S-1/A 1 d658316ds1a.htm AMENDMENT NO. 3 TO FORM S-1 Amendment No. 3 to Form S-1
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As filed with the Securities and Exchange Commission on July 7, 2014

Registration No. 333-194817

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TubeMogul, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7311   51-0633881

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1250 53rd Street, Suite 1

Emeryville, California 94608

(510) 653-0126

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Brett Wilson

President and Chief Executive Officer

TubeMogul, Inc.

1250 53rd Street, Suite 1

Emeryville, California 94608

(510) 653-0126

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Peter M. Astiz, Esq.

Michael J. Torosian, Esq.

DLA Piper LLP (US)

2000 University Avenue

East Palo Alto, California 94303-2215

(650) 833-2000

 

Eric Deeds, Esq.

TubeMogul, Inc.

General Counsel

1250 53rd Street, Suite 1

Emeryville, California 94608

(510) 653-0126

 

Daniel J. Winnike, Esq.

William L. Hughes, Esq.

Theodore G. Wang, Esq.

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, California 94041

(650) 988-8500

 

 

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

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, check the following box:  ¨

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

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.  ¨

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 statement number of the earlier effective registration statement for the same offering.  ¨

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 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨      Accelerated filer   ¨
Non-accelerated filer   þ    (Do not check if a smaller reporting company)   Smaller reporting company   ¨

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be
Registered(1)

  Proposed
Maximum
Offering Price
Per Share(2)
 

Proposed
Maximum
Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee(2)(3)

Common Stock, $.001 par value

 

7,187,500

  $13.00   $93,437,500   $12,035

 

 

(1) Includes an additional 937,500 shares that the underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have the option to purchase.
(3) The Registrant previously paid $9,660 of this amount in connection with the initial filing of this registration statement. In accordance with Rule 457(a), an additional registration fee of $2,375 is being paid in connection with this amendment to the registration statement.

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 which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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

 

PRELIMINARY PROSPECTUS

Subject to Completion. Dated July 7, 2014

6,250,000 Shares

 

LOGO

TubeMogul, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of TubeMogul, Inc. We are selling              shares of our common stock.

We expect the public offering price to be between $11.00 and $13.00 per share. Currently, no public market exists for the shares. We intend to list the common stock on The Nasdaq Global Select Market under the symbol “TUBE.”

We are an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 and, therefore, may comply with certain reduced public company reporting requirements under the federal securities laws. Investing in the common stock involves risks that are described in the “Risk Factors” section beginning on page 11 of this prospectus.

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.

 

 

 

       Per Share            Total      

Public offering price

     $           $     

Underwriting discount (1)

     $           $     

Proceeds, before expenses, to us

     $           $     

 

  (1)

See “Underwriting.”

The underwriters may also exercise their option to purchase up to an additional 937,500 shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Entities affiliated with Foundation Capital, LLC, a holder of more than 5% of our common stock and an affiliate of a member of our board of directors, have indicated an interest in purchasing up to an aggregate of $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because this indication of interest is not a binding agreement or commitment to purchase, the underwriters could determine to sell more, less or no shares to the entities affiliated with Foundation Capital, LLC and such entities could determine to purchase more, less or no shares in this offering. The underwriters will receive the same discount on any shares of our common stock purchased by such entities as they will from any other shares of our common stock sold to the public in this offering.

The underwriters expect to deliver the shares against payment on or about                     , 2014.

 

BofA Merrill Lynch   Citigroup    RBC Capital Markets

 

 

 

BMO Capital Markets    Oppenheimer & Co.

The date of this prospectus is                     , 2014.


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LOGO


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LOGO


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TABLE OF CONTENTS

Prospectus

 

Prospectus Summary

     1   

Risk Factors

     11   

Special Note Regarding Forward-Looking Statements

     33   

Industry and Market Data

     35   

Use of Proceeds

     36   

Dividend Policy

     36   

Capitalization

     37   

Dilution

     39   

Selected Consolidated Financial and Other Data

     41   

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

     45   

Business

     76   

Management

     95   

Executive Compensation

     103   

Certain Relationships and Related Party Transactions

     113   

Principal Stockholders

     115   

Description of Capital Stock

     118   

Shares Eligible for Future Sale

     125   

Certain Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of Common Stock

     128   

Underwriting

     132   

Legal Matters

     139   

Experts

     139   

Where You Can Find More Information

     139   

Index to Consolidated Financial Statements

     F-1   

 

 

Through and including                     , 2014, (the 25th day after the date of this prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.


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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “TubeMogul,” “the company,” “we,” “us” and “our” in this prospectus refer to TubeMogul, Inc., a Delaware corporation, and our predecessor, TubeMogul, Inc., a California corporation, and where appropriate, their respective consolidated subsidiaries.

TubeMogul, Inc.

TubeMogul is an enterprise software company for digital branding. By reducing complexity, improving transparency and leveraging real-time data, our platform enables brands to gain greater control of their digital video advertising spend and achieve their brand advertising objectives.

Our customers plan, buy, measure and optimize their global digital video advertising spend from our self-serve platform. By integrating programmatic technologies and disparate sources of inventory within a single platform, we enable our customers to launch sophisticated, scalable digital video advertising campaigns — onto any digital device — within minutes. This is in contrast to the still prevailing and inefficient approach to media buying that occurs through a manual campaign-by-campaign request for proposal, or RFP, process, which often involves multiple digital advertising service providers.

Our customers primarily include brands, which generally refer to companies, or product lines within companies, that control advertising budgets for a single marketing brand or a group of marketing brands, and the advertising agencies that serve them. Agency trading desks, ad networks and publishers also use our platform. We refer to our customers and other businesses that are engaged in purchasing digital marketing as advertisers.

Our platform is integrated with many public digital video ad inventory sources, where individual ad impressions can be purchased dynamically utilizing real-time bidding technology, or RTB. Our platform automates the real-time purchase of ad impressions based upon campaign objectives. Additionally, our customers can easily integrate the ad inventory they source directly from publishers and private exchanges. As a result, our platform enables holistic campaign management across public and private inventory using a single interface.

As consumers are increasingly watching video content on digital devices, advertisers are shifting more of their video advertising spend from traditional TV to digital video. As a result, advertisers want to plan, buy and measure TV and digital video on an equivalent basis. Our platform enables advertisers to plan and buy digital video advertising using industry-standard metrics such as gross rating points, or GRPs, which are a measure of reach and frequency among a target audience, and verify the audience they reach using Nielsen reporting, thereby unifying the planning and measurement of TV and digital video campaigns.

Our platform measures key brand advertising metrics including brand lift, as measured by integrated brand surveys, as well as GRPs and engagement. As a result, advertisers can verify the success and impact of their digital video advertising campaigns by measuring the audience reached by the campaign, how the audience interacted with their advertisements and the impact the campaign had on the consumer’s perception of the brand. Using these real-time insights, our platform dynamically optimizes spend based upon brand advertising objectives set by the advertiser.

We offer advertisers unique visibility into the inventory they purchase, including enabling them to see video ad performance and viewability at any dimension of a campaign. Our platform also includes a suite of brand

 

 

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safety technologies designed to prevent unacceptable ad placements and to detect and block sites with inappropriate content, auto-play ad placements or fraudulent bot-driven traffic.

We make our platform available through two offerings: Platform Direct, which allows advertisers to continuously run campaigns through a self-serve model, and Platform Services, which allows advertisers to specify campaign objectives and have our team execute on their behalf using our platform. We believe our customers value both of our offerings. For 2013, campaigns were executed through our platform for over 2,000 brands, usually through an agency but in some cases directly. For the years ended December 31, 2011, 2012 and 2013, our total revenue was $15.7 million, $34.2 million and $57.2 million, respectively, representing a compound annual growth rate, or CAGR, of 91%, and Total Spend through our platform was $17.8 million, $53.8 million, and $111.9 million, respectively, representing a CAGR of 151%. For the three months ended March 31, 2013 and 2014, our total revenue was $9.6 million and $22.0 million, respectively, representing period-over-period growth of 130%, and Total Spend through our platform was $16.3 million and $48.0 million, respectively, representing period-over-period growth of 194%. We define Total Spend as the aggregate gross dollar volume that our Platform Direct customers and Platform Services customers spend through our platform, which includes cost of media purchases and our fees. Please see “Selected Consolidated Financial and Other Data — Non-GAAP Financial Measures” for information regarding the limitations of using Total Spend as a financial measure and for reconciliations of Total Spend to revenue, the most directly comparable financial measure calculated in accordance with GAAP. For the years ended December 31, 2011, 2012 and 2013 and for the three months ended March 31, 2013 and 2014, our gross margin was 48%, 52%, 66%, 65% and 72%, respectively. For the years ended December 31, 2011, 2012 and 2013 and for the three months ended March 31, 2013 and 2014, our net loss was $4.1 million, $3.6 million, $7.4 million, $1.9 million and $0.8 million, respectively, with our net loss for the year ended December 31, 2013 representing a 108% increase compared to the year ended December 31, 2012.

Market Overview

The global advertising market is large, totaling $490 billion in 2013, according to MAGNA GLOBAL, a strategic global media company. Given the importance of branding to maintain and improve differentiation, market share and pricing power, a significant portion of these dollars are spent on brand advertising. Brands rely on the sight, sound and motion of video advertising to establish an emotional connection with consumers that is critical to branding. Brands have primarily utilized traditional TV advertising to deliver video messages to the large audiences they require. As a result, the traditional TV market is the largest advertising market segment, reaching $197.0 billion globally in 2013, according to MAGNA GLOBAL.

While TV advertising represents the largest single portion of today’s advertising spend, consumers are shifting their consumption of media content from analog mediums, such as TV, print and radio, to digital mediums such as websites and mobile applications. Recognizing this trend, brands are increasingly shifting their advertising spend to digital mediums such as digital video. MAGNA GLOBAL estimates that brands will increase their spending on digital video advertising globally from $8.3 billion in 2013 to $22.5 billion in 2017, representing a CAGR rate of 28%.

As brands shift advertising spend to digital video, they encounter increasing complexity in executing their advertising campaigns. Brands, their agencies and other entities, which we refer to as advertisers, generally need to use dozens of digital advertising technology providers to execute a campaign. This has resulted in a complex, fragmented and inefficient system.

Software’s Impact on Brand Advertising

Recently, cloud-based enterprise software solutions have been adopted to reduce operating costs, increase scalability, and provide better data for decision making across a multitude of functions within corporations. However, while specific solutions such as programmatic buying have begun to impact the digital advertising industry, advertisers

 

 

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have not yet fully realized the potential benefits that a comprehensive enterprise software solution offers. The adoption of programmatic technology to date has been driven by pressure to improve the performance of digital marketing campaigns. In 2013, video advertising spend transacted using RTB in the U.S. was projected to be $686 million and is expected to grow 66% in 2014 to $1.1 billion, according to Forrester Research, an independent research firm.

Challenges of Video Advertising for Brands

As the digital video advertising market continues to develop and grow, advertisers are seeking alternatives to the highly manual, repetitive and uncoordinated processes that they have historically used to plan, execute and measure their digital video advertising campaigns. However, they continue to face several specific challenges including:

 

   

Fragmented and Manual System for Buying Digital Media. Advertisers need to reach audiences on many websites to achieve campaign goals, and must do so across many types of digital devices. Advertisers also typically engage in repetitive manual RFP processes with multiple sources of inventory to select the video advertising inventory suitable to reach their target audience, resulting in significant inefficiencies.

 

   

Challenging to Integrate and Leverage Multiple Technology Providers. Technologies needed to execute digital video advertising campaigns are generally offered by different providers and it is difficult for advertisers to make these technologies work well together. This impedes campaign performance, increases costs and lowers efficiency.

 

   

Limited Options for Advertisers to Manage and Control Entire Buying Process. To reach audiences across thousands of websites, advertisers are often forced to purchase inventory through media aggregators, which generally do not allow advertisers to choose the websites on which their ads run, make adjustments during the course of a given campaign, or obtain the performance data necessary to evaluate and improve ongoing campaign decision making.

 

   

TV Advertising and Digital Video Advertising are Purchased and Measured Differently. To date, TV and digital advertising campaigns have been executed separately and measured by different metrics, leading to inefficiencies. The separate processes and metrics make it difficult to effectively plan and measure video campaigns focused on reaching targeted audiences across TV and digital channels.

 

   

Advertising Service Providers Have Conflicting Interests and Offer Limited Inventory and Economic Transparency. Many digital video advertising service providers offer services to both advertisers and publishers. This model can create conflicting interests. In particular, such service providers may have an economic incentive to favor their own inventory when fulfilling campaigns over equally effective or superior inventory that is otherwise available.

 

   

Difficult to Measure Return on Investment. As consumers increasingly view content through a broader range of devices and channels, it is difficult for brands to verify a number of objectives important to brand advertising, such as reach and frequency among a target audience, engagement and brand lift.

 

   

Challenging to Deploy and Manage Global Campaigns. Managing video advertising campaigns globally is currently a costly and inefficient process requiring brands to contract with multiple agencies, ad exchanges, ad networks, supply-side platforms, publishers and technology providers.

 

   

Difficult to Identify and Eliminate Undesired Ad Placements and Fraudulent Traffic. Advertisers have limited control over the content alongside which their ad is placed, whether the ad is delivered in a user initiated video player, and whether it is viewable by the consumer. Advertisers are also concerned with the increasing proportion of fraudulent web traffic that is generated by computers, or bots, resulting in advertisers paying for impressions that are not viewed by consumers.

 

 

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Our Solution

We enable advertisers to plan, buy, measure and optimize global video advertising spend from a single platform. We make our cloud-based platform available through two offerings: Platform Direct, which allows advertisers to continuously run campaigns through a self-serve model, and Platform Services, which allows advertisers to specify campaign objectives and have our team execute on their behalf using our platform.

 

   

Integrated Software Platform. Our platform integrates with over 30 third-party technology providers who offer specific technologies for digital video campaigns, allowing advertisers to utilize a single control interface for campaign execution.

 

   

Designed for Self-Serve Model. Through our Platform Direct offering, our platform is accessible through a cloud-based, self-serve model, providing customers with full control and transparency over their digital video advertising spend. Our intuitive user interface enables advertisers to manage an unlimited number of campaigns simultaneously on a single platform, thereby reducing cost, complexity and inefficiencies caused by intermediaries.

 

   

Enable TV Advertisers to Buy Digital Video. Our platform enables advertisers to buy digital video advertising using industry standard metrics such as GRPs, and verify the audience they reach using integrated Nielsen reporting, thereby unifying the planning and measurement of TV and digital video advertising campaigns and improving efficiencies.

 

   

Independent and Transparent Buy-Side Positioning. We have built our business to serve only buyers of digital video advertising and have no incentive to favor specific inventory when fulfilling campaigns. We show our customers the specific sites where ads are displayed and our Platform Direct customers can see the price they pay for the media, providing them with greater economic transparency.

 

   

Verifies and Measures Campaign Performance and Brand Lift. Our platform enables advertisers to verify audience reach and engagement and measure the impact of a video ad campaign on consumers through our integrated brand survey module.

 

   

Purpose-Built for Global Video Advertising. Our platform has been designed for brands to manage and execute global digital video campaigns using a single integrated workflow. We currently enable campaigns in over 70 countries and our platform is currently available in four languages and supports 11 currencies.

 

   

Integrated Brand Safety Tools. Our platform includes a suite of technologies designed to prevent unacceptable ad placements by detecting, categorizing and blocking sites with inappropriate content, fraudulent bot-driven traffic and auto-play ad placements. We integrate technology that scans the content of individual web pages prior to an ad being served to ensure the content is appropriate for the brand.

Our Strengths

We believe the following attributes and capabilities provide us with long-term competitive advantages:

 

   

Focused on Software-Based Solutions for Brands. Our platform offers advertisers a robust and comprehensive solution for digital branding, which we believe differentiates our offerings from those of our competitors. We work to continuously improve our platform to provide our customers with the necessary capabilities to meet their evolving brand advertising objectives.

 

   

Empower Customers Through Our Self-Serve Model. Our Platform Direct customers have direct access to our platform which enables them to execute their own strategies for their digital video advertising spend. As a result of the performance and functionality of our platform, we believe many of our customers rely on our platform for a significant and growing portion of their digital video advertising spend.

 

 

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Product Built for Global Opportunity. Our platform is built for managing and executing global advertising campaigns. Our intuitive user interface enables geographically dispersed personnel within a global organization to work seamlessly together with an auditable workflow.

 

   

Industry Pioneer. We believe we were the first to deliver a programmatic digital video advertising platform designed exclusively for advertisers and we demonstrate thought leadership through industry initiatives such as founding the OpenVideoViewability consortium. As a result, we believe we have developed a deep expertise and a strong reputation in our market.

 

   

Attractive and Scalable Financial Model. We are able to scale our operations in a highly efficient manner with our Platform Direct offering. Because our Platform Direct offering allows advertisers to continuously run campaigns on a self-serve basis, we require fewer sales resources following initial sales and, therefore, our sales expense tends to represent a lesser portion of follow-on Platform Direct Spend.

 

   

Experienced Team. We are a founder-led software company that has been focused on developing innovative software solutions for digital video since we were founded in 2007. The extensive industry and technology experience of our management team has allowed us to create and maintain a culture of innovation at every level of the company.

Our Strategy

We believe that the digital video advertising market is in the early stages of a significant shift toward enterprise software solutions that address the complexities of digital brand advertising. We intend to capitalize on this opportunity by pursuing the following key growth strategies.

 

   

Expand Our Customer Base. Our global sales force is focused on growing the number of our customers, particularly our Platform Direct customers. To increase our global market share, we continue to invest in training and other initiatives to increase the productivity of our sales personnel.

 

   

Increase Our Share of Our Customers’ Video Advertising Spend. We continue to add features and functionality to our platform that encourage customers to consolidate, and ultimately increase, their digital video advertising spend on our platform.

 

   

Migrate Platform Services Customers to Platform Direct. Through our continued focus on educating our Platform Services customers of the value and control realized through use of our Platform Direct offering, we expect many of our Platform Services customers will migrate to our Platform Direct offering.

 

   

Expand into TV Brand Advertising. We plan to expand into the TV advertising market by continuing to build technologies that are relevant to brands that advertise on TV.

 

   

Continue to Innovate. We intend to continue to make substantial investments in our platform by introducing enhancements and new features and functionality that position us to capture a larger share of new market opportunities. By improving our algorithms and underlying software and finding new ways to leverage data, we believe we will enhance our value proposition for both existing and prospective customers.

 

   

Extend Global Footprint. To best support our global advertisers, we plan to continue to utilize our cloud-based architecture to expand our international presence in a cost-effective manner.

Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

 

   

We have a history of losses and we may not achieve or sustain profitability in the future.

 

 

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Our limited operating history makes it difficult to evaluate our current business and future prospects.

 

   

We may not maintain our recent revenue growth.

 

   

We may 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.

 

   

If our customers do not maintain and increase their advertising spend through our platform, our revenue growth and results of operations will be adversely affected.

 

   

The market for digital video advertising solutions for brands is relatively new and evolving. If this market develops more slowly or differently than we expect, our business, growth prospects and financial condition would be adversely affected.

 

   

We may not be able to compete successfully against current and future competitors.

 

   

A substantial portion of our business is sourced through advertising agencies that do not pay us until they receive payment from the brand, therefore increasing the length of time between our payment for media inventory and our receipt of payment for use of our platform, and our ability to collect for non-payment may be limited to the brand, increasing our risk of non-payment.

Corporate Information

TubeMogul was incorporated in California in March 2007 and reincorporated in Delaware in March 2014. Our principal executive offices are located at 1250 53rd Street, Suite 1, Emeryville, California 94608, and our telephone number is (510) 653-0126. Our corporate website address is www.tubemogul.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

TubeMogul and the TubeMogul logo and our other trademarks, service marks and trade names appearing in this prospectus are the property of TubeMogul. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

 

 

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The Offering

 

Common stock offered by us

6,250,000 shares

 

Common stock to be outstanding after this offering

28,685,816 shares

 

Option to purchase additional shares of common stock

937,500 shares

 

Directed share program

The underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus to persons who are directors, officers or employees, or who are otherwise associated with us. See the section titled “Underwriting.”

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $66.3 million (or approximately $76.7 million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full), assuming an initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us. We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. See the section titled “Use of Proceeds” for additional information.

 

Proposed NASDAQ symbol

“TUBE”

Entities affiliated with Foundation Capital, LLC, a holder of more than 5% of our common stock and an affiliate of a member of our board of directors, have indicated an interest in purchasing up to an aggregate of $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because this indication of interest is not a binding agreement or commitment to purchase, the underwriters could determine to sell more, less or no shares to the entities affiliated with Foundation Capital, LLC, and such entities could determine to purchase more, less or no shares in this offering. The underwriters will receive the same discount on any shares of our common stock purchased by such entities as they will from any other shares of our common stock sold to the public in this offering.

The number of shares of our common stock that will be outstanding after completion of this offering is based on 22,435,816 shares outstanding as of March 31, 2014, and excludes:

 

   

4,139,687 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2014, at a weighted average exercise price of $1.51 per share;

 

   

181,650 shares of common stock issuable upon the vesting of RSUs outstanding as of March 31, 2014;

 

   

267,085 shares of common stock issuable upon the vesting of RSUs granted after March 31, 2014;

 

   

102,161 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of March 31, 2014, at a weighted average exercise price of $0.8076 per share;

 

   

494,302 shares of common stock reserved for issuance under our 2007 Equity Compensation Plan as of March 31, 2014 (which includes the shares of common stock subject to awards described in the third bullet);

 

 

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2,500,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective upon the completion of this offering; and

 

   

750,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.

Unless otherwise noted, the information in this prospectus reflects and assumes the following:

 

   

a 2-for-1 reverse split of our common stock and preferred stock effected on April 14, 2014;

 

   

the conversion of all outstanding shares of our preferred stock into an aggregate of 15,510,330 shares of common stock immediately prior to the completion of this offering;

 

   

the automatic conversion of an outstanding warrant exercisable for 77,161 shares of our convertible preferred stock into a warrant exercisable for a like number of shares of common stock upon completion of this offering;

 

   

our reincorporation in Delaware;

 

   

the effectiveness of our amended and restated certificate of incorporation and our restated bylaws upon the completion of this offering; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 937,500 shares of common stock from us.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA

The following tables summarize our consolidated financial and other data. You should read this summary consolidated financial and other data together with the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The summary consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in our opinion, reflect all adjustments, which include only 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 that may be expected in the future. Results for the three months ended March 31, 2014 are not indicative of results expected for the full year.

 

     Years Ended December 31,     Three Months Ended March 31,  
           2011                 2012                 2013                 2013                 2014        
                       (unaudited)  
     (In thousands, except share, per share and client data)  
Consolidated Statements of Operations Data:                   

Revenue:

          

Platform Direct

   $ 2,171      $ 5,433      $ 19,331      $ 2,312      $ 9,248   

Platform Services

     13,488        28,726        37,883        7,268        12,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     15,659        34,159        57,214        9,580        22,026   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     8,214        16,374        19,698        3,392        6,215   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7,445        17,785        37,516        6,188        15,811   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development(1)

     3,797        7,364        11,837        2,346        3,808   

Sales and marketing(1)

     5,340        10,384        21,378        4,116        7,929   

General and administrative(1)

     2,294        4,931        10,477        1,475        4,438   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,431        22,679        43,692        7,937        16,175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain on sale of InPlay

     —          1,950        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,986     (2,944     (6,176     (1,749     (364
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

          

Interest expense, net

     (72     (232     (169     (48     (41

Change in fair value of convertible preferred stock warrant liability

     (11     (154     (388     1        (281

Foreign exchange loss

     (23     (141     (618     (94     (36
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (106     (527     (1,175     (141     (358
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (4,092     (3,471     (7,351     (1,890     (722

Provision for income taxes

     (1     (94     (60     (14     (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,093   $ (3,565   $ (7,411   $ (1,904   $ (767
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share(2)

   $ (0.66   $ (0.55   $ (1.12   $ (0.29   $ (0.11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted-average shares used to compute net loss per share(2)

     6,216,785        6,433,819        6,612,621     

 

6,588,947

  

 

 

6,750,834

  

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted pro forma net loss per share (unaudited)(2)

       $ (0.32     $ (0.02
      

 

 

     

 

 

 

Basic and diluted weighted-average shares use to compute pro forma net loss per share (unaudited)(2)

         22,225,112       

 

22,363,325

  

      

 

 

     

 

 

 

Other data: (unaudited)

          

Platform Direct Spend(3)

   $ 4,314      $ 25,032      $ 74,016      $ 9,062      $ 35,270   

Total Spend(3)

   $ 17,802      $ 53,758      $ 111,899      $ 16,330      $ 48,048   

Adjusted EBITDA(4)

   $ (3,777   $ (2,566   $ (5,801   $ (1,709   $ 106   

Number of Platform Direct Clients (5)

     25        86        208        110        242   

 

 

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(1) Stock-based compensation expense included above was as follows:

 

     Years Ended December 31,      Three Months Ended March 31,  
         2011              2012              2013              2013              2014      
                          (unaudited)  
     (in thousands)  

Research and development

   $ 50       $ 159       $ 206       $ 23       $ 102   

Sales and marketing

     72         92         230         28         140   

General and administrative

     11         179         325         51         174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 133       $ 430       $ 761       $ 102       $ 416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See Note 8 to our consolidated financial statements for a description of the method used to compute basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share.
(3) For purposes of calculating Total Spend and Platform Direct Spend, we define spend as the aggregate gross dollar volume that our customers spend through our platform, including cost of media purchases and our fees. Platform Direct Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the spend through our Platform Direct offering. Platform Services Spend equals our Platform Services revenue. Total Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the sum of Platform Direct Spend and Platform Services Spend. Please see “Selected Consolidated Financial and Other Data — Non-GAAP Financial Measures” below for information regarding the limitations of using these measures and for reconciliations of these measures to Platform Direct revenue and revenue, the most directly comparable financial measures calculated in accordance with GAAP.
(4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense, net, provision for income tax, depreciation and amortization expense excluding amortization of internal use software development costs, stock-based compensation expense and change in fair value of convertible preferred stock warrant liability. Please see “Selected Consolidated Financial and Other Data — Non-GAAP Financial Measures” below for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated in accordance with GAAP.
(5) We define a Platform Direct Client as a customer that had total aggregate spend of at least $10,000 through our platform during the previous twelve months. For purposes of this definition, all branches or divisions of a customer that operate under a contract with us are considered a single Platform Direct Client. In a limited number of instances in any period, branches or divisions of an advertiser that operate under distinct contracts are each considered a separate Platform Direct Client. We believe that our total number of Platform Direct Clients is an important measure of our ability to increase revenue and the effectiveness of our sales force.

 

     As of March 31, 2014  
     Actual      Pro Forma (1)      Pro Forma
As  Adjusted (2)
 
    

(unaudited, in thousands)

 

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 15,237       $ 15,237       $ 81,487   

Working capital

   $ 23,440       $ 24,405       $ 90,655   

Total assets

   $ 75,407       $ 75,407       $ 141,657   

Debt obligations, current and non-current, and convertible preferred stock warrant liability

   $ 10,722       $ 9,757       $ 9,757   

Total stockholders’ equity

   $ 27,005       $ 27,970       $ 94,220   

 

(1) The pro forma column reflects (i) the automatic conversion of all outstanding shares of preferred stock into 15,510,330 shares of common stock and (ii) the reclassification of the convertible preferred stock warrant liability to additional paid in capital, each to be effective immediately prior to the closing of the offering.
(2) The pro forma as adjusted column reflects all adjustments included in the pro forma column and gives effect to the sale by us of              shares of common stock offered by this prospectus at the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting 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 in this prospectus, including the consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

We have a history of losses and we may not achieve or sustain profitability in the future.

We have incurred losses in each fiscal year since our incorporation in 2007. In addition for the year ended December 31, 2013 and the three months ended March 31, 2014, we incurred net losses of $7.4 million and $0.8 million, respectively. As a result, we had an accumulated deficit of $19.6 million as of March 31, 2014. We may not achieve profitability in the future as we anticipate that our operating expenses will increase significantly in the foreseeable future as we continue to invest in research and development to enhance our platform and in sales and marketing to acquire new customers. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Even if we are successful in increasing our customer base, we may not become profitable in the future or may be unable to maintain any profitability achieved if we fail to increase our revenue and manage our operating expenses or if we incur unanticipated liabilities. Although our revenue has increased substantially in recent periods, we may not be able to sustain this rate of revenue growth. Revenue growth may slow or revenue may decline for a number of reasons, including slowing demand for our offering, increasing competition, lengthening sales cycles, decelerating growth of, or declines in, our overall market, or our failure to capitalize on growth opportunities or to introduce new offerings. We could also incur increased losses as we continue to focus on growing our Platform Direct offering because the sales cycle with those customers tends to be protracted, resulting in the majority of costs associated with sales of our Platform Direct offering being generally incurred up front, while customers are billed over time through our usage-based pricing model. Any failure by us to achieve and maintain profitability could cause the price of our common stock to decline significantly.

Our limited operating history makes it difficult to evaluate our current business and future prospects.

Although we began our operations in March 2007, we did not launch our platform nor begin generating substantial revenue until the second half of 2011. While we have experienced significant growth in recent periods, our short operating history and developing business model make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate investments of our limited resources, market acceptance of our platform and future features and functionality, competition from new and established companies, including those with greater financial and technical resources, acquiring and retaining customers and increasing revenue from existing customers, enhancing our platform and developing new technologies, features and functionality. You should consider our business and prospects in light of the risks and difficulties that we will encounter as we continue to develop our business model. We may not be able to address these risks and difficulties successfully, which would materially harm our business and operating results and cause the market price of our common stock to decline.

We may not maintain our recent revenue growth.

Our revenue growth will depend, in part, on our ability to acquire new customers, gain a larger amount of our existing customers’ advertising spend, continue to innovate and develop new technologies, features and

 

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functionality, extend our global footprint and increase our share of and compete successfully in new, growing digital video advertising markets, and we may fail to do so. A variety of factors outside of our control could affect our revenue growth, including changes in spend budgets of advertisers and the timing and size of their spend. Decisions by advertisers to delay or reduce their advertising spending or divert spending away from video advertising could slow our revenue growth or reduce our revenue. Our success in implementing our strategy of migrating customers from our Platform Services offering to our Platform Direct offering could also slow our revenue growth as we recognize a higher amount of revenue from the same amount of spend associated with our Platform Services offering than with our Platform Direct offering. You should not consider our recent growth rate in revenue as indicative of our future growth.

We may 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 quarterly operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not consider our past results, including our recent growth rates in terms of advertising spend and revenue, as indicative of our future performance.

In addition to other risk factors listed in this section, factors that may affect our quarterly operating results include the following:

 

   

fluctuations in demand for our platform, including seasonal variations in our customers’ advertising spend;

 

   

the level of advertising spend managed through our platform for a particular quarter and the mix between spend managed through our Platform Direct offering and Platform Services offering;

 

   

budgeting cycles and changes in video advertising budgets of and spending by our customers;

 

   

the length and associated unpredictability of our sales cycle;

 

   

the timing and amount of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

 

   

the timing and amount of investment in the development of new technologies, and features and functionality of our platform;

 

   

changes in the availability or price of advertising inventory;

 

   

the timing and success of changes in our offerings or those of our competitors;

 

   

changes in our pricing or pricing of our competitors’ solutions and changes in the pricing of digital video advertising generally;

 

   

network outages or security breaches or the perception that our platform or customer or consumer data is not secure and any associated expenses;

 

   

delay between our payments for advertising inventory purchased through our platform and our subsequent collection of fees from our customers related to that inventory;

 

   

changes in the competitive dynamics of our industry, including consolidation among competitors or customers;

 

   

changes in government regulation applicable to our industry;

 

   

foreign currency exchange rate fluctuations; and

 

   

general economic and political conditions in our domestic and international markets.

Based upon all of the factors described above, we have a limited ability to forecast our future revenue, costs and expenses, and as a result, our operating results may from time to time fall below our estimates.

 

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If our customers do not maintain and increase their advertising spend through our platform, our revenue growth and results of operations will be adversely affected.

Our contracts and relationships with advertisers generally do not include long-term or exclusive obligations requiring them to use our platform or maintain or increase their advertising spend on our platform. Furthermore, advertisers generally use multiple providers in managing advertising spend. Accordingly, we must convince our customers to use our platform, increase their usage and spend a larger share of their advertising budgets with us, and do so on an on-going basis. We may not be successful at educating and training customers, particularly our newer customers, on the benefits of our platform to increase usage and generate higher levels of advertising spend. If these efforts are unsuccessful or advertisers decide not to continue to maintain or increase their advertising spend through our platform for any other reason, then we may not attract new advertisers or our existing customers may reduce their video advertising spend through or cease using our platform. Therefore, we cannot assure you that advertisers that have generated advertising spend through our platform in the past will continue to generate similar levels of advertising spend in the future or that they will continue to use our platform at all. We may not be able to replace customers who decrease or cease their usage of our platform with new customers that spend similarly on our platform. If our existing customers do not continue to use and increase their use of our platform, or if we are unable to attract sufficient advertising spend on our platform from new customers, our revenue could decline, which would materially and adversely harm our business and results of operations.

The market for digital video advertising for brands is relatively new and evolving. If this market develops more slowly or differently than we expect, our business, growth prospects and financial condition would be adversely affected.

The substantial majority of our revenue has been derived from customers that purchase digital video advertising through our platform either on a self-serve basis or with us executing campaigns for them. We expect that spend on digital video advertising will continue to be our exclusive or nearly exclusive source of revenue for the foreseeable future, and that our revenue growth will depend on increasing digital video advertising spend through our platform. The market for digital video advertising is an emerging market and today advertisers generally devote a smaller portion of their advertising budgets to digital video advertising than to traditional advertising methods, such as TV, newspapers, radio and billboards. Our current and potential customers may find digital video advertising to be less effective than other brand advertising methods, and they may reduce their spending on digital video advertising as a result. To date, digital advertising has been primarily for performance-based advertising, or relatively simple display advertising such as banner ads on websites and, until recently, was principally focused on online channels such as desktops. Emerging channels such as mobile and social media are unproven and may not develop into viable channels. The future growth of our business could be constrained by both the level of acceptance and expansion of digital video advertising as a format and emerging digital video advertising channels, including mobile video, connected TV, social video and TV formats such as video on demand, as well as the continued use and growth of existing channels. To date, nearly all of our revenue has been derived from advertising served to desktops. Even if these new channels become widely adopted, advertisers may not increase their advertising spend through platforms such as ours. If the market for digital video advertising deteriorates, develops more slowly than we expect or the shift from traditional advertising methods to digital video advertising does not continue, or there is a reduction in demand for digital video advertising caused by weakening economic conditions, decreases in corporate spending, perception that digital video advertising is less effective than other media or otherwise, it could reduce demand for our offerings, which could decrease revenue or otherwise adversely affect our business.

We may not be able to compete successfully against current and future competitors.

We operate in a rapidly evolving and highly competitive market, subject to changing technology, branding objectives and customer demands and with many companies providing competing solutions. We compete primarily with companies developing solutions to automate the purchase of digital video advertising impressions across multiple sources of inventory. We also compete with other companies that address certain aspects of the

 

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online digital video advertising market, including demand-side platforms and video-focused ad networks, and in-house tools and custom solutions currently used by brand advertisers and their agencies and by publishers to manage advertising activities. In addition, we compete for advertising spend with large entities that offer digital video advertising services as part of a larger solution for digital media buying. In the future, we may compete with companies developing comprehensive marketing platforms. Other companies that offer analytics, mediation, exchange or other third-party specific technologies may also compete with us. As our platform evolves and we introduce new technologies, features and functionality of our platform, we may become subject to additional competition. Some of our current and prospective competitors in the broader digital advertising market have substantially greater resources and longer histories than us in the digital advertising space, may actively seek to serve our market and have the power to significantly change the nature of the marketplace to their advantage. These companies could develop and offer new solutions that directly compete with ours or leverage their position to make changes to their existing platforms that could be disadvantageous to our competitive position.

Increased competition may result in reduced pricing for our platform, longer sales cycles or a decrease of our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business. A number of competitive factors could cause us to lose potential sales or to sell at lower prices or at reduced margins, including, among others:

 

   

competitors may establish or strengthen relationships with brands, agencies, sources of inventory or other parties, thereby limiting our ability to promote our platform and generate revenue;

 

   

competitors could introduce solutions that are similar to, or broader, than ours or comprehensive platforms that provide integrated solutions for multiple advertising channels including display, mobile and video;

 

   

competitors could reduce the prices they charge to brand advertisers and agencies;

 

   

companies may enter our market by expanding their platforms or acquiring a competitor; and

 

   

companies marketing search, social, display, mobile or web analytics services could bundle digital video advertising solutions or offer such products at a lower price as part of a larger product sale.

In addition, many of our current and potential competitors, such as Google, AOL and Adobe, have greater customer relationships and financial, marketing and technical resources than we do, allowing them to leverage a larger customer base, adopt more aggressive pricing policies, and devote greater resources to the development, promotion and sale of their products, services and solutions, including products that may be based on new technologies or standards, than we can. If our competitors’ solutions become more accepted than our solution, our competitive position will be impaired and we may not be able to increase our revenue or may experience decreased gross margins.

We may not be able to compete successfully against current and future competitors. If we cannot compete successfully, our business, results of operations and financial condition could be negatively impacted.

A substantial portion of our business is sourced through advertising agencies that do not pay us until they receive payment from the brand, therefore increasing the length of time between our payment for media inventory and our receipt of payment for use of our platform, and our ability to collect for non-payment may be limited to the brand, increasing our risk of non-payment.

Substantially all of our Platform Services revenue and a substantial majority of our Platform Direct revenue is sourced through advertising agencies. We contract with advertising agencies as an agent for the brand. We remit payment for media inventory purchased through our platform by our Platform Direct and Platform Services customers in advance of receiving payment from them as the advertising agency does not pay us for use of our platform until it has received payment from the brand. This payment process will increasingly consume working capital if we continue to be successful in growing our business. In addition, we typically experience slow payment by advertising agencies as is common in our industry. In this regard, we had average days sales outstanding, or DSO, of 87 days, and average days payable outstanding, or DPO, of 80 days for 2013. We

 

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compute our DSO and DPO as of a given date based on our average trade receivables or trade payables, respectively, for the trailing twelve month period divided by, for DSO, daily Total Spend and for DPO, daily cost of revenue and operating expenses, excluding noncash and payroll related expenses, in each case, over such period. The average trade receivables or trade payables are the average of the trade receivables or trade payables balances at the beginning and end of the twelve month period. Daily Total Spend is the spend for the trailing twelve month period divided by 365 days. Daily cost of revenue and operating expenses are the cost of revenue and operating expenses, excluding noncash and payroll related expenses, for the trailing twelve month period divided by 365 days. Many of our contracts with advertising agencies provide that if the brand does not pay the agency, the agency is not liable to us, and we must seek payment solely from the brand. Contracting with these agencies, which in certain cases have or may develop high-risk credit profiles, subjects us to greater credit risk than where we contract with brands directly. This credit risk may vary depending on the nature of an advertising agency’s aggregated brand advertiser base. Any write-offs for bad debt could have a material adverse effect on our results of operations for the periods in which the write-offs occur. Even if we are not paid, we are still obligated to pay for the advertising we have purchased for the advertising campaign, and as a consequence, our results of operations and financial condition would be adversely impacted.

Our business depends in part on advertising agencies and their holding companies as intermediaries, and this may adversely affect our ability to attract and retain business.

For 2013, over 2,000 brands executed campaigns through our platform, directly or through an agency. Many brands rely upon advertising agencies in planning and purchasing advertising. Although we maintain relationships with brands, we often do not contract with them directly. In cases where we do not have a direct contractual relationship with the brand, we sell to advertising agencies that utilize our advertising solutions on behalf of their customers. Each advertising agency allocates advertising spend from brands across numerous channels and has no obligation to work with us as it embarks on digital video advertising campaigns. Accordingly, if we fail to maintain satisfactory relationships with an advertising agency, we risk losing business from the brands 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. In addition, customer relationships with holding company media trading desks may adversely affect our business with advertising agencies affiliated with the holding company because some holding companies may seek to consolidate media buying to one trading desk and restrict their affiliated advertising agencies from relationships with providers that have a direct relationship with the trading desk. Because advertising agencies act as intermediaries for multiple brands, our customer base is more concentrated than might be reflected by the number of brands that use our platform. In addition, these intermediary relationships may impede our brand-building efforts, making it more difficult for us to achieve widespread brand awareness that is critical for broad customer adoption of our platform.

Our sales cycle can be long and unpredictable and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if at all, we will obtain new customers and when we will generate revenue from those customers.

The sales cycle for our Platform Direct business, from initial contact with a potential lead to contract execution and implementation, typically takes significant time and is difficult to predict. Our sales cycle in some cases has been up to nine months or more. Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our platform. Some of our customers undertake a significant evaluation process that frequently involves not only our platform but also the offerings of our competitors. This process can be costly and time-consuming. As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. As part of our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective customer and before we are able to generate any revenue from such agreement. We have no assurance that the substantial time and money spent on our sales efforts will generate significant revenue. If conditions in the marketplace generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to

 

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recover any of these expenses. Even if our sales efforts result in obtaining a new customer, under our usage-based pricing model, the customer controls when and to what extent it uses our platform and it may not use our platform sufficiently to justify the expenses incurred to acquire the customer and integrate the customer’s data in our platform and related training and support. If we are not successful in targeting, supporting and streamlining our sales processes and if revenue expected to be generated from a prospective customer is not realized in the time period expected or not realized at all, our ability to grow our business, and our operating results and financial condition may be adversely affected. If our sales cycles lengthen, our future revenue could be lower than expected, which would have an adverse impact on our consolidated operating results and could cause our stock price to decline.

Our business and operations have experienced rapid growth in recent periods, which has placed, and may continue to place, significant demands on our management and infrastructure. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

We increased our number of full-time employees from 57 as of December 31, 2011 to 280 as of March 31, 2014. Additionally we increased the size of our sales force by 100% from December 31, 2012 to March 31, 2014. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources as these personnel are integrated into and become productive within our organization. We intend to further expand our overall headcount and operations both domestically and internationally, with no assurance that our business or revenue will continue to grow to offset our investment in research and development and sales and marketing. Maintaining and growing a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significant additional investment in our infrastructure. In this regard we will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively. Further, to accommodate our expected growth we must continually improve and maintain our technology, systems and network infrastructure. As such, we may be unable to manage our expenses effectively in the future, which would negatively impact our gross margin or operating expenses in any particular quarter. If we fail to manage our anticipated growth and change in a manner that does not preserve the key aspects of our corporate culture, the quality of our platform may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.

Seasonal fluctuations in digital video advertising spend impact our results of operations and cash flows.

Our results of operations and cash flows vary from quarter to quarter due to the seasonal nature of advertising spending. For example, many advertisers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. In contrast, the first quarter of the calendar year is typically the slowest in terms of advertising spend. To the extent that seasonal fluctuations become more pronounced, or are not offset by other factors, our results of operations and operating cash flows could fluctuate materially from period to period.

We use a limited number of third-party service providers and data centers. Any disruption of service could harm our business.

The technical infrastructure for our platform is managed through a combination of third-party web hosting services providers, or third-party service providers, and our own servers which are located at a third-party data center facility. We do not control the operation of the third-party service providers or the operation of the third-party data center facility nor do we have long term agreements with the third-party service provider and data center facility that we utilize. The third-party service providers and owner of the data center facility have no obligation to continue to provide these services to us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to use a new service provider or transfer to a new facility or facilities, and we may incur significant costs and possible service interruption in connection with doing so.

 

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The facilities of third-party service providers and data center are vulnerable to damage or service interruption resulting from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Moreover, we have not implemented a disaster recovery capability whereby we maintain a back-up copy of our platform permitting us to immediately switch over to the back-up platform in the event of damage or service interruption at our data center. The occurrence of a natural disaster or an act of terrorism, any outages or vandalism or other misconduct, or a decision to close the facility without adequate notice or other unanticipated problems could result in lengthy interruptions in our platform’s performance, any of which could damage our reputation and materially and adversely affect our operating results and future prospects.

Any changes in service levels at the facilities or any errors, defects, disruptions or other performance problems at or related to the facilities that affect our platform could harm our reputation and may damage our customers’ businesses. Interruptions in our platform’s performance might reduce our revenue, subject us to potential liability, or result in reduced usage of our platform. In addition, some of our customer contracts require us to issue credits for downtime in excess of certain levels and the issuance of any credits or make-goods could harm our operating results and financial condition.

We also depend on third-party Internet-hosting providers and continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our Internet-hosting or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or “denial-of-service” or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes or similar events, we could experience disruption in our ability to offer our platform or we could be required to retain the services of replacement providers, any of which could increase our operating costs and harm our business and reputation.

As a result of our customers’ increased usage of our platform, we will need to continually improve our hosting infrastructure.

We have experienced significant growth in the number of customers, transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the increase in new customers and the expansion of existing customer advertising spend on our platform. For example, if we secure a large customer or a group of customers which require significant amounts of bandwidth or storage, we may need to increase bandwidth, storage, power or other elements of our application architecture and our infrastructure, and our existing systems may not be able to scale in a manner satisfactory to our existing or prospective customers.

The amount of infrastructure needed to support our customers is based on our estimates of anticipated usage. We will need to expand our infrastructure to meet anticipated increase in usage, for which we expect to incur additional costs. In addition, if we were to experience unforeseen increases in usage, we could be required to increase our infrastructure investments further and during a time other than we expect. As use of our platform grows, we will need to devote additional resources to improving our application architecture and our infrastructure in order to maintain the performance of our platform. We may need to incur additional costs to upgrade or expand our computer systems and architecture in order to accommodate increased or expected increases in demand. If we incur these costs, our gross margin would be adversely impacted.

We must develop and introduce enhancements and new features and functionality that achieve market acceptance or that keep pace with technological developments to remain competitive in our evolving industry.

We operate in a dynamic market characterized by rapidly changing technologies and industry and legal standards. The introduction of new digital video advertising solutions by our competitors, the market acceptance of solutions based on new or alternative technologies, or the emergence of new digital video advertising industry standards could render our platform obsolete. Our ability to compete successfully, attract new customers and

 

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increase revenue from existing customers depends in large part on our ability to enhance and improve our existing platform and to continually introduce or acquire new technologies and features and functionality demanded by the market we serve. The success of any enhancement or new solution depends on many factors, including timely completion, adequate quality testing, appropriate introduction and market acceptance. Any new solution, product or feature that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain defects or may not achieve the broad market acceptance necessary to generate significant revenue. If we are unable to anticipate or timely and successfully develop or acquire new offerings or features or enhance our existing platform to meet evolving customer requirements, our business and operating results will be adversely affected.

Material defects or errors in our platform could result in customer dissatisfaction and harm our reputation, result in significant costs to us and impair our ability to sell our platform.

The software applications underlying our platform are inherently complex and may contain material defects or errors, which may cause disruptions in availability, misallocation of advertising spend or other performance problems. Any such errors, defects, disruptions in service or other performance problems with our platform could negatively impact our business and our customers’ businesses or the success of their advertising campaigns and causing customer dissatisfaction and harm to our reputation. If we have any errors, defects, disruptions in service or other performance problems with our platform, customers may reduce their usage or delay or withhold payment to us, which could result in an increase in our provision for doubtful accounts or lengthen our collection cycles for accounts receivable. Such performance problems could also result in customers making warranty or other claims against us, our giving credits to our customers toward future advertising spend or costly litigation. As a result, material defects or errors in our platform could have a material adverse impact on our business and financial performance.

The costs incurred in correcting any material defects or errors in our platform may be substantial and could adversely affect our operating results. After the release of new versions of our software, defects or errors may be identified from time to time by our internal team and by our customers. We implement bug fixes and upgrades as part of our regularly scheduled system maintenance. If we do not complete this maintenance according to schedule or if customers are otherwise dissatisfied with the frequency and/or duration of our maintenance, customers could reduce their usage of our platform or delay or withhold payment to us, or cause us to issue credits, make refunds or pay penalties.

Our business depends in part on the success of our strategic relationships with third parties.

Our business depends in part on our ability to continue to successfully manage and enter into successful strategic relationships with third parties. We currently have and are seeking to establish new relationships with third parties to develop integrations with complementary technologies, sources of inventory, such as Google, and data vendors such as Nielsen. For example, in order for customers to target ads in ways they desire and otherwise optimize and verify campaigns, our platform must have access to data regarding Internet user behavior and reports with demographic information regarding Internet users. We depend on various third parties to provide this audience data and demographic reporting. Maintaining and expanding our strategic relationships with third parties is critical to our continued success. Further, our relationships with these third parties are typically non-exclusive and do not prohibit the other party from working with our competitors. These relationships may not result in additional customers or enable us to generate significant revenue. Identifying suitable business partners and negotiating and documenting relationships with them require significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to successfully execute campaigns, compete in the marketplace or to grow our revenue could be impaired and our operating results would suffer.

Our business model depends upon our ability to continue to access advertising inventory that we do not own.

Our platform depends on access to advertising inventory controlled by publishers and various other providers, such as public ad exchanges, supply-side platforms, private marketplaces, ad networks and direct premium publishers. In particular, we rely on continued access to premium ad inventory in high-quality and

 

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brand-safe environments, viewable to consumers across multiple screens. We do not own the inventory of advertising upon which our business depends and, therefore, we might not always have access to inventory of sufficient quality or volume to meet the needs of our customers’ campaigns. As a result, we may have limited visibility to our future access to inventory, especially premium ad inventory and inventory in international markets. Companies such as ad networks make media buying commitments to publishers, and may compete with us and restrict our access to media inventory of those publishers. Companies such as ad exchanges charge both publishers and advertisers fees and may be able to charge advertisers lower fees than us. In addition, many publishers sell a portion of their advertising inventory directly to advertisers, and publishers may seek to do so increasingly in the future. If that were to occur, we may have fewer opportunities to provide our customers access to inventory, which would harm our ability to grow our business and our financial condition and operating results would be adversely affected.

Furthermore, as the number of competing intermediaries that purchase advertising inventory from real time bidding, or RTB, exchanges and that utilize advertising solutions providers continues to increase, intermediaries or their bidding processes may favor other bidders and we may not be able to compete successfully for advertising inventory available on RTB exchanges. Even if our bids are successful, the inventory may be of low quality or misrepresented to us, despite our attempts to prevent fraud and conduct quality assurance checks on inventory and we could be subject to liability and our business could be harmed.

In connection with Platform Services arrangements, we commit to delivery of a campaign at a fixed price in advance of acquiring the advertising inventory required for the campaign, exposing us to the risk that we may be unable to fulfill these commitments cost-effectively or at all.

In order to execute and deliver campaigns under our Platform Services arrangements, we generally enter into binding insertion orders, or IOs, with fixed price commitments which are determined prior to the launch of an advertising campaign. We do not own or otherwise control the inventory necessary to fulfill these IOs. Further, in fulfilling IO commitments, we generally purchase advertising inventory on a real-time basis during the course of the advertising campaign period, and we generally do not have fixed priced sources of supply of such inventory. Accordingly, we are not assured of having access to inventory of sufficient quality or quantity to meet the needs of our customers’ campaigns on a cost-effective basis or at all. If we are unable to obtain inventory cost-effectively, or at all, our gross margins could be negatively affected or we could be unable to fulfill our obligations under the IO, which would have a negative impact on our ability to attract and retain customers, potentially damage our reputation, expose us to liability and harm our revenue and growth.

Our Platform Services customers are not obligated to pay for advertising inventory that is not consistent with their campaigns. Since we have no recourse to suppliers, we assume full risk of loss for inventory that is not accepted by our customers.

Our Platform Services customers are not obligated to pay for advertising impressions that are not consistent with the terms of their IO with us. Further, the sources of our advertising impressions generally make no representations regarding specific characteristics of an impression relevant to any campaign. In addition, we have made and expect to continue to make purchasing decisions during the fulfillment of campaigns resulting in the purchase of impressions that are not acceptable to the advertiser. These decisions may result from mistakes due to human error by our personnel or a systems error. In other cases, third-party verification technology used by the customer may reach a different conclusion about the suitability of the inventory. In any of these cases, the advertiser may reject impressions that do not meet the terms of the IO, we may be required to provide a credit or be considered to be in breach of our obligations and we would have no recourse to the supplier. As a result, our gross margins and our ability to attract and retain customers could be negatively affected, we could be exposed to liability and our revenue and growth could be harmed.

 

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If we fail to detect fraudulent or unacceptable ad placements, or if we serve advertisements on websites with inappropriate content, our reputation will be damaged, advertisers may reduce the use of or stop using our platform, and we may incur liabilities.

Our business depends in part on providing our advertisers with services that are trusted and safe for their brands and that provide the anticipated value. We frequently have contractual commitments to take reasonable measures to prevent advertisements from appearing on websites with inappropriate content or on certain websites that our advertisers may identify. Our advertisers also expect that ad placements will not be misrepresented, such as auto-play in banner placements marketed as pre-roll inventory, and that ad impressions represent the legitimate activity of human internet users. We use proprietary technologies and third party services in our efforts to detect and block inventory on websites with inappropriate content, misrepresented ad placements and fraudulent bot generated impressions. However, technologies utilized by bad actors are constantly evolving and preventing and combating fraud and inappropriate content requires constant vigilance and investment of time and resources. We may not always be successful in our efforts to do so. We may serve advertisements on inventory that is objectionable to our advertisers, and our software may also inadvertently purchase inventory on behalf of our advertisers that proves to be unacceptable for advertising campaigns, such as fraudulent bot generated impressions. In addition, negative publicity around fraudulent digital advertising placements may adversely impact the perceptions of advertisers regarding programmatic purchasing of digital advertising. As a result, we may lose the trust of our advertisers, which would harm our brand and reputation, our advertisers may reduce the use of or stop using our platform, we may be exposed to liabilities or the need to provide credits or refunds, and our business and financial performance may be harmed.

If our security measures are breached or unauthorized access to customer data or our data is otherwise obtained, our platform may be perceived as not being secure, customers may reduce the use of or stop using our platform and we may incur significant liabilities.

Security breaches could result in the loss of information, litigation, indemnity obligations and other liability. We collect, store and transmit information of, or on behalf of, our advertisers. While we have security measures in place, our systems and networks are subject to ongoing threats and therefore these security measures may be breached as a result of third-party action, including cyber-attacks or other intentional misconduct by computer hackers, employee error, malfeasance or otherwise. This could result in one or more third parties obtaining unauthorized access to our customers’ data or our data, including intellectual property and other confidential business information. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Third parties may also attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including intellectual property and other confidential business information. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose potential sales and existing customers or we could incur other liability.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part upon our intellectual property. We primarily rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property. However, the steps we take to protect our intellectual property rights may be inadequate or we may be unable to secure intellectual property protection for all of our platform.

If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products, services or solutions similar to ours and our ability to compete effectively would be impaired.

 

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Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. The enforcement of our intellectual property rights depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed. In addition, we might be required to spend significant resources to monitor and protect our intellectual property rights, and our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, whether or not it is resolved in our favor, and could ultimately result in the impairment or loss of portions of our intellectual property. Any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties.

Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective protection of our intellectual property may not be available to us in every country in which our platform are available. 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. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.

In recent years, there has been significant litigation involving patents and other intellectual property rights. Companies in the Internet and technology industries are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors may hold patents or have pending patent applications, which could be related to our business. These risks have been amplified by the increase in third parties, or non-practicing entities, whose sole primary business is to assert such claims. We have received in the past, and expect to receive in the future, notices that claim we or our customers using our platform have misappropriated or misused other parties’ intellectual property rights. If we are sued by a third party that claims that our technology infringes its rights, the litigation could be expensive and could divert our management resources. We do not currently have an extensive patent portfolio of our own, which may limit the defenses available to us in any such litigation.

In addition, in many instances, we have agreed to indemnify our customers against certain claims that our platform infringes the intellectual property rights of third parties. The results of any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

 

   

cease offering or using technologies that incorporate the challenged intellectual property;

 

   

make substantial payments for legal fees, settlement payments or other costs or damages;

 

   

obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or

 

   

redesign technology to avoid infringement.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse effect upon our business and financial results. Furthermore, our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them.

Our use of open source technology could impose limitations on our ability to commercialize our platform.

We use open source software in our platform. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software

 

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and/or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open source licenses have not been interpreted by the courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our applications, 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 cause us to breach customer contracts, harm our reputation, result in customer losses or claims, increase our costs or otherwise adversely affect our business and operating results.

Expanding our international operations subjects us to new challenges and risks.

We have offices in seven countries outside the United States, and as we continue to expand our customer base outside the United States, our business is increasingly susceptible to risks associated with international operations. However, we have a limited operating history outside the United States, and our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to particular challenges of supporting a rapidly growing business in an environment of diverse cultures, languages, customs, tax laws, legal systems, alternate dispute systems and regulatory systems. The risks and challenges associated with international expansion include:

 

   

continued localization of our platform, including translation into foreign languages and associated expenses;

 

   

the need to support and integrate with local advertisers, agencies, publishers and partners;

 

   

competition with service providers that have greater experience in the local markets than we do or who have pre-existing relationships with potential customers in those markets;

 

   

compliance with multiple, potentially conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations such as the EU Data Privacy Directive;

 

   

compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;

 

   

difficulties in invoicing and collecting in foreign currencies and associated foreign currency exposure;

 

   

difficulties in staffing and managing foreign operations and the increased travel, infrastructure and legal compliance costs associated with international operations;

 

   

different or lesser protection of our intellectual property rights;

 

   

difficulties in enforcing contracts and collecting accounts receivable, longer payment cycles, higher levels of credit risk and other collection difficulties;

 

   

compliance with applicable laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to our international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws;

 

   

restrictions on repatriation of earnings; and

 

   

regional economic and political conditions.

As a result of these risks, any potential future international expansion efforts that we may undertake will not be successful.

Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses.

We currently have foreign sales and accounts receivable denominated in multiple currencies including Australian Dollars, British Pound Sterling, Canadian Dollars, Euros, Japanese Yen and Singapore Dollars. In

 

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addition, we purchase advertising in local currencies and incur a portion of our operating expenses in the currencies of the countries where we have offices. We face exposure to adverse movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. A decline in the U.S. dollar relative to foreign currencies would increase our non-U.S. revenue when translated into U.S. dollars. Conversely, if the U.S. dollar strengthens relative to foreign currencies, our revenue from international operations would be adversely affected. Our operating results could be negatively impacted depending on the amount of cost of revenue or operating expense denominated in foreign currencies. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when translated, may differ materially from expectations. In addition, our revenue and operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions or expenses changes in the future because we do not currently hedge our foreign currency exposure. Even if we were to implement hedging strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.

Unfavorable conditions in the global economy could limit our ability to grow our business and negatively affect our operating results.

Revenue growth and potential profitability of our business depends on the level of digital video advertising spend in the markets we serve. To the extent that weak economic conditions cause our customers and potential customers to freeze or reduce their advertising budgets, particularly those for digital video advertising, demand for our platform may be negatively affected. Historically, economic downturns have resulted in overall reductions in advertising spend. If economic conditions deteriorate or do not materially improve, our customers and potential customers may elect to decrease their advertising budgets or defer or reconsider software and service purchases, which would limit our ability to grow our business and negatively affect our operating results.

Our business depends on our founders and retaining and attracting qualified management and technical personnel and maintaining or expanding our sales and marketing capabilities.

Our success depends upon the continued service of Brett Wilson, our co-founder, President and Chief Executive Officer, other members of our senior management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified management and operating personnel. We do not maintain key person life insurance policies on any of our employees. While we have offer letters with certain of our key employees, we do not have fixed term employment agreements with Mr. Wilson or any of our other key employees. Each of Mr. Wilson, other executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. Our business also requires skilled engineering, product and sales personnel, who are in high demand and are difficult to recruit and retain. As we continue to innovate and develop our platform and expand into additional geographic markets, we will require personnel with expertise in these areas. Competition for qualified employees is intense in our industry and particularly so in the San Francisco Bay Area, California, where most of our technical employees are based. The loss of Mr. Wilson or any other member of our senior management team or, even a few qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the planned expansion of our business, could delay or prevent the achievement of our business objectives and could materially harm our business and our customer relationships.

Our ability to achieve revenue growth in the future will depend, in part, on our success in recruiting, training and retaining sufficient numbers of sales personnel. These new employees require significant training and experience before they achieve full productivity. For internal planning purposes, we assume that it will take approximately nine months before a newly hired sales representative is fully trained and productive in selling our platform. This amount of time may be longer for sales personnel focused on new geographies or specific market segments. As a result, the cost of hiring and carrying new representatives cannot be offset by the revenue they produce for a significant period of time, if at all. Our recent hires and planned hires may not become productive as quickly as we would like or to the extent we expect, and we may not be able to hire or retain sufficient

 

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numbers of qualified individuals in the markets where we do business. Our business will be seriously harmed if these efforts do not work as planned or generate a corresponding significant increase in revenue.

If the use of “third-party cookies” or other tracking technologies (including pixels) is rejected by Internet users, restricted or otherwise subject to unfavorable terms, such as by non-governmental entities, our performance may decline and we may lose customers and revenue.

Some features of our platform use cookies or other technologies, such as pixels, which we refer to as cookies. Our cookies are known as “third-party cookies” because they are placed on individual browsers when Internet users visit a website on which we serve an ad. These cookies are placed through an Internet browser on an Internet user’s computer and correspond with a data set that we keep on our servers. Our cookies record non-personal information about Internet users’ interactions with our advertiser customers through a browser while the cookie is active. We use these cookies to help us achieve our brand advertisers’ campaign goals, to help us ensure that the same Internet user does not see the same advertisement multiple times, to report aggregate information to our advertisers regarding the performance of their advertising campaigns, and to detect and prevent fraudulent activity. We also use data from cookies to help us decide whether to bid on, and how to price, an opportunity to place an advertisement in a certain location, at a given time, in front of a particular Internet user. If our access to cookie data is reduced, our ability to conduct our business in the current manner may be affected and thus undermine the effectiveness of our platform.

Internet users may easily block and/or delete cookies (e.g., through their browsers or “ad blocking” software). The most commonly used Internet browsers (Chrome, Firefox, Internet Explorer, and Safari) allow Internet users to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. If more browser manufacturers and Internet users adopt these settings or delete their cookies more frequently than they currently do, our business could be harmed. Some government regulators (discussed below) and privacy advocates have suggested creating a “Do Not Track” standard that would allow Internet users to express a preference, independent of cookie settings in their browser, not to have website browsing recorded. If Internet users adopt a “Do Not Track” browser setting, and the standard either imposed by state or federal legislation, or agreed upon by standard setting groups, prohibits us from using non-personal data as we currently do, then that could hinder growth of video advertising on the web generally, cause us to change our business practices and adversely affect our business.

In addition, browser manufacturers could replace cookies with their own product and require us to negotiate and pay them for use of such product to record information about Internet users’ interactions with our brand advertiser customers, which may not be available on commercially reasonable terms or at all.

We may be required to, or otherwise may determine that it is advisable to, develop or obtain additional tools and technologies to compensate for the lack of cookie data, which we may not be able to do. Moreover, even if we are able to do so, such additional tools may be subject to further regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies.

Legislation and regulation of online businesses, including privacy and data protection regimes, is expansive, not clearly defined and rapidly evolving. Such regulation could create unexpected costs, subject us to enforcement actions for compliance failures, or restrict portions of our business or cause us to change our technology platform or business model.

Government regulation may increase the costs of doing business online. Federal, state, municipal and foreign governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, and regulations covering user privacy, data security, technologies such as cookies that are used to collect, store and/or process data, video advertising online, the use of data to inform advertising, the taxation of products and services, unfair and deceptive practices, and the collection (including the collection of information), use, processing, transfer, storage and/or disclosure of data associated with unique individual Internet users.

 

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Although we have not collected data that is traditionally considered personal data, such as name, email address, address, phone numbers, social security numbers, credit card numbers, financial data or health data, we typically do collect and store IP addresses and other device identifiers, which are or may be considered personal data in some jurisdictions or otherwise may be the subject of legislation or regulation. In addition, certain U.S. laws impose requirements on the collection and use of information from or about users or their devices. For instance, the Children’s Online Privacy Protection Act, or COPPA, imposes requirements on website operators and online services that are aimed at children under the age of 13 years of age. COPPA was recently amended to require notice and parental consent to include persistent identifiers for behavioral advertising and other tracking across websites. Other existing laws may in the future be revised, or new laws may be passed, to impose more stringent requirements on the use of identifiers to collect user information, including information of the type that we collect. Changes in regulations could affect the type of data that we may collect, restrict our ability to use identifiers to collect information, and, thus, affect our ability to collect data, the costs of doing business online, and affect our the demand for our platform, the ability to expand or operate our business, and harm our business.

U.S. and non-U.S. regulators also may implement “Do-Not-Track” legislation, particularly if the industry does not implement a standard (discussed above). Effective January 1, 2014, the California Governor signed into law an amendment to the California Online Privacy Protection Act of 2003. Such amendment requires operators of commercial websites and online service providers, under certain circumstances, to disclose in their privacy policies how such operators and providers respond to browser “do not track” signals.

Some of our activities may also be subject to the laws of foreign jurisdictions, whether or not we are established or based in such jurisdictions. Within the European Union, or EU, where we currently have an active presence in the United Kingdom, Directive 2009/136/EC, commonly referred to as the “Cookie Directive,” directs EU member states to ensure that accessing information on an Internet user’s computer, such as through a cookie, is allowed only if the Internet user has given his or her consent. In response, some member states have implemented legislation requiring entities to obtain the user’s consent before placing cookies for targeted advertising purposes. Additional EU member state laws may follow. We may be required to, or otherwise may determine that it is advisable to, develop or obtain additional tools and technologies to compensate for the lack of cookie data. Even if we are able to do so, such additional tools may be subject to further regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies. In addition, certain information, such as IP addresses as collected and used by us may constitute “personal data” in certain non-U.S. jurisdictions, including in the United Kingdom, and therefore certain of our activities could be subject to EU laws applicable to the processing and use of personal data.

In addition, we may inadvertently receive personal information from advertisers or advertising agencies or through the process of executing video advertising campaigns or usage of our platform. Our failure to comply with applicable laws and regulations, or to protect personal data, could result in enforcement action against us, including fines, imprisonment of our officers and public censure, claims for damages by consumers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse impact on our operations, financial performance and business. Even the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our solution by current and future advertisers and advertising agencies.

Our revenue may be adversely affected if we are required to charge sales taxes or other taxes for our platform.

States, countries or other jurisdictions may seek to impose sales or other tax collection obligations on us in the future, or states or jurisdictions in which we already pay tax may increase the amount of taxes we are required to pay. A successful assertion by any state, country or other jurisdiction in which we do business that we should be collecting sales or other taxes on the revenue of our platform could, among other things, create significant administrative burdens for us, result in substantial tax liabilities for past sales, discourage customers from using our platform or otherwise substantially harm our business and results of operations.

 

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The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to the expected growth in digital video advertising and other markets, including the forecasts or projections referenced in this prospectus, may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

We might require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, such as keeping pace with technological developments in order to remain competitive in our evolving industry, improve our operating infrastructure or acquire complementary businesses and technologies. In addition, we remit payment for media inventory purchased through our platform by our Platform Direct and Platform Services customers in advance of receiving payment from them as the advertising agency does not pay us for use of our platform until it has received payment from the brand. This payment process will continue to consume working capital and the effect on our cash flows may become more pronounced if we continue to grow our business. As a result, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth, particularly if we experience unexpected increases in advertising spend through our platform, and to respond to business challenges could be significantly impaired.

We may selectively pursue acquisitions of complementary businesses and technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

We may selectively pursue acquisitions of complementary businesses and technologies that we believe could complement or expand our applications, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

In addition, we have limited experience with acquiring other businesses or technologies. If we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

   

inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

   

unanticipated costs or liabilities associated with the acquisition;

 

   

incurrence of acquisition-related costs;

 

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difficulty integrating the accounting systems, operations and personnel of the acquired business;

 

   

difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

   

difficulty converting the customers of the acquired business onto our applications and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;

 

   

diversion of management’s attention from other business concerns;

 

   

adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

 

   

the potential loss of key employees;

 

   

use of resources that are needed in other parts of our business; and use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and that are not adequately covered by indemnities. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.

We have not conducted an evaluation of the effectiveness of our internal control over financial reporting and will not be required to do so until 2015. If we are unable to implement and maintain effective internal control over financial reporting investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

As a public company, we will be required to maintain internal control over financial reporting for the year ending December 31, 2015 and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the fiscal year ending December 31, 2015, provide a management report on the internal control over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we decide not to avail ourselves of the exemption provided to an emerging growth company, as defined by The Jumpstart Our Businesses Act of 2012, or the JOBS Act. As we have not conducted an evaluation of the effectiveness of our internal control over financial reporting, we may have undiscovered material weaknesses. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process will be time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or SEC, or other regulatory authorities, which could require additional financial and management resources.

 

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We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and The Nasdaq Stock Market, or NASDAQ, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. Our management team has limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that will be subject to significant regulatory oversight and reporting obligations under the federal securities laws. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function.

We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance on the terms that we would like. As a public company, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the date of this prospectus.

We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our profitability.

As of March 31, 2014, we had federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in 2027 for federal and state purposes, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an

 

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“ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.

This offering or future issuances of our stock could cause an “ownership change.” It is possible that any future ownership change could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to our initial public offering. The initial public offering price for our common stock was determined through negotiations between the underwriters and us and may vary from the market price of our common stock following our initial public offering. If you purchase shares of our common stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of our initial public offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets;

 

   

the development and sustainability of an active trading market for our common stock;

 

   

our operating performance and the performance of other similar companies;

 

   

changes in the estimates of our operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

 

   

press releases or other public announcements by us or others, including our filings with the SEC;

 

   

changes in the market perception of digital video advertising solutions generally or in the effectiveness of our platform in particular;

 

   

announcements of technological innovations, new applications, features, functionality or enhancements to products, services or solutions by us or by our competitors;

 

   

announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;

 

   

announcements of customer additions and customer cancellations or delays in customer purchases;

 

   

announcements regarding litigation involving us;

 

   

recruitment or departure of key personnel;

 

   

changes in our capital structure, such as future issuances of debt or equity securities;

 

   

our entry into new markets;

 

   

regulatory developments in the United States or foreign countries;

 

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the economy as a whole, market conditions in our industry, and the industries of our customers;

 

   

the expiration of market standoff or contractual lock-up agreements;

 

   

the size of our market float; and

 

   

any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Because the initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price is substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our common stock in this offering, based on the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $8.72 per share, the difference between the price per share you pay for our common stock and its pro forma net tangible book value per share as of March 31, 2014, after giving effect to the issuance of 6,250,000 shares of our common stock in this offering. In addition, upon the completion of this offering, there will be options to purchase 4,139,687 shares of our common stock outstanding and 181,650 restricted stock units, based on the number of such awards outstanding on March 31, 2014. To the extent shares of common stock are issued with respect to such awards in the future, there will be further dilution to new investors.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from our initial public offering. We will have broad discretion in the application of the net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

 

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Substantial future sales of shares by our stockholders could negatively affect our stock price after this offering.

Sales of a substantial number of shares of our common stock in the public market after this offering, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales might occur or if there is a large number of shares of our common stock available for sale, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of shares of our common stock outstanding as of March 31, 2014, upon completion of this offering, we will have 28,685,816 shares of common stock outstanding, assuming no exercise of our outstanding options or vesting of our outstanding restricted stock units.

All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for (1) any shares held by our affiliates as defined in Rule 144 under the Securities Act, and (2) any shares purchased by entities affiliated with Foundation Capital, LLC to the extent such entities are allocated all or a portion of the aggregate of up to $20.0 million of shares that they have indicated an interest in purchasing in this offering, or through the directed share program, which will be subject to a 180-day lock-up agreement. All of the remaining shares of common stock outstanding after this offering, based on shares outstanding as of March 31, 2014, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus. These shares will become available to be sold 181 days after the date of this prospectus.

Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc. may, in their sole discretion together, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

Our equity incentive plans allow us to issue, among other things, stock options, restricted stock, and restricted stock units. We intend to file a registration statement under the Securities Act as soon as practicable after the completion of this offering to cover the issuance of shares upon the exercise or vesting of awards granted or otherwise purchased under those plans. As a result, any shares issued or granted under the plans after the completion of this offering also will be freely tradable in the public market, subject to lock-up agreements as applicable. If equity securities are issued under the plans and it is perceived that they will be sold in the public market, then the price of our common stock could decline substantially.

Holders of 15,510,330 shares of our common stock and a warrant holder have rights, subject to some conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders. Once we have registered the resale of these shares, they can be sold in the public market. If these additional shares are sold, or it is perceived that they will be sold, the trading price of our common stock could decline.

The concentration of our common stock ownership with our executive officers, directors and affiliates will limit your ability to influence corporate matters.

Our executive officers, directors and owners of 5% or more of our outstanding common stock and their respective affiliates beneficially owned, in the aggregate, 78% of our outstanding common stock as of June 30, 2014 and we anticipate that upon the completion of the offering, that same group will beneficially own at least 61% of our outstanding common stock. These stockholders will therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. This ownership could affect the value of your shares of common stock.

 

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Participation in this offering by certain of our existing stockholders would reduce the available public float for our shares.

Entities associated with Foundation Capital, LLC, a holder of more than 5% of our common stock and an affiliate of a member of our board of directors, have indicated an interest in purchasing up to an aggregate of $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because this indication of interest is not a binding agreement or commitment to purchase, the underwriters could determine to sell more, less or no shares to the entities affiliated with Foundation Capital, LLC and such entities could determine to purchase more, less or no shares in this offering. If these entities were to purchase all of these shares, they, together with our executive officers, directors and other owners of 5% or more of our outstanding common stock and their respective affiliates would own, in the aggregate, approximately 67% of our outstanding common stock after this offering, based on the number of shares outstanding as of June 30, 2014 and the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

If the entities affiliated with Foundation Capital, LLC are allocated all or a portion of the shares for which they have indicated an interest in purchasing in this offering and purchase any such shares, such purchases would reduce the available public float for our shares because such stockholders would be restricted from selling the shares by a lock-up agreement they have entered into with the underwriters and by restrictions under applicable securities laws. As a result, any purchase of shares by such stockholders in this offering may reduce the liquidity of our common stock relative to what it would have been had these shares been purchased by investors that were not affiliated with us.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and by-laws, as amended and restated prior to the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

 

   

authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;

 

   

establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

 

   

require that directors only be removed from office for cause and only upon a supermajority stockholder vote;

 

   

provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;

 

   

prevent stockholders from calling special meetings; and

 

   

prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally 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 becomes an “interested” stockholder. For a description of our capital stock, see the section titled “Description of Capital Stock.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available to our management at the date of this prospectus and our management’s good faith belief as of such date with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

 

   

our financial performance, including our revenue, costs, expenditures, growth rates and operating expenses, and our ability to become profitable;

 

   

our ability to maintain our rate of revenue growth;

 

   

our ability to expand our customer base;

 

   

our ability to convince our customers to maintain or increase their advertising spend through our platform;

 

   

the expansion of the digital video advertising market;

 

   

our ability to adapt to changing market conditions;

 

   

our ability to effectively manage our growth;

 

   

the effects of increased competition in our markets and our ability to compete effectively;

 

   

our ability to effectively grow and train our sales team;

 

   

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

 

   

costs associated with defending intellectual property infringement and other claims;

 

   

our ability to grow our market share in and penetrate emerging video advertising channels;

 

   

our ability to successfully enter new geographic markets;

 

   

our ability to develop and introduce enhancements and new features and functionality of our platform that achieve market acceptance;

 

   

our expectations concerning relationships with third parties;

 

   

our ability to retain our founders and attract and retain qualified employees and key personnel; and

 

   

other factors discussed in this prospectus under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, in this prospectus, the words “anticipate,” “believe,” “continue,” “could,” “seek,” “might,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “approximately,” “project,” “should,” “will,” “would” or the negative or plural of these words or similar expressions, as they relate to our company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and circumstances discussed in this prospectus may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in this prospectus. We derive many of our forward-looking

 

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statements from our operating budgets and forecasts, which we base on many assumptions. While we believe that our assumptions are reasonable, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this prospectus and the documents that we 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.

Forward-looking statements speak only as of the date of this prospectus. We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. Except as required by law, we assume no obligation to publicly update or revise any forward-looking statement to reflect actual results, changes in assumptions based on new information, future events or otherwise. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including independent industry publications by comScore, eMarketer, Inc., or eMarketer, Forrester Research, Inc., or Forrester, and MAGNA GLOBAL USA, INC., or MAGNA GLOBAL, or other publicly available information. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and in our experience to date in, the markets for our products and services. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although neither we nor the underwriters have independently verified the accuracy or completeness of any third-party information, we believe the information from these industry publications that is included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain information in the text of this prospectus is contained in independent industry publications. The source of, and selected additional information contained in, these independent industry publications are provided below:

 

  (1) comScore Media Metrix, November 2013.

 

  (2) eMarketer, Digital Set to Surpass TV in Time Spent with US Media, August 2013.

 

  (3) Forrester, RTB Powers the Rapid Growth of Online Video, April 2013.

 

  (4) MAGNA GLOBAL, Global Forecast Model 2000-2018, December 2013.

 

  (5) MAGNA GLOBAL, Programmatic and Automated Buying: the Global Take Off, October 2013.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 6,250,000 shares of our common stock that we are selling in this offering will be approximately $66.3 million, assuming an initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares is exercised in full, we estimate that we will receive additional net proceeds of approximately $76.7 million.

A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us by $5.8 million, after deducting the estimated underwriting discount, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.

We will retain broad discretion in the allocation of the net proceeds from this offering and could utilize the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. The terms of our amended and restated loan and security agreement also restrict our ability to pay dividends. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our board of directors.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2014:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect, upon the completion of this offering, (i) the conversion of all outstanding shares of our preferred stock into an aggregate of 15,510,330 shares of common stock immediately prior to the completion of this offering; (ii) the reclassification of the convertible preferred stock warrant liability to additional paid-in capital upon the conversion of a warrant to purchase shares of our convertible preferred stock into a warrant to purchase shares of our common stock upon the completion of this offering; and (iii) the effectiveness of our amended and restated certificate of incorporation upon the closing of this offering; and

 

   

on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and our sale and issuance of 6,250,000 shares of our common stock in this offering at an assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

You should read the information in this table together with “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock,” and our financial statements and related notes included elsewhere in this prospectus.

 

     March 31, 2014  
     Actual     Pro Forma     Pro Forma
As Adjusted
 
     (unaudited, in thousands)  

Cash and cash equivalents

   $ 15,237      $ 15,237      $ 81,487   
  

 

 

   

 

 

   

 

 

 

Debt obligations, current and noncurrent

   $ 9,757      $ 9,757      $ 9,757   

Convertible preferred stock warrant liability

     965        —          —     

Stockholders’ equity:

      

Convertible preferred stock, $0.001 par value — 31,174,947 shares authorized, 15,510,330 issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     16        —          —     

Preferred stock, $0.001 par value — no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     —          —          —     

Common stock, $0.001 par value — 62,000,000 shares authorized and 6,925,486 shares issued and outstanding, actual; 200,000,000 shares authorized, 22,435,816 shares issued and outstanding, pro forma; 200,000,000 shares authorized and 28,685,816 shares issued and outstanding, pro forma as adjusted

     7        23        29   

Additional paid-in capital

     46,670        47,635        113,879   

Accumulated deficit

     (19,608     (19,608     (19,608

Accumulated other comprehensive loss

     (80     (80     (80
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     27,005        27,970        94,220   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 37,727      $ 37,727      $ 103,977   
  

 

 

   

 

 

   

 

 

 

 

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A $1.00 increase (decrease) in the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $5.8 million, 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 discount. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and terms of this offering determined at pricing.

The outstanding share information in the pro forma column and the pro forma as adjusted column in the capitalization table above does not include:

 

   

4,139,687 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2014, at a weighted average exercise price of $1.51 per share;

 

   

181,650 shares of common stock issuable upon the vesting of RSUs outstanding as of March 31, 2014;

 

   

267,085 shares of common stock issuable upon the vesting of RSUs granted after March 31, 2014;

 

   

102,161 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of March 31, 2014, at a weighted average exercise price of $0.8076 per share;

 

   

494,302 shares of common stock reserved for issuance under our 2007 Equity Compensation Plan as of March 31, 2014 (which includes the shares of common stock subject to awards described in the third bullet);

 

   

2,500,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective upon the completion of this offering; and

 

   

750,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.

Our pro forma net tangible book value as of March 31, 2014 was $28.0 million, or $1.25 per share, based on the total number of shares of our common stock outstanding as of March 31, 2014, after giving effect to the conversion of all outstanding shares of our preferred stock as of March 31, 2014 into an aggregate of 15,510,330 shares of our common stock and the reclassification of the convertible preferred stock warrant liability to additional paid-in capital upon the conversion of a warrant to purchase shares of our convertible preferred stock into a warrant to purchase shares of our common stock, each of which will occur immediately prior to the completion of this offering.

After giving effect to the sale by us of shares of our common stock in this offering at the assumed initial public offering price of $12.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2014 would have been $94.2 million, or $3.28 per share. This represents an immediate increase in pro forma net tangible book value of $2.03 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $8.72 per share to investors purchasing shares of our common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $ 12.00   

Pro forma net tangible book value per share as of March 31, 2014, before giving effect to this offering

     $1.25      

Increase in pro forma as adjusted net tangible book value per share attributable to new investors

     2.03      
  

 

 

    

Pro forma as adjusted net tangible book value per share after giving effect to this offering

        3.28   
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering

      $ 8.72   
     

 

 

 

Our pro forma as adjusted net tangible book value will be $104.7 million, or $3.53 per share, and the dilution per share of common stock to new investors will be $8.47, if the underwriters’ option to purchase additional shares is exercised in full.

Each $1.00 increase (decrease) in the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $5.8 million, or $0.20 per share, and the pro forma dilution per share to investors in this offering by $0.80 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 discount.

The following table presents, as of March 31, 2014, after giving effect to the conversion of all outstanding shares of our preferred stock into our common stock immediately prior to the completion of this offering, the differences between existing stockholders and new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of our common stock and preferred stock, cash received

 

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from the exercise of stock options and the average price per share paid or to be paid to us at the assumed initial public offering price of $12.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discount and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average  Price
Per Share
 
      Number      Percent     Amount     Percent    

Existing stockholders

     22,435,816         78.2   $ 46,693,141        38.4   $ 2.08   

New investors

     6,250,000         21.8        75,000,000        61.6      $ 12.00   
  

 

 

    

 

 

   

 

 

   

 

 

   

Total

     28,685,816         100.0   $ 121,693,141        100.0  
  

 

 

    

 

 

   

 

 

   

 

 

   

The table and discussion above is based on 22,435,816 shares outstanding as of March 31, 2014 and excludes:

 

   

4,139,687 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2014, at a weighted average exercise price of $1.51 per share;

 

   

181,650 shares of common stock issuable upon the vesting of RSUs outstanding as of March 31, 2014;

 

   

267,085 shares of common stock issuable upon the vesting of RSUs granted after March 31, 2014;

 

   

102,161 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of March 31, 2014, at a weighted average exercise price of $0.8076 per share;

 

   

494,302 shares of common stock reserved for issuance under our 2007 Equity Compensation Plan as of March 31, 2014 (which includes the shares of common stock subject to awards described in the third bullet);

 

   

2,500,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective upon the completion of this offering; and

 

   

750,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.

Each $1.00 increase (decrease) in the assumed initial public offering price of $12.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all stockholders by $6.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, before deducting the estimated underwriting discount.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our common stock from us. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by existing stockholders after this offering would be 22,435,816, or 75.7%, and the number of shares held by new investors would increase to 7,187,500, or 24.3%, of the total number of shares of our common stock outstanding after this offering.

The shares reserved for future issuance under our 2014 Equity Incentive Plan and our 2014 Employee Stock Purchase Plan will be subject to automatic annual increases in accordance with terms of the respective plans. To the extent that outstanding warrants and options are exercised, there will be further dilution to investors participating in this offering.

The foregoing discussion and tables do not reflect potential purchases by entities affiliated with Foundation Capital, LLC, a holder of more than 5% of our common stock and an affiliate of a member of our board of directors, that have indicated an interest in purchasing shares in this offering as described in “Underwriting.”

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, which are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2012 and 2013 are derived from the audited consolidated financial statements that are included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2011 are derived from audited consolidated financial statements that are not included in this prospectus. The consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in our opinion, reflect all adjustments, which include only 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. Results for the three months ended March 31, 2014 are not indicative of results expected for the full year.

 

      Years Ended December 31,       Three Months Ended March 31,  
          2011                 2012                 2013                 2013                 2014        
                      (unaudited)  
   

(in thousands except share, per share and client data)

 

Consolidated Statements of Operations Data:

         

Revenue:

         

Platform Direct

  $ 2,171      $ 5,433      $ 19,331      $ 2,312      $ 9,248   

Platform Services

    13,488        28,726        37,883        7,268        12,778   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    15,659        34,159        57,214        9,580        22,026   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

    8,214        16,374        19,698        3,392        6,215   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    7,445        17,785        37,516        6,188        15,811   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

         

Research and development (1)

    3,797        7,364        11,837        2,346        3,808   

Sales and marketing (1)

    5,340        10,384        21,378        4,116        7,929   

General and administrative (1)

    2,294        4,931        10,477        1,475        4,438   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    11,431        22,679        43,692        7,937        16,175   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain on sale of InPlay

    —          1,950        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (3,986)        (2,944)        (6,176)        (1,749)        (364)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

         

Interest expense, net

    (72)        (232)        (169)        (48)        (41)   

Change in fair value of convertible preferred stock warrant liability

    (11)        (154)        (388)        1        (281)   

Foreign exchange loss

    (23)        (141)        (618)        (94)        (36)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

    (106)        (527)        (1,175)        (141)        (358)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

    (4,092)        (3,471)        (7,351)        (1,890)        (722)   

Provision for income taxes

    (1)        (94)        (60)        (14)        (45)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (4,093)      $ (3,565)      $ (7,411)      $ (1,904)      $ (767)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share (2)

  $ (0.66)      $ (0.55)      $ (1.12)      $ (0.29)      $ (0.11)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted-average shares used to compute net loss per share (2)

    6,216,785        6,433,819        6,612,621     

 

6,588,947

  

 

 

6,750,834

  

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted pro forma net loss per share (unaudited) (2)

      $ (0.32)        $ (0.02)   
     

 

 

     

 

 

 

Basic and diluted weighted-average shares used to compute pro forma net loss per share (unaudited) (2)

        22,225,112          22,363,325   
     

 

 

     

 

 

 

Other data (unaudited):

         

Platform Direct Spend (3)

  $ 4,314      $ 25,032      $ 74,016      $ 9,062      $ 35,270   

Total Spend (3)

  $ 17,802      $ 53,758      $ 111,899      $ 16,330      $ 48,048   

Adjusted EBITDA (4)

  $ (3,777)      $ (2,566)      $ (5,801)      $ (1,709)      $ 106   

Number of Platform Direct Clients (5)

    25        86        208        110        242   

 

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(1) Stock-based compensation expense included above was as follows:

 

     Years Ended December 31,      Three Months Ended March 31,  
         2011              2012              2013              2013              2014      
                          (unaudited)  
     (in thousands)  

Research and development

   $ 50       $ 159       $ 206       $ 23       $ 102   

Sales and marketing

     72         92         230         28         140   

General and administrative

     11         179         325         51         174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 133       $ 430       $ 761       $ 102       $ 416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See Note 8 to our consolidated financial statements for a description of the method used to compute basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share.
(3) For purposes of calculating Total Spend and Platform Direct Spend, we define spend as the aggregate gross dollar volume that our customers spend through our platform, including cost of media purchases and our fees. Platform Direct Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the spend through our Platform Direct offering. Platform Services Spend equals our Platform Services revenue. Total Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the sum of Platform Direct Spend and Platform Services Spend. Please see “— Non-GAAP Financial Measures” below for information regarding the limitations of using these measures and for reconciliations of these measures to Platform Direct revenue and revenue, the most directly comparable financial measures calculated in accordance with GAAP.
(4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense, net, provision for income tax, depreciation and amortization expense excluding amortization of internal use software development costs, stock-based compensation expense and change in fair value of convertible preferred stock warrant liability. Please see “— Non-GAAP Financial Measures” below for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated in accordance with GAAP.
(5) We define a Platform Direct Client as a customer that had a total aggregate spend of at least $10,000 through our platform during the previous twelve months. For purposes of this definition, all branches or divisions of a customer that operate under its contract with us are considered a single Platform Direct Client. In a limited number of instances in any period, branches or divisions of an advertiser that operate under distinct contracts are each considered a separate Platform Direct Client. We believe that our total number of Platform Direct Clients is an important measure of our ability to increase revenue and the effectiveness of our sales force.

 

     December 31,      March 31,  
     2011      2012      2013      2014  
                          (unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

   $ 5,467       $ 19,670       $ 19,475       $ 15,237   

Working capital

   $ 8,153       $ 25,039       $ 26,249       $ 23,440   

Total assets

   $ 15,074       $ 43,905       $ 70,615       $ 75,407   

Debt obligations, current and non-current, and convertible preferred stock warrant liability

   $ 748       $ 4,658       $ 3,882       $ 10,722   

Total stockholders’ equity

   $ 8,430       $ 23,009       $ 27,255       $ 27,005   

 

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Non-GAAP Financial Measures

Total Spend and Platform Direct Spend

For purposes of calculating Total Spend and Platform Direct Spend, we define spend as the aggregate gross dollar volume that our customers spend through our platform, which includes cost of media purchases and our fees. Platform Direct Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the spend through our Platform Direct offering. Platform Services Spend equals our Platform Services revenue. Total Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the sum of Platform Direct Spend and Platform Services Spend. We believe Platform Direct Spend and Total Spend are meaningful measures of our operating performance because our ability to generate increases in Total Spend is strongly correlated to our ability to generate increases in Platform Direct revenue and revenue, respectively. Platform Direct Spend and Total Spend are used by our management and board of directors to understand our business and make operating decisions. A limitation of each of Total Spend and Platform Direct Spend is that each is a measure that we have defined for internal purposes that may be unique to us, and therefore may not enhance the comparability of our results to other companies in our industry that have similar business arrangements but present the impact of media costs differently. Because of these limitations you should consider Platform Direct Spend and Total Spend along with the corresponding GAAP-based measures. The following table presents a reconciliation of Platform Direct Spend and Total Spend to revenue for each of the periods indicated:

 

     December 31,      March 31,  
     2011      2012      2013      2013      2014  
                          (unaudited)  
     (in thousands)  

Platform Direct Revenue

   $ 2,171       $ 5,433       $ 19,331       $ 2,312       $ 9,248   

Plus: Non-GAAP Platform Direct Media Cost (unaudited)

     2,143         19,599         54,685         6,750       $ 26,022   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Platform Direct Spend (unaudited)

   $ 4,314       $ 25,032       $ 74,016       $ 9,062       $ 35,270   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Platform Services Spend (unaudited)

   $ 13,488       $ 28,726       $ 37,883       $ 7,268       $ 12,778   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Spend (unaudited)

   $ 17,802       $ 53,758       $ 111,899       $ 16,330       $ 48,048   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have presented Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense, net, provision for income tax, depreciation and amortization expense excluding amortization of internal use software development costs, stock-based compensation expense and change in fair value of convertible preferred stock warrant liability. We have provided below a reconciliation of Adjusted EBITDA to net loss the most directly comparable GAAP financial measure. We have presented 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 amounts 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.

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 as follows:

 

   

although depreciation and amortization expense (excluding amortization of internal use software development costs) are non-cash charges, the assets being depreciated and amortized may have to be

 

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replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) the potentially dilutive impact of stock-based compensation; or (3) tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA along with other GAAP-based financial performance measures, including various cash flow metrics, loss, and our GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss for each of the periods indicated:

 

     Years Ended
December 31,
    Three Months Ended
March  31,
 
     2011     2012     2013         2013             2014      
                       (unaudited)  
     (in thousands)  

Net loss

   $ (4,093   $ (3,565   $ (7,411   $ (1,904   $ (767

Interest expense, net

     72        232        169        48        41   

Provision for income taxes

     1        94        60        14        45   

Depreciation and amortization expense, excluding amortization of internal use software development costs

     99        89        232        32        90   

Stock-based compensation expense

     133        430        761        102        416   

Change in fair value of convertible preferred stock warrant liability

     11        154        388        (1     281   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (unaudited)

   $ (3,777   $ (2,566   $ (5,801   $ (1,709   $ 106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 consolidated financial statements included elsewhere 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

TubeMogul is an enterprise software company for digital branding. By reducing complexity, improving transparency and leveraging real-time data, our platform enables advertisers to gain greater control of their digital video advertising spend and achieve their brand advertising objectives.

Our customers plan, buy, measure and optimize their global digital video advertising spend from our self-serve platform. By integrating programmatic technologies and disparate sources of inventory within a single platform, we enable our customers to launch sophisticated, scalable digital video advertising campaigns — onto any digital device — within minutes. Brands use our platform to verify the success and impact of their digital video advertising campaigns by measuring the audience reached by the campaign, how the audience interacted with their advertisements and the impact the campaign had on the consumer’s perception of the brand. Our platform uses these real-time insights to dynamically optimize spend across digital sources of inventory including digital ad exchanges, supply-side platforms, private marketplaces, ad networks and direct premium publishers. Our platform measures key brand advertising metrics including brand lift, as measured by integrated brand surveys, as well as GRPs and engagement.

We make our platform available through two offerings: Platform Direct, which allows advertisers to continuously run campaigns through a self-serve model, and Platform Services, which allows advertisers to specify campaign objectives and have our team execute on their behalf using our platform.

Our Platform Direct offering allows advertisers to run self-serve campaigns eliminating the often complex and inefficient RFP process through which digital media is typically bought. Platform Direct customers enter into master service agreements with us that enable them to execute all of their campaigns under the agreement without the need for campaign-by-campaign insertion orders, or IOs. We generate Platform Direct revenue by charging our customers a utilization fee that is a percentage of media spend as well as fees for additional features offered through our platform. Because Platform Direct customers have control of the media purchasing decisions through our platform, our Platform Direct revenue is recognized on a net basis, meaning that it only includes our fees and not the cost of media purchased. The gross margin for our Platform Direct offering for the year ended December 31, 2013 was 95%.

Our Platform Services offering allows advertisers who continue to use a traditional RFP process to realize the benefits of our platform without needing to alter their purchasing process. Platform Services arrangements are generally in the form of discrete IOs which are negotiated on a campaign-by-campaign basis. We generate Platform Services revenue by delivering digital video advertisements based upon our customer’s campaign specifications. Our Platform Services revenue is recognized on a gross basis, meaning that it includes the cost of the media purchased. The gross margin for our Platform Services offering for the year ended December 31, 2013 was 51%.

We believe customers value both our Platform Direct and our Platform Services offerings as Total Spend through our platform has increased from $17.8 million for the year ended December 31, 2011 to $111.9 million

 

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for the year ended December 31, 2013, representing a compound annual growth rate, or CAGR, of 151%. Total Spend through our platform increased from $16.3 million for the three months ended March 31, 2013 to $48.0 million for the three months ended March 31, 2014, representing period-over-period growth of 194%. We define Total Spend as the aggregate gross dollar volume that our Platform Direct customers and Platform Services customers spend through our platform, which includes media purchases and our fees. We actively engage with our Platform Services customers to educate them about the benefits of migrating to our Platform Direct offering.

We consider our global capabilities to be a competitive differentiator to global brands and agencies. Campaigns can be executed through our platform in over 70 countries using a single integrated workflow. During 2013, we executed campaigns in over 35 countries and generated 33% of our revenue from customers with billing addresses outside of the United States. For financial information about our geographic areas, please see Note 11 of the notes to our consolidated financial statements appearing elsewhere in this prospectus.

We were incorporated in California in 2007 and reincorporated in Delaware in March 2014. We initially developed video content syndication and video analytics software for publishers and launched our advertiser-focused platform in 2011. For the years ended December 31, 2012 and 2013, our revenue increased from $34.2 million to $57.2 million, and for the three months ended March 31, 2013 and 2014, our revenue increased from $9.6 million to $22.0 million. For the years ended December 31, 2012 and 2013, our gross margin increased from 52% to 66%, and for the three months ended March 31, 2013 and 2014, our gross margin increased from 65% to 72%. We also had net losses of $3.6 million, $7.4 million, $1.9 million and $0.8 million for the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014, respectively.

Key Operating and Financial Performance Metrics

To help us monitor the overall performance of our business and identify trends, we evaluate the following key metrics: Total Spend, Platform Direct Spend, revenue, gross profit, gross margin, Adjusted EBITDA, and Number of Platform Direct Clients. Total Spend, Platform Direct Spend Adjusted EBITDA and Number of Platform Direct Clients are discussed immediately following the table below. Revenue, gross profit and gross margin are further discussed under the headings “Components of our Results of Operations.”

 

     Years Ended December 31,     Three Months Ended March 31,  
             2011                     2012                     2013                     2013                     2014          
                       (unaudited)  
    

(in thousands, except percentages and clients)

 

Key Metrics

          

Platform Direct Spend (unaudited)

   $ 4,314      $ 25,032      $ 74,016      $ 9,062      $ 35,270   

Platform Services Spend (unaudited)

     13,488        28,726        37,883        7,268        12,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Spend (unaudited)

   $ 17,802      $ 53,758      $ 111,899      $ 16,330      $ 48,048   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Platform Direct revenue

   $ 2,171      $ 5,433      $ 19,331      $ 2,312      $ 9,248   

Platform Services revenue

     13,488        28,726        37,883        7,268        12,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 15,659      $ 34,159      $ 57,214      $ 9,580      $ 22,026   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 7,445      $ 17,785      $ 37,516      $ 6,188      $ 15,811   

Gross margin

     48     52     66     65     72

Adjusted EBITDA (unaudited)

   $ (3,777   $ (2,566   $ (5,801   $ (1,709   $ 106   

Number of Platform Direct Clients (unaudited)

     25        86        208        110        242   

Total Spend and Platform Direct Spend

For purposes of calculating Total Spend and Platform Direct Spend, we define spend as the aggregate gross dollar volume that our customers spend through our platform, which includes cost of media purchases and our fees. Platform Direct Spend does not represent revenue earned by us and is a non-GAAP financial measure

 

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defined by us as the spend through our Platform Direct offering. Platform Services Spend equals our Platform Services revenue. Total Spend does not represent revenue earned by us and is a non-GAAP financial measure defined by us as the sum of Platform Direct Spend and Platform Services Spend. We believe Platform Direct Spend and Total Spend are meaningful measures of our operating performance because our ability to generate increases in Platform Direct Spend and Total Spend are strongly correlated to our ability to generate increases in Platform Direct revenue and revenue, respectively. Platform Direct Spend and Total Spend are used by our management and board of directors to understand our business and make operating decisions. A limitation of each of Platform Direct Spend and Total Spend is that each is a measure that we have defined for internal purposes that may be unique to us, and therefore it may not enhance the comparability of our results to other companies in our industry that have similar business arrangements but present the impact of media costs differently. Because of these limitations you should consider Platform Direct Spend and Total Spend along with the corresponding GAAP-based measures. Please see “Selected Consolidated Financial and Other Data — Non-GAAP Financial Measures” for information regarding the limitations of using these measures and for reconciliations of these measures to Platform Direct revenue and revenue, the most directly comparable financial measures calculated in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense, net, provision for income tax, depreciation and amortization expense excluding amortization of internal use software development costs, stock-based compensation expense and change in fair value of convertible preferred stock warrant liability. Adjusted EBITDA is a key measure used by our management and the 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 operating plans. In particular, we believe that the exclusion of the amounts 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 in understanding and evaluating our operating results in the same manner as our management and our board of directors. Please see “Selected Consolidated Financial and Other Data — Non-GAAP Financial Measures” for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated in accordance with GAAP.

Number of Platform Direct Clients

We define a Platform Direct Client as a customer that had total aggregate spend of at least $10,000 through our platform during the previous twelve months. For purposes of this definition, all branches or divisions of a customer that operate under its contract with us are considered a single Platform Direct Client. In a limited number of instances in any period, branches or divisions of an advertiser that operate under distinct contracts are each considered a separate Platform Direct Client. For example, of our 208 Platform Direct Clients in 2013, 19 represented distinct operations of six global companies, primarily advertising agencies, based in different jurisdictions and with respect to which we have negotiated and manage separate contractual relationships. We believe that our total number of Platform Direct Clients is an important measure of our ability to increase revenue and the effectiveness of our sales force.

Platform Direct Cohort Spend

In order to analyze the contribution to the growth of our business driven by the increase in spend from pre-existing Platform Direct customers, we measure Platform Direct Spend for the set of customers, or Cohort, that commenced spending on our Platform Direct offering in a specific year relative to subsequent periods. As illustrated in the following tables, the spend from our 2011 and 2012 Cohorts has increased over subsequent periods. For 2013, the 2011 Cohort contributed 45% of Platform Direct Spend, the 2012 Cohort contributed 25% and the 2013 Cohort contributed 30%. For 2012, the 2011 Cohort contributed 71% of Platform Direct Spend, and the 2012 Cohort contributed 29%. We believe that this analysis is helpful in understanding our business.

 

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                      2011-2012     2012-2013  
    Twelve Months Ended December 31,           % of Total
Platform
Direct Spend
          % of Total
Platform
Direct Spend
 

Cohort (1)

  2011     2012     2013     % Change       % Change    
    (in thousands except percentages)                          

Customers First Spent 2011

  $ 2,552      $ 17,170      $ 32,833        573     71     91     45

Customers First Spent 2012

    NA        6,847        18,456        NA        29     170     25

Customers First Spent 2013

    NA        NA        22,189        NA        NA        NA        30
 

 

 

   

 

 

   

 

 

         

Total

  $ 2,552      $ 24,017      $ 73,478        841     100     206     100
 

 

 

   

 

 

   

 

 

         

 

(1) Does not include revenue, which equals spend, from our video syndication software offering, a legacy technology which is not part of our digital video advertising spend platform. Customers who use this software are generally not customers for our Platform Direct and Platform Services offerings. We believe that excluding such revenue from the cohort analysis presents a more accurate basis for comparing results across the periods presented.

Factors Affecting Our Performance

We believe that the continued growth and future success of our business depend on various opportunities, challenges and other factors, including the following:

Retention of and Growth in Spend by Existing Customers

Our future revenue is dependent upon our ability to retain our existing customers and to gain a larger amount of their advertising spend through both our Platform Direct and Platform Services offerings. In particular, our recent growth in Total Spend has been driven by an increase in spend by our existing Platform Direct customers. Of our 25 largest Platform Direct Clients by Platform Direct Spend in 2012, 23 or 92% were also Platform Direct Clients in 2013. Of our 50 largest Platform Direct Clients by Platform Direct Spend in 2012, 44 or 88% were also Platform Direct Clients in 2013. For 2013, 70% of our Platform Direct Spend was from customers that first transacted through our Platform Direct offering in 2011 or 2012.

New Customers

Our future revenue growth is dependent upon our ability to continue to attract new customers, particularly new Platform Direct Clients. We added 150 new Platform Direct Clients between December 31, 2012 and December 31, 2013.

Customer Transition from Platform Services to Platform Direct

Our sales strategy is to educate our customers about the benefits of shifting from Platform Services, where purchases are made on a campaign-by-campaign basis, to Platform Direct, where customers are able to consolidate their video advertising spend through one solution on a self-serve basis. Our future performance will be impacted by our ability to continue to convince customers to shift to our Platform Direct offering. The growth in the proportion of our Total Spend represented by Platform Direct Spend is an indicator of our ability to convince customers to shift from Platform Services to our Platform Direct offering.

Sales Leverage Improvement

Our ability to increase our revenue without a commensurate increase in our sales and marketing expenses depends on the adoption of our Platform Direct offering. After our customers first transact through our Platform Direct offering, they have generally increased their spend through our platform without significant follow-on sales expense.

Investment in Growth

We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our platform, in sales and

 

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marketing primarily to acquire new customers and general and administrative expenses to support our growth. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results.

Market Growth

We expect to benefit from the continued growth in the digital video advertising market but any material change in the growth rate of this market could affect our performance. The growth of such market may be adversely impacted by a variety of factors including any delays in the shift of video advertising spend from traditional TV to digital channels. In addition, advertising spend is closely tied to the performance of the economy and a downturn in economic conditions could adversely affect the overall advertising market and our operating results.

Revenue Growth from Additional Media Markets

In 2011, 2012 and 2013, approximately 99%, 95% and 95% of our revenue, respectively, came from advertising served to personal computer users. Our future performance will be dependent in part upon the continued growth of digital video channels, including mobile video, connected TV, social video and TV formats such as video on demand, and upon our ability to grow our revenue in these channels. Accordingly, our business and operating results will be significantly affected by our ability to timely enhance our platform to address these emerging segments of the digital video advertising market and the speed with which advertisers adopt these channels to conduct their advertising campaigns. Revenue from these other digital video channels was not material in 2011, 2012 or 2013.

Components of Our Results of Operations

Revenue

We generate revenue from our Platform Direct customers from fees based on a percentage of their media spend through our platform as well as from fees for additional services such as audience targeting data, ad serving, brand safety, topic targeting and other reporting related services that we offer. We generate revenue from our Platform Services customers by delivering digital video advertisements based upon a pre-agreed set of fixed objectives with an advertiser or agency. Our Platform Services business is generally priced based upon a cost per thousand impressions, or CPM, or based upon specific campaign specifications such as number of engagements, completed views or on-target impressions.

Cost of Revenue

Cost of revenue is comprised primarily of media costs. Media costs consist of advertising impressions we purchase from advertising sources of inventory in connection with our Platform Services offering. We typically pay for these impressions on a CPM basis. Cost of revenue also includes technical infrastructure costs which include the cost of internal and third-party servers and related services, internet access costs and amortization of internal use software development costs on revenue-producing technologies. Technical infrastructure costs represented 5% of our cost of revenue for the year ended December 31, 2013. After giving effect to the allocation of these costs between our Platform Direct revenue (in respect of which it is the largest component of cost of revenue) and Platform Services revenue based upon the amount of media purchases through each service, our gross margin for Platform Direct revenue and Platform Services revenue was 95% and 51%, respectively, for the year ended December 31, 2013. We anticipate that cost of revenue will increase in absolute dollars as our revenue increases, but will decrease as a percentage of revenue as our Platform Direct revenue increases as a percentage of our total revenue. We also expect that over time our Platform Services gross margins will decrease and our Platform Direct gross margins will remain relatively stable.

 

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In our Platform Services arrangements, we generally enter into binding IOs with fixed price commitments which are determined prior to the launch of an advertising campaign. To fulfill these commitments, we purchase advertising inventory on a real-time basis during the course of the advertising campaign period, which may be weeks or months. As a result, we are exposed to market risk that the cost of such inventory to us may be greater than we expected when we entered into the IO or we may benefit from market prices being less than we expected, either of which impact our media costs as a percentage of revenue.

Operating Expenses

We classify our operating expenses into three categories: research and development, sales and marketing and general and administrative. Our operating expenses consist primarily of personnel costs, professional fees and facilities costs. Personnel costs include salaries, bonuses and commissions for sales personnel, stock-based compensation expense and employee benefit costs.

Our research and development expenses consist primarily of personnel costs outsourced engineering costs associated with the ongoing maintenance and development of our platform and related technologies, allocated technical infrastructure costs directly related to research and development activities, such as testing, and other operating costs allocable to engineering activities. We believe that continued investment in our platform is critical to achieving our objectives, and we expect research and development expenses to continue to increase over time.

Our sales and marketing expenses consist primarily of personnel costs, including operations personnel costs allocable to sales and marketing activities, outsourced sales and marketing activities, brand marketing, trade shows, travel and entertainment, and marketing collateral. In order to increase our share of video advertising spend, we expect sales and marketing expenses to continue to increase in future periods.

Our general and administrative expenses consist primarily of personnel costs, associated with our executive, finance, human resources, legal and other administrative personnel, and also include accounting, legal and other professional service fees, facility costs, bad debt expense, depreciation expense and other corporate expenses. We expect to continue to invest in our corporate infrastructure and incur further expenses related to being a public company, including increased accounting and legal costs, investor relations costs, increased insurance premiums and other compliance costs associated with Section 404 of the Sarbanes-Oxley Act. As a result, we anticipate that general and administrative expenses will increase in future periods.

Other Expense, Net

Interest expense, net is related to our term debt and line of credit, offset in 2012 by immaterial interest income resulting from our short-term investment in marketable securities. Interest expense is expected to fluctuate as we draw on or pay down our line of credit and term debt.

Change in fair value of convertible preferred stock warrant liability is related to a mark to market adjustment associated with a warrant to purchase our preferred stock. In connection with the closing of this offering, the warrant will automatically be converted into shares of common stock, and we will no longer be required to re-measure the value of the warrant.

Foreign currency translation loss consists of gains and losses on foreign currency translation. We have foreign currency exposure related to our accounts receivable that are denominated in currencies other than the U.S. dollar, principally the British pound, Canadian dollar, Euro and Australian dollar. To the extent that our revenue from international operations increases and the scope of our international operations grows, our operating results will become more susceptible to changes in foreign currency rates.

 

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Provision for Income Taxes

Provision for income taxes consists primarily of federal and state income taxes in the United States and income taxes in foreign jurisdictions in which we conduct business. Due to uncertainty as to the realization of benefits from our deferred tax assets, including net operating loss carry forwards, research and development and other tax credits, we have a full valuation allowance reserved against such assets. We expect to maintain this full valuation allowance in the near term.

Results of Operations

The following table sets forth our consolidated results of operations and our consolidated results of operations as a percentage of total revenue for the periods presented.

 

     Years Ended
December 31,
    Three Months Ended
March  31,
 
     2011     2012     2013         2013             2014      
     (in thousands)  
                       (unaudited)  

Consolidated Statement of Operations Data:

  

       

Revenue:

          

Platform Direct

   $ 2,171      $ 5,433      $  19,331      $ 2,312      $ 9,248   

Platform Services

     13,488        28,726        37,883        7,268        12,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     15,659        34,159        57,214        9,580        22,026   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     8,214        16,374        19,698        3,392        6,215   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7,445        17,785        37,516        6,188        15,811   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development (1)

     3,797        7,364        11,837        2,346        3,808   

Sales and marketing (1)

     5,340        10,384        21,378        4,116        7,929   

General and administrative (1)

     2,294        4,931        10,477        1,475        4,438   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,431        22,679        43,692        7,937        16,175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain on sale of InPlay

     —          1,950        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,986     (2,944     (6,176     (1,749     (364
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

          

Interest expense, net

     (72     (232     (169     (48     (41

Change in fair value of convertible preferred stock warrant liability

     (11     (154     (388     1        (281

Foreign exchange loss

     (23     (141     (618     (94     (36
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (106     (527     (1,175     (141     (358
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (4,092     (3,471     (7,351     (1,890     (722

Provision for income taxes

     (1     (94     (60     (14     (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,093   $ (3,565   $ (7,411   $ (1,904   $ (767
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Stock-based compensation expense included above was as follows:

 

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     Years Ended
December  31,
     Three Months Ended
March  31,
 
     2011      2012      2013          2013              2014      
     (in thousands)  
                          (unaudited)  

Research and development

   $ 50       $ 159       $ 206       $ 23       $ 102   

Sales and marketing

     72         92         230         28         140   

General and administrative

     11         179         325         51         174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $     133       $     430       $     761       $     102       $     416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Years Ended
December 31,
    Three Months Ended
March  31,
 
         2011             2012             2013             2013             2014      
                       (unaudited)  

Consolidated Statement of Operations Data:

          

Revenue:

          

Platform Direct

     14     16     34     24     42

Platform Services

     86        84        66        76        58   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100        100        100        100        100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     52        48        34        35        28   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     48        52        66        65        72   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     24        22        21        24        17   

Sales and marketing

     34        30        37        43        36   

General and administrative

     15        14        18        15        20   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     73        66        76        82        73   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain on sale of InPlay

     —          6        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (25     (8     (10     (17     (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

          

Interest expense, net

     (1     (1     (0     (1     (0

Change in fair value of convertible preferred stock warrant liability

     (0     (0     (1     0        (2

Foreign exchange loss

     (0     (0     (1     (1     (0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (1     (1     (2     (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (26     (9     (12     (19     (3

Provision for income taxes

     (0     (0     (0 )       (0     (0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (26 )%      (9 )%      (12 )%      (19 )%      (3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended March 31, 2013 and 2014

Revenue

 

     Three Months Ended
March  31,
               
             2013                      2014              $ Change      % Change  
     (in thousands, except percentages)  
     (unaudited)                

Platform Direct

   $ 2,312       $ 9,248       $ 6,936         300

Platform Services

     7,268         12,778         5,510         76
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 9,580       $ 22,026       $ 12,446         130
  

 

 

    

 

 

    

 

 

    

 

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Revenue increased $12.4 million, or 130%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Platform Direct revenue increased $6.9 million, or 300%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Platform Direct revenue from Platform Direct customers who were customers as of March 31, 2013 contributed $2.0 million of the growth. Platform Direct revenue from Platform Direct customers who were new customers since March 31, 2013 contributed $4.9 million of the growth. The 76% increase in Platform Services revenue from $7.3 million during the three months ended March 31, 2013 to $12.8 million during the three months ended March 31, 2014 was primarily due to $3.4 million in revenue from customers who spent with us during the three months ended March 31, 2014 that did not spend with us during the three months ended March 31, 2013, and a $2.1 million increase in revenue from customers that spent with us in both the three months ended March 31, 2014 and the three months ended March 31, 2013.

Cost of Revenue, Gross Profit and Gross Margin

 

     Three Months Ended
March 31,
              
             2013                     2014             $ Change      % Change  
     (in thousands, except percentages)  
     (unaudited)               

Cost of revenue

   $ 3,392      $ 6,215      $ 2,823         83

Gross profit

     6,188        15,811        9,623         156

Gross margin

     65     72     

Cost of revenue increased $2.8 million, or 83%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. This increase was due to a $2.7 million increase in media costs associated with the growth in Platform Services revenue. Technical infrastructure costs increased to $0.4 million for the three months ended March 31, 2014 from $0.3 million for the three months ended March 31, 2013. After giving effect to the allocation of these technical infrastructure costs between Platform Direct revenue and Platform Services revenue, gross profit from Platform Direct and Platform Services revenue increased from $2.1 million and $4.1 million for the three months ended March 31, 2013 to $8.9 million and $6.9 million for the three months ended March 31, 2014, respectively. Gross margin increased to 72% for the three months ended March 31, 2014 compared to 65% for the three months ended March 31, 2013, primarily due to Platform Direct revenue having grown to 42% of total revenue as compared to 24% in the comparable period.

Research and Development

 

     Three Months Ended
March 31,
              
             2013                     2014             $ Change      % Change  
     (in thousands, except percentages)  
     (unaudited)               

Research and development

   $ 2,346      $ 3,808      $ 1,462         62

Percent of revenue

     24     17     

Research and development expense increased by $1.5 million, or 62%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase was primarily due to an increase in personnel costs of $1.4 million and additional technical infrastructure costs of $0.1 million. The increase in personnel costs was primarily due to an increase in headcount, which reflected our continued investment in hiring technical personnel, including engineers, to maintain our platform and support our research and development efforts. The increase in technical infrastructure costs was attributable to increased costs of third-party data center operations, hosting and ad server management and bandwidth costs necessary to support our increased research and development related activities.

 

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Sales and Marketing

 

     Three Months Ended
March 31,
              
             2013                     2014             $ Change      % Change  
     (in thousands, except percentages)  
     (unaudited)               

Sales and marketing

   $ 4,116      $ 7,929      $ 3,813         93

Percent of revenue

     43     36     

Sales and marketing expense increased by $3.8 million, or 93%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase was primarily due to an increase in personnel costs of $3.1 million, including a $1.1 million increase in sales commissions, an increase in marketing expenses of $0.3 million and an increase in travel and entertainment expense of $0.3 million. The increase in personnel costs was primarily due to an increase in sales and marketing headcount during 2013.

General and Administrative

 

     Three Months Ended
March 31,
              
             2013                     2014             $ Change      % Change  
     (in thousands, except percentages)  
     (unaudited)               

General and administrative

   $ 1,475      $ 4,438      $ 2,963         201

Percent of revenue

     15     20     

General and administrative expense increased by $3.0 million, or 201%, during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase was primarily due to an increase in personnel costs of $1.0 million related to an increase in headcount to support our growth, an increase in facility costs of $0.5 million as we opened new offices and expanded some of our existing facilities to accommodate our increase in personnel, an increase in recruiting expense of $0.1 million, an increase in professional fees of $0.7 million due to increased legal, accounting and audit services, an increase in travel and entertainment of $0.3 million and an increase in bad debt expense of $0.3 million.

Other Expenses, Net

The increase in other expenses, net was primarily due to a change in fair value of our convertible preferred stock warrant liability.

Provision for Income Taxes

Our provision for income taxes for the three months ended March 31, 2013 and 2014 primarily relates to taxes due in foreign jurisdictions.

Comparison of the Years Ended December 31, 2012 and 2013

Revenue

 

     Year Ended December 31,                
             2012                      2013              $ Change      % Change  
    

(in thousands, except percentages)

 

Platform Direct

   $ 5,433       $ 19,331       $ 13,898         256

Platform Services

     28,726         37,883         9,157         32
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 34,159       $ 57,214       $ 23,055         67
  

 

 

    

 

 

    

 

 

    

 

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Revenue increased $23.1 million, or 67%, during 2013 compared to 2012. Platform Direct revenue increased $13.9 million, or 256%, during 2013 compared to 2012. Platform Direct revenue from Platform Direct customers who first spent with us in 2011 and 2012 contributed $7.8 million of the growth. Platform Direct customers who first spent with us in 2013 contributed $6.5 million of the growth. These Platform Direct revenue increases were partially offset by a decline in revenue from our legacy video syndication technology of $0.4 million. Platform Services revenue increased $9.2 million, or 32%, during 2013 compared to 2012. The increase in Platform Services revenue was primarily due to $9.2 million in revenue from customers who spent with us during 2013 that did not spend with us during 2012.

Cost of Revenue, Gross Profit and Gross Margin

 

     Year Ended December 31,               
             2012                     2013             $ Change      % Change  
    

(in thousands, except percentages)

 

Cost of revenue

   $ 16,374      $ 19,698      $ 3,324         20

Gross profit

     17,785        37,516        19,731         111

Gross margin

     52     66     

Cost of revenue increased $3.3 million, or 20%, during 2013 compared to 2012. This increase was due to a $3.3 million increase in media costs associated with the growth in Platform Services revenue. Technical infrastructure costs were relatively unchanged at $1.1 million for 2012 compared to $1.0 million for 2013. After giving effect to the allocation of these technical infrastructure costs between Platform Direct revenue and Platform Services revenue, gross profit from Platform Direct and Platform Services revenue increased from $4.8 million and $13.0 million for 2012 to $18.4 million and $19.1 million for 2013, respectively. Gross margin increased to 66% for 2013 compared to 52% for 2012, primarily due to Platform Direct revenue having grown to 34% of total revenue as compared to 16% in the comparable period.

Research and Development

 

     Year Ended December 31,               
             2012                     2013             $ Change      % Change  
    

(in thousands, except percentages)

 

Research and development

   $ 7,364      $ 11,837      $ 4,473         61

Percent of revenue

     22     21     

Research and development expense increased by $4.5 million, or 61%, during 2013 compared to 2012. The increase was primarily due to an increase in personnel costs of $3.4 million and additional technical infrastructure costs of $1.4 million. The increase in personnel costs was primarily due to an increase in headcount, which reflected our continued investment in hiring technical personnel, including engineers, to maintain our platform and support our research and development efforts. The increase in technical infrastructure costs was attributable to increased costs of third-party data center operations, hosting and ad server management and bandwidth costs necessary to support our increased research and development related activities. We capitalized $0.5 million of internally developed software costs in 2013. No such costs were capitalized in 2012.

Sales and Marketing

 

     Year Ended December 31,               
             2012                     2013             $ Change      % Change  
     (in thousands, except percentages)  

Sales and marketing

   $ 10,384      $ 21,378      $ 10,994         106

Percent of revenue

     30     37     

 

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Sales and marketing expense increased by $11.0 million, or 106%, during 2013 compared to 2012. The increase was primarily due to an increase in personnel costs of $8.2 million, including a $2.0 million increase in sales commissions, and an increase in marketing expenses of $2.8 million. The increase in personnel costs was primarily due to an increase in sales and marketing headcount during 2013.

General and Administrative

 

     Year Ended December 31,               
             2012                     2013             $ Change      % Change  
     (in thousands, except percentages)  

General and administrative

   $ 4,931      $ 10,477      $ 5,546         112

Percent of revenue

     14     18     

General and administrative expense increased by $5.5 million, or 112%, during 2013 compared to 2012. The increase was primarily due to an increase in personnel costs of $2.4 million related to an increase in headcount to support our growth, an increase in facility costs of $1.8 million as we opened new offices and expanded some of our existing facilities to accommodate our increase in personnel, an increase in professional fees of $1.0 million due to increased legal, accounting and audit services and an increase in bad debt expense of $0.3 million.

Gain on Sale of InPlay

In 2012, we sold InPlay, our publisher analytics tool, for $1.95 million.

Other Expenses, Net

The increase in other expenses, net was primarily due to a loss on foreign currency translations due to the impact of foreign currency exchange rate fluctuations on our higher outstanding balance of foreign currency accounts receivable.

Provision for Income Taxes

Our provision for income taxes for 2012 and 2013 primarily relates to taxes due in foreign jurisdictions.

Comparison of the Years Ended December 31, 2011 and 2012

Revenue

 

     Year Ended December 31,                
             2011                      2012              $ Change      % Change  
     (in thousands, except percentages)  

Platform Direct

   $ 2,171       $ 5,433       $ 3,262         150

Platform Services

     13,488         28,726         15,238         113
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 15,659       $ 34,159       $ 18,500         118
  

 

 

    

 

 

    

 

 

    

Revenue increased $18.5 million, or 118%, during 2012 compared to 2011. Platform Direct revenue increased $3.3 million, or 150%, during 2012 compared to 2011. Platform Direct revenue from Platform Direct customers who first spent with us in 2011 contributed $2.2 million of the growth. Platform Direct customers who first spent with us in 2012 contributed $1.8 million of our growth. These Platform Direct revenue increases were partially offset by a decline in revenue from our legacy video syndication technology of $0.7 million. Platform Services revenue increased $15.2 million, or 113%, during 2012 compared to 2011. The increase in Platform Services revenue was primarily due to a $9.0 million increase in revenue from customers that spent with us during 2012 that did not spend with us during 2011, and a $6.2 million increase in revenue from customers that spent with us during 2011 and 2012.

 

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Cost of Revenue, Gross Profit and Gross Margin

 

     Year Ended December 31,               
             2011                     2012             $ Change      % Change  
     (in thousands, except percentages)  

Cost of revenue

   $ 8,214      $ 16,374      $ 8,160         99

Gross profit

     7,445        17,785        10,340         139

Gross margin

     48     52     

Cost of revenue increased $8.2 million, or 99%, during 2012 compared to 2011. This increase was primarily due to $8.2 million increase in media costs associated with the growth in Platform Services revenue. Technical infrastructure costs were relatively unchanged at $1.2 million for 2011 compared to $1.1 million, or 7% of our cost of revenue for 2012. After giving effect to the allocation of these technical infrastructure costs between Platform Direct revenue and Platform Services revenue, gross profit from Platform Direct and Platform Services revenue increased from $2.0 million and $5.4 million for 2011 to $4.8 million and $13.0 million for 2012, respectively. Gross margin increased to 52% for 2012 compared to 48% for 2011 primarily due to Platform Direct revenue having grown to 16% of total revenue as compared to 14% in the prior period.

Research and Development

 

     Year Ended December 31,               
             2011                     2012             $ Change      % Change  
     (in thousands, except percentages)  

Research and development

   $ 3,797      $ 7,364      $ 3,567         94

Percent of revenue

     24     22     

Research and development expense increased by $3.6 million, or 94%, during 2012 compared to 2011. The increase was primarily due to an increase in technical infrastructure costs of $1.9 million and personnel costs of $1.7 million. The increase in personnel costs was primarily due to an increase in headcount, which reflected our continued investment in hiring technical personnel, including engineers, to maintain our platform and support our research and development efforts. The increase in technical infrastructure costs was attributable to increased costs of third-party data center operations, hosting and ad server management and bandwidth costs, necessary to support our increased research and development related activities.

Sales and Marketing

 

     Year Ended December 31,               
             2011                     2012             $ Change      % Change  
     (in thousands, except percentages)  

Sales and marketing

   $ 5,340      $ 10,384      $ 5,044         94

Percent of revenue

     34     30     

Sales and marketing expense increased by $5 million, or 94%, during 2012 compared to 2011. The increase was primarily due to an increase in personnel costs of $3.4 million resulting from an increase in headcount and to a lesser degree, an increase in sales commissions due to our 118% increase in revenue. This increase also included an increase in marketing expenses of $1.2 million, primarily due to costs associated with increased tradeshow sponsorships and other marketing activities.

 

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General and Administrative

 

     Year Ended December 31,               
             2011                     2012             $ Change      % Change  
     (in thousands, except percentages)  

General and administrative

   $ 2,294      $ 4,931      $ 2,637         115

Percent of revenue

     15     14     

General and administrative expense increased by $2.6 million, or 115%, during 2012 compared to 2011. The increase was primarily due to an increase in personnel costs of $1.4 million related to our increase in headcount to support our growth and an increase in facilities costs of $0.6 million as we opened new offices and expanded some of our existing facilities to accommodate our increase in personnel.

Gain on Sale of InPlay

In 2012, we sold InPlay, our publisher analytics tool, for $1.95 million.

Other Expenses, Net

The increase in other expenses, net was primarily due to a loss on foreign currency translations due to the impact of foreign currency exchange rate fluctuations on our higher outstanding balance of foreign currency accounts receivable.

Provision for Income Taxes

Our provision for income taxes for 2011 and 2012 primarily relates to taxes due in foreign jurisdictions.

 

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Table of Contents

Quarterly Results of Operations and Key Metrics

Quarterly Results of Operations Data

The following tables set forth our unaudited quarterly consolidated statements of operations data in dollars and as a percentage of total revenue, unless otherwise noted, for each of the nine quarters in the period ended March 31, 2014. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the audited financial statements included elsewhere in this prospectus. In the opinion of management, the financial information in these tables reflects all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results for any future period.

 

    Three Months Ended  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    March  31,
2014
 
    (unaudited, in thousands)  

Consolidated Statement of Operations Data:

                 

Revenue:

                 

Platform Direct

  $ 618      $ 1,240      $ 1,305      $ 2,270      $ 2,312      $ 3,976      $ 4,649      $ 8,394      $ 9,248   

Platform Service

    4,050        5,477        7,669        11,530        7,268        8,665        8,304        13,646        12,778   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

    4,668        6,717        8,974        13,800        9,580        12,641        12,953        22,040        22,026   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

    2,386        3,132        4,320        6,536        3,392        4,288        4,487        7,531        6,215   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    2,282        3,585        4,654        7,264        6,188        8,353        8,466        14,509        15,811   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

                 

Research and development(1)

    1,289        1,530        2,261        2,284        2,346        2,804        3,204        3,483        3,808   

Sales and marketing(1)

    1,934        2,378        2,621        3,451        4,116        5,301        5,231        6,730        7,929   

General and administrative(1)

    866        1,207        1,216        1,642        1,475        2,352        3,097        3,553        4,438   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    4,089        5,115        6,098        7,377        7,937        10,457        11,532        13,766        16,175   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain on sale of InPlay

    1,600        —          200        150        —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (207     (1,530     (1,244     37        (1,749     (2,104     (3,066     743        (364
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net:

                 

Interest expense, net

    (47     (21     (61     (103     (48     (45     (41     (35     (41

Change in fair value of convertible preferred stock warrant liability

    (28     (42     (42     (42     1        (20     (36     (333     (281

Foreign exchange gain (loss)

    (18     (107     1        (17     (94     (417     165        (272     (36
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

    (93     (170     (102     (162     (141     (482     88        (640     (358
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before income taxes

    (300     (1,700     (1,346     (125     (1,890     (2,586     (2,978     103        (722

Provision for income taxes

    (4     (23     (32     (35     (14     (20     (34     8        (45
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (304   $ (1,723   $ (1,378   $ (160   $ (1,904   $ (2,606   $ (3,012   $ 111      $ (767