1.17%   1.01%–1.03%

Expected life (in years)

  6.77   5.12–6.09   5.97–6.07

Dividend yield

  —%   —%   —%

    Common Stock Valuations

        The fair value of the common stock underlying our stock options was determined by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity

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Securities Issued as Compensation. The assumptions we used in the valuation model were based on future expectations combined with management judgment. In the absence of a public trading market, our board of directors with input from management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

    contemporaneous third-party valuations performed at periodic intervals by a valuation firm conducted as of June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013;

    a series of transactions from September 2011 through October 2012 pursuant to which one of our preferred stockholders acquired an aggregate of 3,152,851 shares of our common stock from certain of our stockholders for an aggregate purchase price of $10.1 million and a weighted average per share price of $3.20;

    the prices, rights, preferences and privileges of our preferred stock relative to the common stock;

    the purchases of shares of preferred stock by venture capital firms;

    our operating and financial performance and forecast;

    current business conditions;

    significant new customer wins;

    our stage of development;

    the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, given prevailing market conditions;

    any adjustment necessary to recognize a lack of marketability for our common stock;

    the market performance of comparable publicly-traded technology companies; and

    U.S. and global capital market conditions.

        In order to determine the fair value of our common stock underlying option grants, we considered contemporaneous valuations of our stock from a third-party valuation firm that provided us with their estimate of our enterprise value. Our board of directors determined the best approach to determine the fair value of our stock options was to use a blend of market and income approaches to determine our enterprise value and the probability-weighted expected return model, or PWERM, to determine the related allocation. The market-based approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected per group of technology companies. Future and present values for the common stock were calculated taking into consideration the preferred share liquidation and conversion rights. PWERM models potential future liquidity events and applies probabilities to each scenario. These future liquidity events are then discounted to present value and, after applying the relevant probability for each potential event, result in a probability-weighted equity value of the company. In addition, we considered secondary sales of our common stock that occurred during the period leading up to the valuation date, and ultimately weighted the PWERM estimated value and the weighted average price per share of such secondary sales to determine the fair value of our common stock.

        A database of all publicly-traded companies was screened to determine a broad industry sector and potential peer-group companies. This initial screen selected companies that primarily operated in the information technology software industry and that (1) traded on one of the major U.S. stock exchanges and (2) traded at a common per share value of greater than one dollar. From this industry sector list, comparable companies were selected based on several factors, including business description, business model, primary industry and revenue growth. More specifically, the comparable company selection

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focused on companies that provide advertising, marketing and media-based software solutions. Furthermore, companies with historical and projected revenue growth comparable to ours were selected.

        The selected group of comparable companies was consistently used in both the market and income approaches. Additionally, this same comparable company group was partially relied upon in determining appropriate multiples in the initial public offering, or IPO, scenario of the PWERM described more fully below. Where relevant, the comparable company group was held constant in determining per share value for all equity classes.

        Significant factors considered by our board of directors in determining the fair market value of our common stock at these grant dates included:

        April 2012.    The U.S. economy and financial markets continued to strengthen during the first quarter of 2012. We also continued to see strength in our business during this period. While total revenue decreased from $18.5 million for the three months ended March 31, 2011 to $17.3 million for the three months ended March 31, 2012, we began to see the impact of the increased adoption of our performance-priced video ads. We performed the PWERM allocation methodology to value our common stock as of September 6, 2011. Management's estimates of the probability of each scenario were 25% for an IPO, 30% for a strategic merger or sale, 40% for continuing as a private company, and 5% for dissolution. We determined the enterprise value under the market approach using the financial information of companies in our peer group and under the income approach using a weighted-average cost of capital or discount rate of 20%. The discount rate was based on several company-specific and general economic factors, primarily the strength in our business and the U.S. economy and markets as a whole, and their indications of economic risk. Based on these factors, the PWERM analysis resulted in an estimated fair market value of our common stock of $4.04 per share. Based on this valuation and other factors described above, our board of directors granted options to purchase 297,500 shares of common stock with an exercise price of $4.04 per share. After the April 2012 option grants, we determined that the September 6, 2011 valuation report, which our board of directors, relied in part in determining the fair value of our common stock did not take into consideration $9.3 million of secondary sales of common stock, which occurred between September 2011 and April 2012 at a weighted average purchase price of $3.23 per share. In July 2012 and August 2012, our board of directors repriced 209,500 and 55,000, respectively, of these options to $3.34 per share based upon a July 2012 valuation report discussed below. The remaining 33,000 options were cancelled in connection with the termination of employment of certain employees. Please see footnote (2) to the above table for further information.

        July and August 2012.    The U.S. financial markets began to show some weakness in the second quarter of 2012 as concerns regarding global financial uncertainties grew; however, we continued to see strength in our business. Total revenue increased from $22.3 million for the three months ended June 30, 2011 to $25.2 million for the three months ended June 30, 2012. In September 2011 through October 2012, one of our preferred stock investors, in a series of transactions, acquired 3,129,618 shares of our common stock for aggregate purchase price of $10.0 million and a weighted average purchase price of $3.21. We performed the PWERM allocation methodology to value our common stock as of June 30, 2012. Management's estimates of the probability of each scenario were 25% for an IPO, 30% for a strategic merger or sale, 40% for continuing as a private company, and 5% for dissolution. We determined the enterprise value under the market approach using the financial information of companies in our peer group and under the income approach using a weighted-average cost of capital or discount rate of 20%, which was constant from the prior valuation as of March 31, 2012. Based on these factors, the PWERM analysis resulted in an estimated fair value of our common stock of $4.30 per share. In addition, we considered secondary sales of our common stock that occurred between April 2012 and June 2012, with a weighted average price of $3.02 per share. We applied a weighting of 25% to the PWERM estimated value of $4.30 per share and 75% to the value indicated

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by the secondary sales of our common stock of $3.02 per share, to arrive at a fair value of $3.34 per share. Based on this valuation and other factors described herein, our board of directors granted options to purchase 210,000 shares and 50,000 shares of common stock in July and August 2012, respectively, with an exercise price of $3.34 per share. In addition, in July and August 2012, our board of directors repriced 1,634,008 options and 55,000 options, respectively, to $3.34 per share. Please see footnote (2) to the above table for further information. These options were previously granted from September 2011 through April 2012 based upon the September 6, 2011 valuation report discussed above. This valuation report did not take into consideration certain secondary sales of our common stock that occurred in September 2011, which significantly impacted the relative weighting of the factors used in the calculation of the fair value of our common stock as of such date.

        November and December 2012.    The U.S. financial markets continued to show some weakness in the third quarter of 2012 over concerns regarding global financial uncertainties; however, we continued to see strength in our business. Total revenue increased from $22.7 million for the three months ended September 30, 2011 to $30.2 million for the three months ended September 30, 2012. We performed the same PWERM allocation methodology as in the previous quarter to value our common stock as of September 30, 2012. Management's estimates of the probability of each scenario were 25% for an IPO, 30% for a strategic merger or sale, 40% for continuing as a private company and 5% for dissolution. We determined the enterprise value under the market approach using the financial information of companies in our peer group and under the income approach using a weighted-average cost of capital or discount rate of 20%. Based on these factors, the PWERM analysis resulted in an estimated fair value of our common stock of $4.26 per share. In addition, we took into account a secondary sale of our common stock that occurred in October 2012. We applied a weighting of 75% to the PWERM estimated value of $4.26 per share and 25% to the value indicated by a secondary sale of our common stock of $2.15 per share in October 2012, to arrive at a fair market value of $3.73 per share. The weighting of PWERM relative to secondary sales was increased from that applied in prior valuations due to there being a limited number of secondary sales near the valuation date. Based on this valuation and other factors described herein, our board of directors granted options to purchase 644,500 shares and 90,000 shares of common stock in November and December 2012, respectively, with an exercise price of $3.73 per share.

        March 2013.    The U.S. financial markets continued to show some weakness as well as volatility in the fourth calendar quarter of 2012 over concerns regarding global financial uncertainties and the U.S. elections; however, we continued to see strength in our business. Total revenue increased from $26.8 million for the three months ended December 31, 2011 to $32.5 million for the three months ended December 31, 2012. We performed the same PWERM methodology as in the previous quarter to value our common stock as of December 31, 2012. Management's estimates of the probability of each scenario were 25% for an IPO, 30% for a strategic merger or sale, 40% for continuing as a private company, and 5% for dissolution. We determined the enterprise value under the market approach using the financial information of companies in our peer group and under the income approach using a weighted-average cost of capital or discount rate of 20%. Based on these factors, the PWERM analysis resulted in an estimated fair value of our common stock of $4.52 per share. In addition, we took into account a secondary sale of our common stock that occurred in October 2012. We applied a weighting of 75% to the PWERM estimated value of $4.52 per share and 25% to the value indicated by the secondary sale of our common stock of $2.15 per share, to arrive at a fair market value of $3.93 per share. Based on this valuation and other factors described herein, our board of directors granted options to purchase 400,000 shares of common stock with an exercise price of $3.93 per share.

        May 2013.    The U.S. financial markets began to show improvement in the first quarter of 2013, and we continued to see strength in our business. Total revenue increased from $17.3 million for the three months ended March 31, 2012 to $24.8 million for the three months ended March 31, 2013. We

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performed the same PWERM methodology as in the previous quarter to value our common stock as of March 31, 2013. Management's estimates of the probability of each scenario were 50% for an IPO, 15% for a strategic merger or sale, 30% for continuing as a private company, and 5% for dissolution. We determined the enterprise value under the market approach using the financial information of companies in our peer group and under the income approach using a weighted-average cost of capital or discount rate of 20%. Based on these factors, the PWERM analysis resulted in an estimated fair value of our common stock of $5.43 per share. Based on this valuation and other factors described herein, our board of directors granted options to purchase 237,000 shares of common stock with an exercise price of $5.43 per share.

    Income Taxes

        We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset. As a result of our historical operating performance and the cumulative net losses incurred to date, we do not have sufficient objective evidence to support the recovery of our net deferred tax assets. Accordingly, we have established a valuation allowance against our net deferred tax assets for financial reporting purposes because we believe it is not more likely than not that these deferred tax assets will be realized.

        We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. We recognize potential interest and penalties associated with unrecognized tax positions in income tax expense.

        At March 31, 2013, we had U.S. federal and state net operating loss carryforwards, or NOLs, of $84.0 million, which expire in various years beginning in 2026. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe that we experienced an ownership change under Section 382 of the Internal Revenue Code in prior years that may limit our ability to utilize a portion of the NOLs in the future.

Quantitative and Qualitative Disclosures about Market Risk

        Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, equity prices and other market changes. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we may enter into exchange rate hedging arrangements to manage the risks described below.

    Interest Rate Risk

        We maintain a short-term investment portfolio consisting mainly of highly liquid, short-term money market funds, which we consider to be cash equivalents. These investments earn interest at variable rates and, as a result, decreases in market interest rates would generally result in decreased interest

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income. A 1.0% decline in interest rates occurring January 1, 2013 and sustained through the period ended December 31, 2013, would not be material. We do not enter into investments for trading or speculative purposes.

        We are exposed to market risks related to fluctuations in interest rates related to our $25.0 million revolving credit facility. As of March 31, 2013, we had incurred borrowings with an aggregate principal amount of $6.0 million. Interest on our credit facility is tied to the lender's prime rate and fluctuates periodically. As a result, the interest rates on our outstanding debt obligations may fluctuate from time to time. A sensitivity analysis was performed on the outstanding portion of our debt obligations as of December 31, 2012. Based on the aggregate principal amount of the revolver borrowings as of December 31, 2012 and the then prevailing interest rate, should the interest rate on our credit facility increase by 10.0% beginning January 1, 2013 and sustained through the period ended December 31, 2013, or interest expense would increase by approximately $22,000.

    Foreign Currency Exchange Risk

        Due to our international operations, we are exposed to foreign exchange risk related to foreign denominated revenues and costs, which must be translated into U.S. dollars. Historically, our primary exposures have been related to non-U.S. dollar denominated operating expenses in the United Kingdom and Singapore. The effect of a 10.0% adverse change in exchange rates on foreign denominated cash, receivables and payables would not have been material for the periods presented. Substantially all of our advertiser contracts are currently denominated in U.S. dollars. Therefore, we have minimal foreign currency exchange risk with respect to our revenue. These exposures may change over time as our business practices evolve and if our exposure increases, adverse movements in foreign currency exchanges rates could have a material adverse impact on our financial results.

Inflation

        We do not believe that inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Recent Accounting Pronouncements

        We have reviewed recent accounting pronouncements and concluded that they are either not applicable to our business or that no material effect is expected on the consolidated financial statements as a result of future adoption.

Emerging Growth Company Status

        Section 107 of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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BUSINESS

Mission

        Our mission is to bring the certainty of science to the art of brand marketing.

Overview

        We are a leading provider of technology-driven video advertising solutions enabling brand advertisers to engage consumers across multiple internet-connected devices including computers, smartphones, tablets and connected TVs. Our clients include some of the largest brand advertisers in the world including all of the top 10 automakers and 9 of the top 10 consumer packaged goods companies. Our relationships with leading brand advertisers and their agencies have helped us create a robust online video ecosystem that includes more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. Our proprietary technology, VideoHub, analyzes in-stream video content, detects viewer and system attributes, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics. VideoHub also provides advertisers and agencies with advanced analytics and measurement tools enabling them to understand why, when and where viewers engage with their video ads.

        Our clients strive to create and maintain a favorable image of their brand, differentiate themselves from competitive brands and influence consumers' purchase decisions to maximize market share. Traditional media channels are limited in their ability to achieve these goals because they lack interactivity and the ability to measure and optimize ad campaigns in real-time. We believe online video is a highly effective channel for brand advertisers to engage and influence consumers by combining the rich "sight, sound and motion" of television and the interactivity, engagement, real-time measurement and optimization of online.

        Online video advertising is amongst the fastest growing advertising formats in the United States. According to eMarketer, while overall advertising spend is expected to grow by 3.5% on a compounded annual basis between 2012 and 2016, online video advertising spend is expected to grow by 28.9%. eMarketer estimated total U.S. advertising spend in 2012 to be $165.8 billion, of which online video advertising spend was $2.9 billion, or only 1.7%. As online audiences continue to spend more time watching videos, online video advertising spend is projected to reach $8.0 billion in 2016. Within online video advertising, mobile video advertising spend is expected to grow from $244 million to $2.1 billion, reflecting a 71.1% compounded annual growth rate from 2012 to 2016. Despite this tremendous growth, several factors, including audience and device fragmentation, inadequate brand-centric measurement and optimization technology, and lack of performance and placement transparency, have made it challenging to effectively deliver online video advertising.

        VideoHub is designed to effectively address the challenges faced by brand advertisers. VideoHub optimizes an advertiser's campaign against brand-centric key performance indicators, or KPIs, by building a decision tree that analyzes the attributes, which we call signals, of every ad request, such as video player size, geography, publisher, content category and length, browser type and viewer data. VideoHub then prioritizes the delivery of ads that are more likely to achieve the desired performance objectives. VideoHub also offers advertisers transparency into the workings of its decision tree so that they can understand what signals are driving the performance of their video ad campaigns. Further, VideoHub affords advertisers the ability to easily perform ad delivery validation and placement verification.

        Our VideoHub technology is the backbone of the Tremor Video Network through which we offer advertisers access to engaged consumers at scale in brand safe environments across multiple devices. We specialize in delivering in-stream video advertisements, which are served to viewers immediately prior to or during the publisher's content when viewers are most engaged. This is in contrast to

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traditional in-banner video advertising, which is served on the periphery of publisher content where viewers may not be directing their attention. We further enhance advertisers' campaigns with innovative ad formats specifically developed to harness the creative aspects of online video, which often result in consumers choosing to extend their interaction with a brand's message significantly past the original ad experience. To align our solutions with the goals of brand advertisers, we offer a number of brand performance-based pricing models for in-stream video advertising such as cost per engagement, or CPE, pricing, where we are compensated only when viewers actively engage with advertisers' campaigns. As a result, we enable our clients to effectively purchase measurable brand results rather than just impressions or clicks.

        Driven by client demand, in 2012 we began licensing VideoHub technology to advertisers and their agencies through an intuitive and customizable console, which we call VideoHub for Advertisers, or VHA. VHA helps advertisers and their agencies manage online video brand marketing efforts by providing advanced analytic and measurement tools. By licensing VHA, advertisers and their agencies are able to gain transparency into the performance of ad campaigns across the entirety of their video ad buys, including on publisher sites that are not part of the Tremor Video Network. By providing an enterprise solution that works both on and off the Tremor Video Network, we deepen our relationships with our clients and broaden our influence in the online video ecosystem. We believe this best positions us to benefit from the anticipated growth in online video advertising.

        We have developed strong relationships with brand advertisers and their agencies, who we believe view us as a strategic and trusted partner with a deep understanding of their industry-specific needs. We have also developed strong relationships with publishers due to our ability to provide consistent yield and monetization for their video content. We continuously evaluate and refine our publisher network to ensure that our advertisers have access to premium content in brand safe environments. We believe these relationships have created a network effect whereby advertisers increase their spend with us because of the results we deliver utilizing proprietary technology and our publishers' premium inventory, which in turn allows us to attract additional high quality publishers and thereby additional advertising spend.

        From 2011 to 2012, our revenue increased from $90.3 million to $105.2 million. This included an increase in revenue derived from the delivery of in-stream video advertising from $75.5 million to $99.7 million, or 32.1%. Additionally, over this period, our gross margin improved from 35.2% to 41.7%, driven in part by the adoption of our performance-based pricing models, while our net loss has decreased from $21.0 million to $16.6 million. For the three months ended March 31, 2013 as compared to the same period of 2012, our revenue increased from $17.3 million to $24.8 million, or 43.4%, our gross margin improved from 31.9% to 44.1% and our net loss decreased from $9.1 million to $5.2 million. As a percentage of total revenue, revenue attributable to performance-based pricing for 2011, 2012 and the three months ended March 31, 2013 was 8.2%, 23.5% and 36.5%, respectively.

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Industry Background

        Advertisers often view the advertising market as a funnel that maps a potential consumer's purchase decision process from the moment he or she is introduced to a brand to the point of purchase.

GRAPHIC

        At the top of the marketing funnel, advertisers are focused on building brand awareness amongst the largest possible number of potential consumers and use reach as the primary metric to measure success. Traditionally, advertisers have preferred national television and outdoor media, such as a Super Bowl commercial or Times Square billboard, to achieve this brand awareness. At the bottom of the marketing funnel, advertisers are focused on generating specific actions by a consumer in a short period of time. At this stage of the funnel, advertisers have generally relied on direct response marketing, such as newspaper inserts and coupons, as well as online search and online display advertising, where conversions are used to measure campaign success.

        In the middle of the marketing funnel, advertisers seek to engage consumers and educate them about their brand in order to differentiate themselves from competitors and drive consumer preferences toward a particular branded product to influence future purchase decisions, which we refer to as brand lift. Historically, advertisers have sought to achieve middle of the funnel objectives through print, which can tell a deeper story about the product and its benefits and allows the reader to linger as long as he or she likes, and to a lesser extent through local and cable television, which offers a more targeted audience for a product's message than national television. Traditional solutions for middle of the funnel marketing have significant limitations such as:

    Lack of interaction with consumers.  Static content does not allow consumers to interact with an ad.

    Lack of brand-centric real-time measurements.  Brand-centric campaign results typically are not available until several weeks after a campaign is completed.

    Lack of optimization.  Campaign delivery cannot be altered in real-time to optimize for performance based on campaign observations.

        A paramount challenge for brand advertisers today is finding methods to achieve middle of the funnel objectives at scale. For brands that have already dedicated significant advertising spend to television to establish awareness of their products, future success depends on a clear understanding of

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what creative messaging and data attributes can drive brand lift and preference shift to capture market share. This is the essence of middle of the funnel brand advertising.

        We believe in-stream video is a highly effective channel for brand advertisers to meet their middle of the funnel objectives by combining the best aspects of television, print and online advertising:

    "Sight, sound and motion" of television.  In-stream video provides advertisers with a high production quality and a rich medium to create a compelling story about their products.

    Opt-in engagement of print.  With advanced ad formats, in-stream video empowers viewers to engage with the ads for as long as they like and receive informative content.

    Real-time measurement and optimization of online.  With a capable technology platform, in-stream video ad campaigns can be tracked, measured and optimized against a given KPI.

Market Opportunity

    Key Trends Driving Growth of Online Video Consumption

        The convergence of several technological and behavioral factors is driving robust growth in online video consumption creating a significant opportunity for in-stream video advertising. These factors include:

    Connected device growth.  Sales of internet-connected devices have grown significantly over the past several years and are expected to continue to grow. According to IDC, global smartphone shipments are expected to grow from 722.4 million units in 2012 to 1.5 billion units in 2017. In addition, IDC also estimates that approximately 19.3 million tablets were shipped in 2010, which is expected to increase to a total of 252 million units by 2015. The current generation of smartphones and tablets are designed for high-speed internet connectivity and enable greater video consumption.

    High-speed broadband and mobile network infrastructure.  Broadband and mobile connections are increasingly available at higher speeds. We believe that this trend will continue.

    Increased online video content.  The amount of video content available online has increased significantly over the past several years. This includes content originally created for offline consumption, professionally produced video for online distribution as well as user generated content.

    Behavioral shift in video viewing.  The demand for online video is growing rapidly as consumers are increasing consumption of video on their computers, smartphones, tablets and connected TVs. According to IDC, from 2012 to 2015, the number of online streaming video users across all platforms in the United States is expected to grow from 182 million to 227 million.

    Online Video Advertising Market

        Online video advertising is amongst the fastest growing advertising formats in the United States. According to eMarketer, while overall advertising spend is expected to grow by 3.5% on a compounded annual basis between 2012 and 2016, online video advertising spend is expected to grow by 28.9%. eMarketer estimated total U.S. advertising spend in 2012 to be $165.8 billion, of which online video advertising spend was $2.9 billion, or only 1.7%. As online audiences continue to spend more time watching videos, online video advertising spend is projected to reach $8.0 billion in 2016. Within online video advertising, mobile video advertising spend is expected to grow from $244 million to $2.1 billion, reflecting a 71.1% compounded annual growth rate from 2012 to 2016. We believe that we are well-positioned to capture a significant portion of this growing online video advertising market.

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        Despite this tremendous growth opportunity, brand advertisers face several challenges to the adoption of online video advertising that require sophisticated technology to solve:

    Audience and device fragmentation.  Video content is available online across a wide variety of sites including those that aggregate content, sites of traditional offline content producers with an online presence, sites that produce content specifically for online consumption, and a variety of additional sites that syndicate content. Audiences are viewing this video content across a growing number of devices including computers, smartphones, tablets and connected TVs all with different screen sizes, screen resolutions, functionality, network connections, hardware and operating system types. For example, a viewer may watch one episode of his favorite program at home on his connected TV and the next episode on a tablet while traveling. This fragmentation coupled with the myriad of video player sizes, video formats and content length, makes it difficult for brand advertisers to reach viewers at scale on a consistent basis.

    Complexity of analyzing video and optimizing campaigns.  Analyzing and categorizing in-stream video, with its visual, audio and meta data, is a complex technological challenge, particularly compared to analyzing the text and web pages used for search or online display ads. Optimizing campaigns for middle of the funnel objectives such as brand lift and preference shift presents significant challenges due to the difficulty of identifying the attributes that impact these performance metrics.

    Absence of performance transparency.  Given the diversity of environments, content and viewer attributes associated with online video, it is difficult for brand advertisers to analyze these attributes in real-time and understand how they correlate to the performance objectives of their online video ad campaigns.

    Premium inventory and brand safety challenges.  Brand advertisers pay careful attention to the context in which their advertisements appear because of concerns that inappropriate content will not only prevent the success of their advertising campaign but also tarnish their brand. While there is a proliferation of online video content, much of this video content is not professionally produced and may not be appropriate for a premium brand advertiser. Further, even certain professionally produced content on a premium site may not be appropriate for a brand advertiser. For example, an automaker would not want an ad to run within or adjacent to content regarding a celebrity being arrested for driving while intoxicated. As a result, many brand advertisers seek to impose content restrictions to attempt to ensure that their advertising appears in the appropriate context.

    Lack of placement transparency.  Unlike traditional media where advertisers have greater control over and visibility into where their ads appear, online advertising may be delivered across thousands of publishers and an advertiser may have little or no insight into where their ads appear. In addition, due to various technical factors, including a viewer's browser window dimensions, the dimensions of the website on which the video ad appears, the location of a video player on a website, and the scroll position at the time a video ad is delivered, a video ad is not always viewable. Brand advertisers need the ability to verify and validate whether a video ad is fully, partially or not visible to a viewer.

    Lack of consistent and standard measurements.  Advertisers lack the ability to effectively measure and compare brand performance across different online publishers. Additionally, advertisers do not have the ability to evaluate brand campaign performance across online and offline channels using traditional media measurements such as gross rating points.

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Tremor Video Technology and Solutions

    VideoHub

        VideoHub powers our video advertising solutions and is designed to effectively address the challenges faced by brand advertisers and achieve their middle of the funnel objectives.

        Through VideoHub we deliver:

    Brand-centric key performance indicators.  We have developed a suite of brand-centric key performance indicators, or KPIs, such as engagement (i.e., the interaction of a viewer with a video ad), brand lift (i.e., a positive shift in preference towards a brand or branded product driven by exposure to a video ad and brand education), and time spent (i.e., the amount of time a viewer spends with a video ad), which are tailored to the needs of brand advertisers. Before the launch of a video advertising campaign, a brand advertiser selects the KPI against which it wants to optimize the performance of its campaign. For example, if a CPG advertiser chooses our brand lift KPI, VideoHub uses our proprietary survey functionality to help identify whether consumers feel more favorably about their product after watching a specific video ad compared to consumers that were not exposed to the ad. Throughout a campaign, VideoHub analyzes and stores data for all KPIs in our suite, not only the KPI selected by the advertiser for optimization. As a result, an advertiser can understand what signals enhance a specific performance objective even if it has not chosen to optimize a campaign against that KPI.

    Distinct signals to drive optimization.  By analyzing the results of over 20 billion in-stream video ads served through the Tremor Video Network, we have identified a proprietary suite of distinct signals that we believe correlate most strongly to campaign performance. We are continually refining our suite of signals as we amass additional data and gain further insights into what drives a successful video ad campaign. VideoHub currently analyzes the following distinct signals in order to optimize a video ad campaign:

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      The signals VideoHub utilizes to optimize an ad campaign vary by device type.

    Brand-centric optimization.  Using a proprietary training algorithm, VideoHub trains a series of statistical predictive models to build a decision tree that predicts performance of the video ad campaign for the chosen KPI. VideoHub optimizes the campaign against the selected KPI using a filter that analyzes the signals of each ad request and prioritizes the delivery of ads that are more likely to perform. If a client chooses to optimize a video ad campaign for engagement, VideoHub will continuously track and analyze the signals described above to determine which signals are most correlated with achieving a high engagement rate and deliver ad campaigns in

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      response to ad requests that meet these criteria. For example, if VideoHub determines that ad requests associated with sports content that are made on a Friday night from a Safari browser (i.e., the content category, day of week, time of day and browser type signals) are driving engagement for an ad campaign, it will seek to deliver that ad campaign in response to matching ad requests. During the flight of a video ad campaign, the decision tree is continually learning and improving based on the signals that are elevating performance for the chosen KPI. We are able to continuously improve our decision tree training algorithm as we amass additional data.

    In-stream video analysis and categorization.  VideoHub performs an analysis on every video stream and categorizes it among one of approximately 72 video content categories. We also have the ability to scan and categorize content by analyzing the audio track and certain visual elements. This functionality enables us to optimize video ad campaigns and also helps us to identify various categories of inappropriate content in order to prevent video ads from being shown within video streams in these categories.

    Ad performance transparency.  VideoHub offers advertisers transparency into the workings of its decision tree so that they can understand what signals are driving the performance of their video ad campaigns. These insights into campaign performance can not only inform future online advertising decisions but also influence offline advertising decisions. For example, a yogurt brand launched an offline and online ad campaign directed at soccer moms but learned through VideoHub that male high school and college athletes were engaging with the video ads, suggesting a secondary market for the product. The advertiser could use this insight to refine its offline advertising strategy to appeal more to this new audience.

    Ad placement transparency.  VideoHub tracks the number of impressions served to a specific publisher site and whether a video ad placement is fully, partially or not visible to a viewer. With this functionality, advertisers know where an ad campaign is running and can validate that their video ads are viewable.

    Cross site and channel measurement.  Our proprietary metric, eQ score+, allows advertisers to compare video inventory quality across different publisher sites by measuring attributes such as viewability, the size of the video player and ad completion rate. When coupled with pricing information, these insights help advertisers compare the relative value of video inventory across publishers. In addition, VideoHub provides advertisers and agencies access to metrics that measure audience reach and frequency of viewing by a particular audience, similar to what is used in the television industry, enabling them to compare the brand performance of their online and offline video ad campaigns (while speaking the language of television advertising buyers).

    Tremor Video Network

        The Tremor Video Network offers advertisers access to premium video inventory at scale across multiple devices in brand safe environments.

        Through the Tremor Video Network we deliver:

    Scale and reach across multiple devices.  The Tremor Video Network delivers scale and reach across multiple internet-connected devices, including computers, smartphones, tablets and connected TVs, enabling our clients to use our solutions to address their online video advertising needs across these devices. Through VideoHub, we are able to optimize ad campaigns for each type of device. We have partnered with more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. These relationships enable publishers to more effectively monetize their video content. We have served over 20 billion in-stream video ads, and in 2012 alone, we delivered on average over 600 million in-stream video ad impressions per month.

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    Premium video content.  We continuously evaluate and refine our publisher network to ensure that our advertisers have access to high performing content in a brand safe environment. We consider a premium publisher to be a publisher that has professionally produced content, offers a quality video viewing experience, including size and placement of the video player, and delivers strong brand-centric performance results to brand advertisers.

    Brand safety.  Our technology scans and categorizes every video within the Tremor Video Network and prevents video ads from being served within content that is identified as objectionable for the brand advertiser, including content that contains accidents, distasteful or obscene language, substance abuse, violence, gambling, sex or crime. We believe that the combination of our video scanning technology, selective manual content reviews and publisher inventory selection practices ensures a high level of brand safety for our clients.

    In-stream video focus.  We specialize in delivering in-stream video advertisements, which can be served to viewers immediately prior to or during the publisher's content when they are the most engaged. We believe in-stream video is better aligned with brand advertisers' middle of the funnel objectives than either display or video in-banner advertising, both of which are served on the periphery of publisher content where viewers may not direct their attention. Moreover, we believe that in-stream video advertising solves many of the challenges of mobile advertising that are created by screen size limitations since the publisher content within which the video ad is served will generally occupy the entire mobile screen. Our technology is able to adjust video ads for varying screen sizes.

    Advanced ad formats.  Our proprietary ad formats give brand advertisers the ability to create a more engaging experience across multiple devices, allowing viewers to explore content within the ad itself and learn more about the brand. Examples of our proprietary ad formats include:

    Super Pre-Roll.    Makes traditional pre-roll ads interactive and engaging by adding elements within the video player such as location search, movie show times, social media sharing, and the ability to watch additional video content from a brand.

    Pre-Roll Plus.    Incorporates an engaging call to action intended to drive increased awareness of the advertiser's goal, which appears shortly after the video starts and runs for its duration.

    Pre-Roll Extended Play.    Provides the viewer the option to continue to watch the entire video ad (up to five minutes) all within the traditional pre-roll ad unit.

    Innovative pricing models.  We offer innovative brand performance-based pricing models that are tied to the effectiveness of the Tremor Video Network, as advertisers using these models pay us only if their video ad campaigns perform. These performance-based pricing models include:

    CPE pricing, where we are compensated only when viewers actively engage with advertisers' campaigns, such as by interacting with the elements of the video ad through clicks or screen touches or by rolling over certain elements of the video ad for at least three seconds; and

    CPVC pricing, where we are compensated only when viewers complete the video ad.

      We believe that advertisers are attracted to our performance-based pricing models because these models more closely tie advertising spend to actual campaign performance. We also provide CPE pricing for our mobile offering.

VideoHub for Advertisers (VHA)

        Driven by client demand, in 2012, we began licensing VHA, a software platform that clients access through a web portal. By licensing VHA, advertisers and their agencies can use VHA across the

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entirety of their video ad buys, including on publisher sites that are not part of the Tremor Video Network. In addition, we believe that the breadth of our VHA solution helps agencies achieve greater operational efficiency as it relieves them from the need to integrate and support multiple, disparate technology solutions. By providing this enterprise solution to advertisers and their agencies, on and off the Tremor Video Network, we believe we can deepen our relationships with our clients and broaden our influence in the online video ecosystem.

Competitive Strengths

        Our key competitive strengths include:

    Differentiated and Proprietary Technology

        VideoHub is the product of more than seven years of development exclusively focused on perfecting the measurement, optimization and transparency of online video advertising for leading brand advertisers. Our technology is supported and enhanced by our technology and development department which as of March 31, 2013 consisted of 68 employees. VideoHub analyzes and categorizes in-stream video content, detects viewer and system signals, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics such as engagement, brand lift and time spent. VideoHub provides performance and placement transparency to our advertising clients across multiple devices whether or not those campaigns run through the Tremor Video Network.

    Focus on Innovation in the Video Advertising Ecosystem

        We are an innovator in online video advertising. We believe our innovations, such as advanced ad formats, brand-centric performance-based pricing models, including CPE, in-stream video analysis and categorization and advanced analytics tools, including eQ+ score and our proprietary measurement for in-stream video ad viewability, differentiate us from our competitors. We believe that our ability to continually innovate will further improve our market position.

    Strong Multi-Channel Capabilities

        We provide brand advertisers with a one-stop-shop for their video ad campaigns by delivering those campaigns over multiple internet-connected devices including computers, smartphones, tablets and connected TVs with different screen sizes, screen resolutions, functionality, network connections, hardware and operating system types. Our technology is able to adjust video ads for varying screen sizes, and through Video Hub, we are able to optimize video campaigns for each type of device. Our advanced ad formats and cost per engagement pricing are available on smartphones and tablets as well as computers. Our multi-channel capabilities also allow publishers to monetize their content across multiple internet-connected devices. This alleviates their need to pursue an ad hoc approach with multiple providers.

    Strategic Relationships with Brand Advertisers, Agencies and Agency Holding Companies

        We have built deep relationships with leading brand advertisers, advertising agencies and the holding companies that own many of these agencies. Our clients include some of the largest brand advertisers in the world, including all of the top 10 automakers and 9 of the top 10 CPG companies. We have built deep industry specific expertise by aligning our sales force around our target verticals. We believe that the advertisers, the agencies with which they work and the holding companies that own many of these agencies view us as a strategic and trusted partner that can guide and support their ad campaigns through all stages of planning, execution and measurement.

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    Our Premium Publisher Network

        We have partnered with more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis, enabling these publishers to more effectively monetize their video content. This network helps us attract and retain large brand advertisers that spend significant media dollars. Premium publishers work with us because of our deep brand advertiser relationships and our ability to maximize the value of their online video content across multiple devices. We believe our technology and innovative performance-based pricing models have allowed us to generate superior yield compared to traditional impression-based pricing, which enables us to attract additional premium publishers by providing them better monetization.

    Significant Data Asset

        We have built a large repository of data generated from over 20 billion in-stream video ad impressions delivered through the Tremor Video Network. This data asset grows richer over time as additional campaigns run through the Tremor Video Network. We leverage this data asset and the insights we have gained from the billions of video impressions we have previously delivered to continuously refine our algorithms and improve our optimization capabilities.

Growth Strategy

    Continually Innovate and Expand our Solutions

        We will continue to invest in our technology to maintain and extend our leadership in the online video advertising ecosystem. We are focused on providing brand advertisers with brand-centric metrics, video ad placement and performance transparency and optimization capabilities to enhance campaign effectiveness. We will also continue to focus on introducing new ad formats that improve the effectiveness of our video ads and pricing models that further align our financial results with campaign performance. We believe that these innovations will continue to increase client loyalty and the amount of their spending with us.

    Expand Existing and Build New Relationships with Brand Advertisers, Agencies and Agency Holding Companies

        We believe that the combination of our proprietary technology, brand-centric approach, deep client relationships and our broad knowledge of the video advertising industry is unique and highly attractive to brand advertisers and their agencies. We plan to capitalize on opportunities to build on our relationships with existing advertisers and attract new clients. We will continue to develop preferred relationships with the largest agency holding companies that position us to benefit from the increased online video spending by their constituent agencies. By focusing on our relationships with agency holding companies, we believe our sales efforts will become more efficient by shortening the prequalification period and sales cycle with the respective holding companies' constituent agencies. We intend to expand our reach beyond our current core industry verticals, including CPG, automotive and entertainment, to add other verticals in which companies spend significantly on brand advertising, such as technology and telecommunications, retail and financial services.

    Increased Penetration in Mobile and Connected TV

        As viewers increasingly consume content on smartphones and tablets, we expect brand advertisers to devote increasing amounts of advertising spend towards mobile channels. Mobile is inherently an interactive channel, and we are promoting our performance-based pricing models such as CPE to take advantage of this interactivity. Moreover, our strategic focus on in-stream advertising positions us to solve many of the challenges of mobile advertising that are created by screen size limitations since the video ad served will generally occupy the entire mobile screen. In addition, we are integrating

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VideoHub with an increasing number of connected TV publishers, enabling our clients to take advantage of potential growth in this emerging channel.

    Grow our Premium Publisher Network

        We offer premium publishers quality advertising demand at scale and help them effectively monetize their content. We have partnered with more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. We plan to grow our premium publisher base, increase our share of the in-stream video inventory generated by our publishers and enter into additional exclusive arrangements where appropriate. We believe these premium publisher relationships will allow us to deliver high performing campaigns for brand advertisers resulting in increased advertising spend through the Tremor Video Network. In addition, we are focused on developing an enterprise solution for publishers to enable their direct sales force to better monetize their video ad inventory.

    Pursue High Margin Licensing Opportunities

        We are focused on expanding the adoption and resulting licensing revenue of VHA. We plan to grow VHA licensing revenue by entering into agreements with new agencies and driving adoption of VHA across more brands within agencies with which we have existing licensing agreements. VHA allows brand advertisers and their agencies to measure the effectiveness of video ad campaigns whether or not those campaigns are run through the Tremor Video Network. We believe our clients will recognize the strategic value of VHA, which will enable us to strengthen our relationships with them.

    Extend our Technology to Brand-focused, Programmatic Buying

        Programmatic buying is a relatively new development in online advertising in which an advertising exchange brings together buyers and sellers of ad inventory, often in real-time. Based on the perceived value of the ad inventory, or the viewer, a bid is placed by relevant advertisers and the highest bidding advertiser gets the opportunity to serve the ad to the viewer. To date, programmatic buying has been largely limited to display and in-banner video advertising. Its expansion to online video advertising has been impacted by the lack of necessary data for effective programmatic buying of video ads. We believe that our technology is well suited to enable differentiated brand-focused programmatic buying for in-stream video advertising and we intend to extend our technology to encompass such functionality. We believe that our future entry into this space will drive incremental revenue.

    Expand Our Global Presence

        We license certain aspects of VideoHub to video ad networks and exchanges in geographies where we do not currently have a direct presence to enable these licensees to improve the performance and monetization of their video inventory. We aim to further increase our presence in strategic locations around the world through additional partnerships and commercial agreements. We believe that international markets will increasingly experience similar market trends to those in the United States that make video advertising attractive to brand advertisers. Accordingly, we believe international markets represent opportunities for growth.

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Clients

    Advertisers and Agencies

        As of March 31, 2013, we had 372 advertiser clients, including all of the top 10 automaker advertisers and 9 of the top 10 CPG advertisers. The following sets forth a list of representative advertisers by vertical in 2012:

Auto   CPG

Ford Motor Company

 

Colgate-Palmolive Company

General Motors Company

 

Kraft Foods Inc.

Hyundai Corporation

 

Merck & Co. Inc.

Nissan Motor Company

 

Procter & Gamble Company

Toyota Motor Corporation

 

Reckitt Benckiser Plc

 

Entertainment   Others

Fox Broadcasting Corp.

 

Cotton Inc.

Open Road Films, Inc.

 

Google Inc.

NBCUniversal Media, LLC

 

Lowes Cos. Inc.

Showtime Networks Inc.

 

Marriott International Inc.

Walt Disney Company

 

Microsoft Corp.

        The following is a list of representative advertising agencies with whom we worked in 2012:

Carat
DraftFCB, Inc.
Mediaedge: cia UK Limited
MediaStorm LLC
MindShare, Inc.
  Moxie Interactive, Inc.
OMD USA Inc.
Starcom MediaVest Group
Zenith Optimedia Ltd.
Zimmerman Advertising LLC

        Revenue contribution from individual brand advertisers varies from period to period. We do not believe our business is substantially dependent upon any individual advertiser as no individual advertiser represented more than 10% of our revenue in 2011, 2012 and the three months ended March 31, 2013. We maintain close relationships directly with brand advertisers and we consider them to be our clients, as the video ad campaigns we run are those of the advertiser and we work closely with them to execute their video ad campaigns on the Tremor Video Network. However, we primarily market and sell our solutions to advertising agencies on behalf of their advertiser clients. We do not directly contract with brand advertisers; rather, we contract directly with the advertising agencies representing these brands or the large agency holding companies that own and control many of the advertising agencies. However, brand advertisers are ultimately responsible to us for all contractual payment obligations. In 2011, 2012 and the three months ended March 31, 2013, we derived 18.0%, 13.8% and 17.9%, respectively, of our revenue from brand advertisers represented by the Starcom MediaVest Group.

        Once an advertiser or its agency determines to run a video ad campaign through the Tremor Video Network, we execute an insertion order with the ad agency on behalf of the advertiser reflecting campaign parameters such as size and duration of the campaign, type of video ad format, devices on which the campaign will run, the KPI for which to optimize performance and the desired pricing model. Prior to running the campaign, the advertiser and its agency often work with our creative team to provide the creative direction of the campaign and design and build an advanced ad unit. The completed video ad is then uploaded to our ad server by our operations personnel. Once uploaded, the video ad is available to be served to the publisher ad inventory available on our Tremor Video Network. When a publisher makes an ad request, VideoHub analyzes the signals associated with that ad request and prioritizes the delivery of video ad campaigns that are more likely to perform, utilizing

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our optimization technology and taking into consideration the applicable campaign parameters. During a campaign flight, through VHA, a client may access analytics about the performance of its video ad campaign and validate the placement of its video ads and number of impressions delivered.

        The insertion orders entered into with ad agencies on behalf of advertisers are cancellable upon short notice and without penalty consistent with standard terms and conditions for the purchase of internet advertising for media buys one year or less published by the Interactive Advertising Bureau. These insertion orders generally require payment within 60 days of invoice, which we send on a monthly basis.

        We provide basic VHA access to advertisers with respect to their video ad campaigns running through the Tremor Video Network and charge a license fee for advanced analytics. We also license VHA to advertisers and agencies to track the performance of their video advertising campaigns across their ad buys. The license fee varies depending upon the level of access to our video advertising analytics and the volume of impressions actually analyzed through VHA during the term of the license. Typically, our license terms are for one year periods and are cancellable upon 30 days advance notice in case of a breach. Our clients are required to remit payment for use of VHA within 30 calendar days after the applicable month end.

    Publisher Partners

        Publishers provide us with the video content within which we deliver video advertising campaigns on behalf of our advertiser clients. We have partnered with more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. We consider a premium publisher to be a publisher that has professionally produced content, offers a quality video viewing experience, which includes size and placement of the video player, and delivers brand metric performance results to brand advertisers.

        We enter into agreements with our exclusive publisher partners that typically have a one year term and provide for a minimum fill rate, or a percentage of video ad inventory made available by the publisher to the Tremor Video Network that we must utilize in a given month, at a fixed CPM. At the end of each month, we calculate the amounts owed to our exclusive publishers based on the greater of (1) the number of video ads delivered in any given month and (2) the minimum fill rate. We are generally required to remit payment for these impressions within 60 days of month end. The scope of these exclusive relationships varies, with some publishers imposing geographical, device or inventory type limitations. For example, under an exclusive relationship, we may be a publisher's exclusive partner only for in-stream video in the United States. A publisher's direct sales force may continue to sell their video ad inventory to advertisers or agencies directly. With respect to our non-exclusive publishers, we purchase video ad inventory on an as needed basis at a fixed CPM. We are generally required to remit payment for these impressions within 60 days of month end.

Case Studies

    Advertisers

    Large Automotive Company

        A large automotive company, or automotive company, has been an advertiser with us since 2009. In 2012, they began significantly leveraging our advanced ad formats and performance-based pricing model to reach engaged consumers at scale across the Tremor Video Network.

        In the fourth quarter of 2012, the automotive company ran six different video ad campaigns through the Tremor Video Network, all optimized toward the engagement KPI and priced on a CPE basis. Three of these campaigns were broad national efforts by the automotive company for its car models to get consumers to engage and spend more time with its messaging and increase consideration

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for its brand. Three of these efforts leveraged our ability to find Spanish language consumers in order to engage that market segment with the brand messaging for its car models. By creating a Super Pre-Roll video ad unit in Spanish, we were able to reach a critical audience for this automotive company connecting it to only interested, relevant consumers.

        Each video advertising campaign resulted in strong performance against its selected KPI, while simultaneously providing robust real-time insight into the signals that were driving campaign success. For example, this campaign achieved an engagement rate of 3.2% and drove significant time spent with the brand message, as consumers who engaged with the video ad unit spent, on average, 84 seconds with a 30 second video ad unit. Campaign results revealed that engagement was optimized when a viewer was exposed to a video ad 2-4 times, with diminished returns thereafter.

        As a result of these successful campaigns, we are seeing strong momentum with the automotive company and have continued to run video ad campaigns for them in the first quarter of 2013 across multiple divisions.

    Large CPG Company

        A large CPG company began advertising with us in 2008, primarily using our solution to extend the reach of their video ad campaigns and build awareness online. Since 2011, this CPG company has increasingly leveraged our advanced ad formats, brand-centric KPIs, multi-screen capabilities and performance-based pricing models to drive brand goals.

        For example, in August 2012, one of the CPG company's brands looked to us for the launch of a new product campaign. The CPG company's goal was to increase engagement and time spent with the video ad. We worked closely with the CPG company's agencies to understand their campaign goals and built an immersive Super Pre-Roll ad unit that invited viewers to engage with the video ad to see additional video content and other product features. The campaign, which was priced on a CPE basis, was very successful, achieving average engagement rates of 5 to 6% and an impressive time spent metric, as viewers that engaged with the video ad spent on average 50 seconds with a 30 second video ad unit. Based on these results, the CPG company extended the campaign with additional flights in late 2012 and early 2013.

        As a result of this and other successful campaigns, the CPG company has significantly expanded their relationship with us in recent years. From 2010 to 2012, the CPG company:

    increased advertising spend with us reflecting a compound annual growth rate of 53%;

    expanded the number of its brands using the Tremor Video Network from 9 to 17; and

    increased average expenditure by brand.

        Moreover, from 2011 to 2012, the percentage of its ad spend on campaigns running through the Tremor Video Network that were optimized for brand lift and engagement KPIs increased from none to 33% and the percentage of the CPG company's ad spend attributable to CPE pricing increased from none to 10%.

    Large Technology Company

        A large technology company began using the Tremor Video Network in 2008 and was one of the first adopters of our CPE pricing model in 2010, as they recognized the value of consumer engagement to brand building. From 2010 to 2012, the percentage of the technology company's ad spend with us that was earmarked against brand-centric KPIs increased from 8% to 46%.

        In the fourth quarter of 2012, the technology company launched a video ad campaign for a new product on the Tremor Video Network that was optimized for brand lift. Through our optimization

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technology, we were able to serve the campaign in environments and to viewers in a manner that drove a more favorable perception of the product. As a result of the success of this campaign, the technology company subsequently renewed the campaign in the first two quarters of 2013. As of April 2013, survey results show that these campaigns have shifted 360,000 viewers to more favorable perceptions and stronger consideration of the technology company's advertised product.

    Publishers

    A+E Networks

        A+E Networks® is a leading media company that owns a group of television channels including A&E®, HISTORY®, bio.® and Lifetime® as well as related premium websites such as aetv.com, history.com, biography.com and mylifetime.com. We began working with A+E Networks in July 2008. In January 2011, A+E Networks elected to make our relationship exclusive based on our ability to effectively monetize their online video content across all of their sites. As A+E Networks' exclusive partner, we are the only third party able to deliver video ads into their premium video content. The number of impressions from A+E Networks' sites that were served by Tremor Video Network grew by 50% from 2011 to 2012, making A+E Networks one of our largest exclusive partners. Based on the success of this exclusive relationship, in January 2013, A+E Networks enlarged the scope of the exclusive relationship to include video content delivered to A+E Networks mobile phones and tablets. We believe that our exclusive access to A+E Networks' premium video content helps us deliver strong performance for our advertisers and further differentiates us from our competitors.

    Viacom Media Networks

        Viacom Media Networks, a division of Viacom International Inc., oversees the operations of many television channels and websites, including MTV, VH1, Comedy Central and Nick at Nite. We began working with Viacom Media Networks in February 2011 when they selected us as their exclusive partner for the monetization of unsold advertising inventory in connection with online video content across more than 20 premium sites in the United States. In January 2013, Viacom Media Networks extended its exclusive partnership with us through December 2014. We believe that our exclusive access to unsold inventory on Viacom Media Networks' premium video content helps us deliver strong performance for our advertisers and further differentiates us from our competitors. In particular, Viacom Media Networks' long form video content results in high completion rates for our video ads. In addition, since January 2013, Viacom Media Networks has been utilizing our VideoHub analytics solution, which we believe provides insights into video ad campaigns sold by Viacom Media Networks' direct sales team. We believe these insights will strengthen Viacom's relationships with its advertisers and strengthen our relationship with Viacom because of the incremental value-add we believe we are able to provide through VideoHub analytics.

Sales

        As of March 31, 2013, we had total sales and marketing staff of 154, with 139 based in the United States, and 15 based internationally. For 2011, 2012 and the three months ended March 31, 2013, our total sales and marketing expenses were $28.8 million, $35.0 million and $8.8 million, respectively.

    Advertiser and Agency Sales

        Our sales strategy is focused on targeting the most "video ready" brand advertisers, including those advertisers that are large television advertising spenders and have internet display and search budgets. Our advertiser sales force is structured around the verticals that are most ready to spend on online video. Our core verticals include automotive, CPG and entertainment. In addition, we have increasingly

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focused on the technology and telecommunications, retail and financial services verticals as potential areas for expansion.

        We also have developed and will continue to develop preferred relationships with key agency holding companies that position us to benefit from increased online video spending by their constituent agencies. Brand advertisers' purchasing decisions typically are made and coordinated by their advertising agencies and require input from multiple constituencies and the sales process therefore can be time-consuming. We have invested significant resources in establishing relationships with our brand advertisers, agencies and agency holding companies.

        Our sales executives and account managers are assigned to specific advertisers to oversee relationships and provide guidance throughout the campaign process from launch to post campaign review. Our creative team also works with advertisers to create innovative ad campaigns that are specifically suited for in-stream video viewing and optimizing viewer engagement, providing much needed insight to advertisers with limited exposure to digital advertising. We generally locate sales and marketing personnel across the United States to align with the geographies of our advertisers and agencies.

    VHA Sales

        Our enterprise sales organization is responsible for client acquisition, account management and overall market awareness of our VHA solution. We established our enterprise sales organization in the United States in 2011 and in Europe in 2012. We expect to continue to grow our enterprise sales and account management headcount in all of our principal markets and extend our offering into countries where we currently do not have a direct sales presence.

    Publisher Development

        Our publisher initiatives utilize a full-service development and support strategy. Our team of publisher development professionals is responsible for ensuring that we are meeting the ongoing needs of our publishers throughout the duration of the relationship, and is supported by engineers with deep technical expertise. We invest significant time in cultivating relationships with our publishers to ensure they understand the potential benefits of monetizing their inventory with us rather than with third-party media networks and exchanges. This relationship building process can be time consuming and we have invested significant resources in establishing relationships with our publisher partners.

Technology and Development

        Our technology and development efforts are focused on significant investments in VideoHub, which powers the Tremor Video Network and VHA.

        As of March 31, 2013, we had a total of 68 employees engaged in technology and development functions. For 2011, 2012 and the three months ended March 31, 2013, our total technology and development expenses were $5.9 million, $8.1 million and $2.7 million, respectively.

Competition

        We operate in a dynamic and competitive market, influenced by trends in both the overall advertising market as well as the online video advertising industry. The competitive dynamics of our market are unpredictable because our market is in an early stage of development, rapidly evolving, fragmented and subject to potential disruption by new technological innovations. The Tremor Video Network competes with large online video publishers such as Hulu, LLC and YouTube, LLC, which is owned by Google Inc., as well as advertising networks and exchanges, such as BrightRoll, Inc. and YuMe, Inc. We also compete for advertiser spending with publishers, such as CBS, CNN and ESPN,

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who rely on their own sales organizations to attract brand advertisers across their properties. Our VHA solution competes with ad tech infrastructure companies, such as Adap.tv, Inc. and Videology, Inc.

        In the traditional media space, our primary competitors for middle of the funnel advertising spend are mainly cable TV broadcasters, radio broadcasters and print media publishers. Across the digital media landscape, we compete for advertising spend with large entities such as Facebook, Inc., Microsoft Corporation and Yahoo! Inc. as well as Adobe Systems Incorporated and Google Inc. that offer video advertising services as part of a larger solution for digital media buying. Many of these competitors have significant client relationships, much larger financial resources and longer operating histories than we have.

        We believe the principal competitive factors in our industry include the following:

    proven technology and optimization capabilities;

    pricing;

    quality and scale of online video inventory;

    depth and breadth of relationships with brand advertisers and premium publishers;

    multi-channel capabilities;

    brand-centric measurement;

    ability to ensure brand safety; and

    transparency into ad performance and placement.

We believe that we compete favorably with respect to all of these factors and that we are well positioned as a leading provider of technology-driven video advertising solutions to brand advertisers.

Intellectual Property

        Our ability to protect our intellectual property and our technology will be an important factor in the success and continued growth of our business. We rely on a combination of trade secrets, copyrights, patents and trademarks, as well as contractual protections, to establish and protect our intellectual property and protect our proprietary technology. We currently own one granted European patent, which we registered in France, Germany and Great Britain and expires in 2029. Additionally, we currently own eight pending U.S. patent applications that we are currently prosecuting with the U.S. Patent and Trademark Office. We register certain domain names, trademarks and service marks in the United States and in certain locations outside the United States. We also rely upon common law protection for certain marks, such as "Tremor Video." We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. We also use measures designed to control access to our technology and proprietary information. We view our trade secrets and know-how as a significant component of our intellectual property assets, which we believe differentiate us from our competitors.

        Despite our efforts to preserve and protect our intellectual property, our efforts may not prevent the misappropriation of our intellectual property or technology, or deter independent development of similar intellectual property or technology by others. Policing unauthorized use of our technology and intellectual property is difficult. Third parties may attempt to copy, reverse engineer or otherwise obtain our proprietary technology, or otherwise violate our intellectual property rights. Unauthorized disclosure by our employees, contractors or other third parties could also occur. Effective intellectual property protection may not be available in the United States or other jurisdictions in which we operate and the efforts we have taken to protect our proprietary rights may not be sufficient or

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effective. Any impairment or loss of our intellectual property, or any inability to enforce our intellectual property rights effectively, could harm our business or our ability to compete. Also, protecting our technology and intellectual property is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property or technology could make it more expensive for us to do business and could harm our operating results.

        Additionally, we expect that products in our industry may be subject to third-party infringement lawsuits as the number of competitors grows and the functionality of products in different industry segments overlaps. We currently face, and expect to face in the future claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. We cannot assure you that we are not infringing or violating any third-party intellectual property rights. Such claims may be made by competitors or other entities. In the future, we, or our clients, may be the subject of legal proceedings alleging that our solutions or underlying technology infringe or violate the intellectual property rights of others.

        We also encourage you to review the risk factors above titled "Any failure to protect our intellectual property rights could negatively impact our business" and "Our business may suffer if it is alleged or determined that our solutions or another aspect of our business infringes the intellectual property rights of others."

Governmental Regulation; Industry Alliances

        We are subject to numerous U.S. and foreign laws and regulations that are applicable to companies engaged in the online video advertising business, including video advertising on mobile devices. In addition, many areas of law that apply to our business are still evolving, and could potentially affect our business to the extent they restrict our business practices or impose a greater risk of liability. We are aware of several ongoing lawsuits filed against companies in our industry alleging various violations of privacy or data security related laws.

    Privacy

        Privacy and data protection laws and regulations play a significant role in our business. In the United States, at both the state and federal level, there are laws that govern activities such as the collection, use and disclosure of data by companies like us. Online advertising activities in the United States have primarily been subject to regulation by the Federal Trade Commission, or the FTC, which has regularly relied upon Section 5 of the Federal Trade Commission Act, or Section 5, to enforce against unfair and deceptive trade practices. Section 5 has been the primary regulatory tool used to enforce against alleged violations of consumer privacy interests. In addition, our solutions reach devices and users throughout the world, including in Australia, Canada, Europe, South America and Asia. As a result, some of our activities may also be subject to the laws of foreign jurisdictions. In particular, European data protection laws can be more restrictive regarding the collection, use, and disclosure of data than those in the United States. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.

        Additionally, U.S. and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict industry participants' ability to collect, augment, analyze, use and share anonymous data, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tools to track people online. The European Union, or EU, and some EU member states have already implemented legislation and regulations requiring advertisers to obtain specific types of notice and consent from individuals before using cookies or other technologies to track individuals and their online behavior and deliver targeted advertisements. It remains a possibility that additional legislation and regulations may be passed or

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otherwise issued in the future. We also participate in industry self-regulatory programs under which, in addition to other compliance obligations, we provide consumers with notice about our use of cookies and our collection and use of data in connection with the delivery of targeted advertising and allow them to opt-out from the use of data we collect for the delivery of targeted advertising. The rules and policies of the self-regulatory programs that we participate in are updated from time to time and may impose additional restrictions upon us in the future.

        Any failure, or perceived failure, by us to comply with U.S. federal, state, or international laws or regulations pertaining to privacy or data protection, or other policies, self-regulatory requirements or legal obligations could result in proceedings or actions against us by governmental entities or others.

        In December 2011, the FTC issued an order in connection with the resolution of allegations that from April 2007 until September 2009, before we acquired ScanScout, ScanScout's privacy policy was deceptive with respect to cookies and consumers' ability to opt-out from data collection. The order requires that we do not misrepresent the extent to which data from or about a particular user or the user's online activities is collected, used, disclosed, or shared, or the extent to which users may exercise control over the collection, use, disclosure, or sharing of data collected from or about them, their computers or devices, or their online activities. It also requires that we: (1) notify users that our websites collect information for the purpose of sending targeted advertisements, along with a hyperlink to an opt-out mechanism, (2) include a hyperlink to such opt-out mechanism within or immediately adjacent to display advertisements; (3) undertake reasonable efforts to develop and implement a hyperlink to such opt out mechanism within or immediately adjacent to video advertisements; and (4) engage in recordkeeping and reporting obligations. The obligations under the order remain in effect until the latter of December 14, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. A violation of the order could lead to an FTC action for civil penalties. In addition, ScanScout was subject to a putative class action legal proceeding regarding its use of "Flash" cookies, which was settled in March 2012 and dismissed with prejudice.

    Advertising

        Even though we generally receive certain contractual protections from our advertisers with respect to their video ads, we may nevertheless be subject to regulations concerning the content of ads. Federal and state laws governing intellectual property or other third-party rights could apply to the content of ads we place. Laws and regulations regarding unfair and deceptive advertising, sweepstakes, advertising to children, and other consumer protection regulations, may also apply to the ads we place on behalf of clients.

    Industry Alliances

        Given the developmental stage of video advertising, industry practices are rapidly evolving. We are participating members of the Digital Advertising Alliance, or DAA, including the DAA Principles and Communications Advisory Committee, which oversees the DAA and its working groups. We also participate in a wide range of IAB committees, councils and working groups, such as the IAB Public Policy Council, the Networks and Exchanges Committee, Digital Video VAST & VPAID Standards Update Working Group, the Digital Video Committee, as well as other industry groups that are focused on establishing best practices for the online video advertising industry. In February 2013, our Chief Revenue Officer, Randy Kilgore, was elected as Chairman of the Interactive Advertising Bureau board of directors.

Employees

        As of March 31, 2013, we had 249 employees, of which 68 were primarily engaged in technology and development, 154 were engaged in sales and marketing, and 27 were engaged in general and administrative. Substantially all of these employees are located in the United States. None of our

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