10-Q 1 tube-10q_20160930.htm FORM 10-Q tube-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-36543

 

TubeMogul, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

51-0633881

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1250 53rd Street, Suite 2

Emeryville, California

 

94608

(Address of principal executive offices)

 

(Zip code)

(510) 653-0126

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (do not check if a smaller reporting company)

  

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date. As of November 1, 2016, the registrant had 36,775,785 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Report Table of Contents

TABLE OF CONTENTS

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

3

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015

5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

6

 

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

 

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

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

 

Controls and Procedures

30

PART II.

 

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

31

Item 1A.

 

Risk Factors

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

 

Defaults Upon Senior Securities

50

Item 4.

 

Mine Safety Disclosures

50

Item 5.

 

Other Information

50

Item 6.

 

Exhibits

50

 

 

Signatures

51

 

 

 

2


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

TUBEMOGUL, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,114

 

 

$

83,439

 

Accounts receivable, net

 

 

182,068

 

 

 

159,899

 

Prepaid expenses and other current assets

 

 

5,879

 

 

 

3,752

 

Total current assets

 

 

272,061

 

 

 

247,090

 

Property, equipment and software, net

 

 

18,447

 

 

 

8,585

 

Restricted cash

 

 

2,230

 

 

 

1,563

 

Other assets

 

 

1,581

 

 

 

1,495

 

Total assets

 

$

294,319

 

 

$

258,733

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

68,375

 

 

$

47,346

 

Accrued liabilities

 

 

79,312

 

 

 

74,927

 

Short-term debt

 

 

9,679

 

 

 

2,898

 

Other current liabilities

 

 

4,415

 

 

 

853

 

Total current liabilities

 

 

161,781

 

 

 

126,024

 

Other liabilities

 

 

1,237

 

 

 

746

 

Long-term debt

 

 

5,312

 

 

 

1,787

 

Total liabilities

 

 

168,330

 

 

 

128,557

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock; $0.001 par value; 10,000 shares authorized and 0 outstanding as of

   September 30, 2016 and December 31, 2015

 

 

 

 

Common stock; $0.001 par value; 200,000 shares authorized and 36,652 and 35,344

   shares issued and outstanding as of September 30, 2016 and December 31, 2015,

   respectively

 

 

37

 

 

 

35

 

Additional paid-in capital

 

 

188,178

 

 

 

167,316

 

Accumulated deficit

 

 

(61,515

)

 

 

(37,016

)

Accumulated other comprehensive loss

 

 

(711

)

 

 

(159

)

Total stockholders’ equity

 

 

125,989

 

 

 

130,176

 

Total liabilities and stockholders’ equity

 

$

294,319

 

 

$

258,733

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


TUBEMOGUL, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform Direct

 

$

20,916

 

 

$

17,895

 

 

$

64,963

 

 

$

50,025

 

Platform Services

 

 

35,165

 

 

 

28,590

 

 

 

88,629

 

 

 

72,216

 

Total revenue

 

 

56,081

 

 

 

46,485

 

 

 

153,592

 

 

 

122,241

 

Cost of revenue

 

 

19,244

 

 

 

15,338

 

 

 

47,745

 

 

 

38,947

 

Gross profit

 

 

36,837

 

 

 

31,147

 

 

 

105,847

 

 

 

83,294

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,647

 

 

 

10,931

 

 

 

40,508

 

 

 

29,203

 

Sales and marketing

 

 

16,883

 

 

 

13,466

 

 

 

49,419

 

 

 

38,075

 

General and administrative

 

 

16,416

 

 

 

9,731

 

 

 

39,071

 

 

 

26,173

 

Total operating expenses

 

 

47,946

 

 

 

34,128

 

 

 

128,998

 

 

 

93,451

 

Loss from operations

 

 

(11,109

)

 

 

(2,981

)

 

 

(23,151

)

 

 

(10,157

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange loss, net

 

 

(953

)

 

 

(719

)

 

 

(830

)

 

 

(1,760

)

Other, net

 

 

(89

)

 

 

(6

)

 

 

168

 

 

 

(57

)

Other expense, net

 

 

(1,042

)

 

 

(725

)

 

 

(662

)

 

 

(1,817

)

Net loss before income taxes

 

 

(12,151

)

 

 

(3,706

)

 

 

(23,813

)

 

 

(11,974

)

Provision for income taxes

 

 

(275

)

 

 

(48

)

 

 

(685

)

 

 

(257

)

Net loss

 

$

(12,426

)

 

$

(3,754

)

 

$

(24,498

)

 

$

(12,231

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.34

)

 

$

(0.11

)

 

$

(0.68

)

 

$

(0.38

)

Basic and diluted weighted-average shares used to compute net

   loss per share

 

 

36,408

 

 

 

34,679

 

 

 

35,937

 

 

 

31,919

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


TUBEMOGUL, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(12,426

)

 

$

(3,754

)

 

$

(24,498

)

 

$

(12,231

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(214

)

 

 

(12

)

 

 

(552

)

 

 

(145

)

Comprehensive loss

 

$

(12,640

)

 

$

(3,766

)

 

$

(25,050

)

 

$

(12,376

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


TUBEMOGUL, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

Net loss

 

$

(24,498

)

 

$

(12,231

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,333

 

 

 

1,426

 

Loss on disposal of fixed assets

 

 

137

 

 

 

 

Provision for doubtful accounts

 

 

401

 

 

 

1,100

 

Provision for sales allowances

 

 

2,559

 

 

 

2,139

 

Stock-based compensation expense

 

 

17,956

 

 

 

8,813

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(25,129

)

 

 

(41,397

)

Prepaid expenses and other current assets

 

 

(2,127

)

 

 

(2,366

)

Other assets

 

 

(87

)

 

 

(64

)

Accounts payable

 

 

21,913

 

 

 

23,658

 

Accrued liabilities

 

 

4,385

 

 

 

(1,129

)

Other current and noncurrent liabilities

 

 

4,052

 

 

 

666

 

Net cash provided by (used in) operating activities

 

 

2,895

 

 

 

(19,385

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Increase in restricted cash

 

 

(666

)

 

 

 

Purchases of property, equipment and software

 

 

(9,098

)

 

 

(3,441

)

Net cash used in investing activities

 

 

(9,764

)

 

 

(3,441

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of underwriting discounts, commission

    and offering costs

 

 

 

 

 

58,333

 

Proceeds from borrowings

 

 

13,464

 

 

 

1,000

 

Repayments of borrowings

 

 

(8,276

)

 

 

(1,111

)

Proceeds from issuances of common stock from the exercise of options and ESPP

 

 

2,908

 

 

 

2,149

 

Net cash provided by financing activities

 

 

8,096

 

 

 

60,371

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(552

)

 

 

(145

)

Net increase in cash and cash equivalents

 

 

675

 

 

 

37,400

 

Cash and cash equivalents, beginning of period

 

 

83,439

 

 

 

46,592

 

Cash and cash equivalents, end of period

 

$

84,114

 

 

$

83,992

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

326

 

 

$

95

 

Cash paid for income taxes

 

 

333

 

 

 

 

Equipment purchased under capital lease financing

 

 

5,118

 

 

 

 

Property and equipment purchased and unpaid at period end

 

 

332

 

 

 

1,366

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


TUBEMOGUL, INC.

Notes to Condensed Consolidated Financial Statements

(In thousands, except per share data and where otherwise noted)

(Unaudited)

 

1. The Company and its Significant Accounting Policies

The Company

TubeMogul, Inc., a Delaware corporation (the Company), provides software for brand advertising. The Company’s customers include many of the world’s largest brands and their media agencies. The Company is headquartered in Emeryville, California and has offices in several other locations in the U.S. and internationally including in Chengdu, Kyiv, London, Paris, Sao Paulo, Shanghai, Singapore, Sydney, Tokyo and Toronto.

  

Principles of Consolidation and Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting, and include the accounts of the Company’s wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

The consolidated balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, the Company’s comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending December 31, 2016 or any other period.

Use of Estimates

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these condensed consolidated financial statements include allowances for doubtful accounts, reserves for sales allowances, useful lives for depreciation and amortization, loss contingencies, valuation of deferred tax assets, provisions for uncertain tax positions, capitalization of software costs, delivery of impressions for campaigns using the Company’s programmatic TV (PTV) solution and assumptions used for valuation of stock-based compensation. Actual results could differ from those and other estimates.

Accounts Receivable

Accounts receivable are stated at net realizable value. The Company recognizes allowances for estimated bad debt and sales allowances in the period in which the related sale is recorded. Allowances for bad debts are estimated based on the Company’s historical write-off experience and an assessment of customer-specific circumstances including, aged balances, payment history, changes in payment terms, and other customer-specific information which may provide an indication that account balances are not collectible. Accounts receivable are written off when management estimates no future collection is possible.

Many of the Company’s contracts with advertising agencies provide that if the brand (i.e., the agency’s customer) does not pay the agency, the agency is not liable to the Company and the Company must seek payment from the brand. Accordingly, the Company considers the creditworthiness of the brand in establishing its allowance for doubtful accounts. However, since inception, the Company has not had to initiate collection efforts directly with any brands where the contract was with an advertising agency.

7


The following table presents the changes in the allowance for doubtful accounts:

 

 

 

Nine Months Ended

 

 

Year Ended

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Balance, beginning of period

 

$

(2,110

)

 

$

(1,369

)

Additions to allowance

 

 

(401

)

 

 

(1,287

)

Write offs, net of recoveries

 

 

208

 

 

 

546

 

Balance, end of period

 

$

(2,303

)

 

$

(2,110

)

 

Sales allowances primarily relate to credit memos issued for billing discrepancies and customer concessions, and are estimated using a combination of specifically identified potential claims and estimated amounts which are derived from actual historical experience. The allowance is recorded as a reduction to revenue in the consolidated statement of operations and accounts receivable on the consolidated balance sheets.

 

The following table presents the changes in sales allowances:

 

 

 

Nine Months Ended

 

 

Year Ended

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Balance, beginning of period

 

$

(875

)

 

$

(460

)

Additions to allowance

 

 

(2,559

)

 

 

(3,244

)

Issued sales allowances

 

 

2,818

 

 

 

2,829

 

Balance, end of period

 

$

(616

)

 

$

(875

)

 

 

Fair Value Measurement and Financial Instruments

The Company measures the fair value of its financial instruments in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) for Fair Value Measurements. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair values of all reported assets and liabilities that represent financial instruments, the Company uses the carrying market values of such amounts. The provision establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 — Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The Company had $68,759 and $72,416 of cash equivalents as of September 30, 2016 and December 31, 2015, respectively, which are measured at fair value on a recurring basis. Inputs used in measuring fair value of cash equivalents are categorized as Level 1.     

 

From time to time, the Company enters into foreign currency forward contracts to mitigate its exposure to foreign exchange risk.  The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates and are categorized as Level 2. For the three and nine months ended September 30, 2016, the Company recognized losses of $253 and gains of $219, respectively, from settlement of these contracts. The Company uses foreign currency forward contracts to mitigate the impact of foreign currency fluctuations of certain non-U.S. dollar denominated asset positions, primarily cash and accounts receivable. Gains and losses resulting from currency exchange rate movements on these forward contracts are recognized in other income (expense) in the accompanying condensed consolidated statements of operations in the period in which

8


the exchange rates change and offset the foreign currency losses and gains, respectively, on the underlying exposure being hedged. The Company does not enter into derivative financial instruments for trading or speculative purposes. As of September 30, 2016, the Company had forward foreign exchange contracts to buy a total notional value of $22.4 million against various foreign currencies. The Company does not apply hedge accounting to its derivative transactions. The Company is exposed to credit loss in the event of nonperformance by the counterparty to the foreign currency foreign exchange contracts. The Company continually monitors its positions and the credit ratings of the counterparties involved to mitigate the amount of credit exposure. 

 

The fair value of accounts receivable, accounts payable, accrued liabilities and debt approximated their carrying values as of  September 30, 2016 and December 31, 2015 due to their short term nature. The fair values of all of these instruments are categorized as Level 2 in the fair value hierarchy.

There were no assets measured using Level 3 inputs at September 30, 2016.

Segment Information

The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The CODM for the Company is the Chief Executive Officer. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity, and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single operating and reportable segment, which is to design, develop and market software for branding.

 

9


Recent Accounting Pronouncements

 

Standard

Description

Planned Date of Adoption

Effects on the Consolidated

Financial Statements

Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, (ASU 2014-09)

ASU 2014-09 clarifies existing accounting literature relating to how and when a company recognizes revenue. The updated standard will replace most existing revenue recognition guidance under U.S. generally accepted accounting principles (GAAP) when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB decided on July 9, 2015 to defer for one year the effective date of the new revenue standard for public and nonpublic entities reporting under GAAP. The FASB also decided to permit entities to early adopt the standard, for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

 

January 1, 2018

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

Accounting Standards Update No. 2016-02, Leases, (ASU 2016-02)

ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than twelve months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU 2016-02 also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018.

January 1, 2019

The requirements should be applied on a modified retrospective basis and the updated standard will be effective for the Company in the first quarter of 2020. The Company expects that the impact of the adoption of this new standard will result in the recognition of a lease asset and lease liability for those operating leases in effect at the date of adoption however, the Company is still in the process of determining the full extent the impact the adoption of this new accounting standard will have on its consolidated financial statements and related disclosures.

 

Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), (ASU 2016-08)

ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The effective date and transition requirements are the same as the effective date and transition requirements of ASU 2014-09. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14) defers the effective date of ASU 2014-09 by one year.

 

January 1, 2018

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718), (ASU 2016-09)

ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.

 

January 1, 2017

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

10


Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606):  Identifying Performance Obligations and Licensing, (ASU 2016-10)

ASU 2016-10 clarifies guidance on licensing and performance obligations based on feedback regarding potential issues associated with implementation of the new standard. The effective date is the same as the effective date and transition requirements of ASU 2014-09. ASU 2015-14 defers the effective date of ASU 2014-09 by one year.

 

January 1, 2018

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, (ASU 2016-12)

ASU 2016-12 amends certain aspects of ASU 2016-09 based on certain implementation issues identified. The effective date is the same as the effective date and transition requirements of ASU 2014-09. ASU 2015-14 defers the effective date of Update 2014-09 by one year.

 

January 1, 2018

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15)

ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASC 230 lacks consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows. This has led to diversity in practice and, in certain circumstances, financial statement restatements. Therefore, the FASB issued the ASU with the intent of reducing diversity in practice with respect to eight types of cash flows.

 

January 1, 2018

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

 

 

2. Property, Equipment and Software

Property, equipment and software consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Computer, software and office equipment

 

$

10,835

 

 

$

4,509

 

Capitalized internal use software costs

 

 

7,836

 

 

 

3,587

 

Furniture and fixtures

 

 

2,367

 

 

 

1,821

 

Leasehold improvements

 

 

4,339

 

 

 

2,336

 

 

 

 

25,377

 

 

 

12,253

 

Less accumulated depreciation and amortization

 

 

(6,930

)

 

 

(3,668

)

Total

 

$

18,447

 

 

$

8,585

 

 

Total depreciation and amortization expense was $1.5 million and $554 for the three months ended September 30, 2016 and 2015, respectively, and $3.3 million and $1.4 million for the nine months ended September 30, 2016 and 2015, respectively.

 

In May 2016, the Company entered into a Master Lease Agreement to lease servers and other ancillary equipment to support the development of the Company’s own web hosting infrastructure. These server sites are located in Santa Clara, California; Ashburn, Virginia; Amsterdam, Netherlands and Hong Kong, China. The Company depreciates computer equipment over an estimated useful life of 36 months from the date each server was placed in service. See Note 4 for additional information.

 

 

3. Accrued Liabilities

Accrued liabilities consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued media costs

 

$

65,763

 

 

$

61,040

 

Sales commissions

 

 

2,678

 

 

 

3,776

 

Payroll and related expenses

 

 

5,836

 

 

 

6,314

 

Other accrued expenses

 

 

5,035

 

 

 

3,797

 

Total

 

$

79,312

 

 

$

74,927

 

 

Accrued media costs consist of amounts owed to the Company’s vendors for impressions delivered through September 30, 2016 and December 31, 2015.

 

 

11


4. Debt Obligations  

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Short-term debt and current portion of long-term debt

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

6,550

 

 

$

2,050

 

Current portion of long-term debt

 

 

 

 

 

 

 

 

Term loan

 

 

1,502

 

 

 

848

 

Capital lease obligation

 

 

1,627

 

 

 

 

Total current portion of long-term debt

 

 

3,129

 

 

 

848

 

Total current

 

$

9,679

 

 

$

2,898

 

Long-term debt

 

 

 

 

 

 

 

 

Term loan

 

$

3,786

 

 

$

2,635

 

Capital lease obligation

 

 

4,655

 

 

 

 

Less current portion of long-term debt

 

 

(3,129

)

 

 

(848

)

Total noncurrent

 

$

5,312

 

 

$

1,787

 

 

Revolving Line of Credit

In December 2015, the Company entered into a second amendment to its growth capital term loan and a revolving line of credit (Loan Agreement). The second amendment increased the amount of the revolving line of credit to $40.0 million and extended its maturity date to April 1, 2017.

In June 2016, the Company entered into a third amendment to its Loan Agreement. The third amendment extended the advance request period for the existing capital equipment financing facility from March 31, 2016 to September 30, 2016.

In September 2016, the Company entered into a fourth amendment to its Loan Agreement. The fourth amendment (1) amended reporting obligations related to aged accounts receivable and accounts payable, (2) extended the maturity of the date of the revolving line of credit to April 1, 2018, and (3) amended an existing adjusted quick ratio covenant to apply in the event gross profit falls below specified thresholds, as further described below.

Under the Loan Agreement, as amended, the Company may borrow under the revolving line of credit up to the lesser of (a) $40.0 million or (b) a borrowing base equal to 80% of eligible accounts receivable as defined in the agreement.  Advances under the revolving line of credit accrue interest at a floating per annum rate equal to the prime rate as published in the Western Edition Wall Street Journal. The Company is required to pay a minimum amount of interest equal to the amount of interest that would accrue per quarter on a notional outstanding principal balance of $2.1 million.

The Loan Agreement, as amended, includes a minimum gross profit covenant and an adjusted quick ratio covenant. The minimum gross profit covenant requires the Company to maintain gross profit, measured on a consolidated basis, for each trailing six-month period, of at least 80% of gross profit projected in the business plan approved by the Company’s Board of Directors, tested as of the last day of each month. This minimum gross profit covenant requirement only applies if, at the end of a given month, the Company’s adjusted quick ratio is less than 1.30 to 1.00. The Loan Agreement, as amended, also includes an adjusted quick ratio covenant which requires the Company to maintain an adjusted quick ratio of at least 1.10 to 1.00, tested as of the last day of each month. This adjusted quick ratio covenant only applies, if at the end of the month, the Company’s gross profit is less than 85% of the gross profit projected in the business plan approved by the Company’s Board of Directors, measured on a trailing six-month basis.

If the combined amount of the Company’s cash on deposit with the lender, plus the availability under the revolving line of credit is less than $10.0 million, then the Company is required to deliver additional reporting to the lender.

As of September 30, 2016, the Company had $6.6 million outstanding and had $33.4 million available under the revolving line of credit.

12


Term Loans

In connection with the December 2015 second amendment to its Loan Agreement, the Company added a $5.0 million capital equipment term loan. Outstanding amounts under the facility bear interest at a floating annual rate of prime plus 0.5%. The Company is required to repay each capital equipment financing facility loan in 36 equal monthly payments of principal plus accrued interest commencing on the first day of the month immediately following the funding of each capital equipment facility loan. As of September 30, 2016, the Company had $3.8 million outstanding under the capital equipment term loan and zero available for draw as the advance request period has expired. The weighted-average interest rate at September 30, 2016, was approximately 4.0%.

 

Capital Lease Obligations

The Company leases equipment under capital lease agreements to purchase computer servers. The assets and liabilities under capital lease are recorded at the lesser of the present value of aggregate future minimum lease payments, or the fair value of the asset under lease. Assets under the capital lease agreements are amortized using the straight-line method over the estimated useful lives of the assets.

Under the capital lease agreements, the Company is required to make monthly lease payments over a period of 36 months from the acceptance date of each server. As of September 30, 2016, the Company recognized $5.1 million in additional property, equipment and software, and recorded an offsetting capital lease obligation. At the end of the lease term, the Company has the option to purchase the servers at their fair value.

 

Future Payments

Future principal payments of debt instruments and capital lease obligations as of September 30, 2016 were as follows:

 

 

 

Debt Principal

Payments

 

 

Capital lease

obligation payments

 

2016 (remaining three months)

 

$

371

 

 

$

397

 

2017

 

 

1,515

 

 

 

1,654

 

2018

 

 

8,128

 

 

 

1,766

 

2019

 

 

322

 

 

 

838

 

Thereafter

 

 

 

 

 

 

Total payments

 

$

10,336

 

 

$

4,655

 

 

 

5. Commitments and Contingencies

Operating Lease Commitments

The Company’s commitments for minimum rentals under its operating leases and income from its sublease agreements as of September 30, 2016 are as follows:

 

 

 

Operating leases

 

 

Sublease income

 

2016 (remaining three months)

 

$

1,602

 

 

$

202

 

2017

 

 

5,568

 

 

 

829

 

2018

 

 

4,881

 

 

 

771

 

2019

 

 

4,666

 

 

 

590

 

2020

 

 

4,016

 

 

 

 

Thereafter

 

 

6,815

 

 

 

 

Total minimum lease payments

 

$

27,548

 

 

$

2,392

 

 

Rent expense was $1.5 million and $692 for the three months ended September 30, 2016 and 2015, respectively and $4.1 million and $2.0 million for the nine months ended September 30, 2016 and 2015, respectively.

13


Purchase Commitments

In August 2015, the Company entered into a commitment to purchase media from a single supplier in the amount of $7.5 million to $15.0 million, depending on the type of media purchased. These purchases can be made at any time from February 15, 2015 through September 30, 2016. As of September 30, 2016, the Company had purchased $2.3 million of media under this arrangement. In September 2016, the Company extended the agreement through September 30, 2017.   

In March 2016, the Company entered into a $1.2 million purchase commitment with a TV data partner, which will be paid in monthly installments over a 12-month period beginning July 2016.

Irrevocable Standby Letters of Credit

As of September 30, 2016, the Company had three irrevocable standby letters of credit outstanding totaling approximately $2.2 million that are classified as restricted cash on the condensed consolidated balance sheets. The Company entered into these letters of credit for the benefit of its landlord. These irrevocable letters of credit automatically renew on their anniversary so long as the related operating lease is still effective. These letters of credit may be canceled prior to the expiration date upon the written request of the beneficiary.

The Company is contractually required to keep the letters of credit for the term of the respective leases, therefore, the letters of credit are recorded as restricted cash and are classified as long-term assets on the condensed consolidated balance sheets.

Legal

The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position or results of operations.

 

 

6. Stock-Based Compensation

In July 2007, the Board of Directors and stockholders of the Company approved and adopted the TubeMogul, Inc. 2007 Equity Compensation Plan (the 2007 Plan) that permitted the grant of incentive and nonqualified stock options, stock awards (including restricted stock units (RSUs)), and stock appreciation rights to purchase shares of the common stock of the Company. Under the 2007 Plan, shares of common stock are reserved for the issuance of permitted awards to eligible participants. Options granted generally vest and become exercisable over a four-year term from the date of grant, at a rate of 25% after one year, then monthly on a straight-line basis thereafter. Options granted generally are exercisable for up to 10 years from the date of grant. RSUs granted are generally released from restriction over a four-year term from the date of grant, at a rate of 25% after one year, then quarterly on a straight-line basis thereafter.  

The Company has authorized and reserved a total of 6,093,703 shares of common stock under the 2007 Plan for the grant of permitted awards to employees, directors, consultants, and other service providers for the Company or related companies. The 2007 Plan terminated effective July 18, 2014, though it continues to govern outstanding awards issued under the 2007 Plan prior to July 16, 2014.

In February 2014, the Company’s Board of Directors and stockholders approved and adopted the TubeMogul, Inc. 2014 Equity Incentive Plan (the 2014 Plan), and the 2014 Plan became effective on July 16, 2014, the day immediately preceding the Company’s initial public offering (IPO). The 2014 Plan permits the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance awards and other cash-based or stock-based awards. In addition, the 2014 Plan contains a mechanism through which the Company may adopt a deferred compensation arrangement in the future. Under the 2014 Plan, shares of common stock are reserved for the issuance of permitted awards to eligible participants. Options granted will generally vest and become exercisable over a four-year term from the date of grant, at a rate of 25% after one year, then monthly on a straight-line basis thereafter. Options granted generally are exercisable for up to 10 years from the date of grant. RSUs granted will generally be released from restriction over a four year term from the date of grant, at a rate of 25% after one year, then quarterly on a straight-line basis thereafter.

The Company initially authorized and reserved a total of 2,500,000 shares of common stock under the 2014 Plan for the grant of permitted awards. This reserve automatically increases on January 1st of each year, and will continue to increase on each subsequent anniversary through 2024. As of September 30, 2016, the Company had 188,915 shares available for the grant of permitted awards. The 2014 Plan provides for an annual increase by an amount equal to the smaller of (a) five percent (5%) of the number of shares of common stock issued and outstanding on the immediately preceding December 31st; or (b) an amount determined by the Company’s Board of Directors. This reserve may also be increased by up to an additional 4,975,000 shares, to include (a) any shares remaining available for grant under the 2007 Plan at the time of its termination; and (b) shares that would otherwise be returned to the 2007 Plan, upon the expiration or termination of awards granted under that plan.

14


Shares subject to awards which expire or are canceled or forfeited will again become available for issuance under the 2014 Plan.

The shares available under the 2014 Plan will not be reduced by awards settled in cash, or shares withheld to satisfy tax withholding obligations with respect to vested restricted stock units.  The shares available under the 2014 Plan will be reduced by shares withheld to satisfy tax withholding obligations with respect to stock options and stock appreciation rights. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2014 Plan.

On September 12, 2016, the Company entered into Stock Option Termination Agreements with three members of its executive leadership including Brett Wilson, CEO, to surrender and return to the Company stock options to purchase a total of 803,683 shares of the Company’s common stock. Pursuant to the terms of the agreements, all agreed that the surrender and cancellation of the options was without any understanding or expectation with respect to future grant of any option or other form of equity or non-equity compensation by the Company.

As a result, the Company recognized accelerated compensation cost of $4.0 million in the three month period ended September 30, 2016; substantially all of which was included in general and administrative costs with the remainder included in research and development costs in the Condensed consolidated statement of operations for the three and nine month periods ended September 30, 2016.

For purposes of the tables below, the 2007 Plan and the 2014 Plan are collectively referred to as the “Plan.” The following table summarizes the Plan’s stock option activity:

 

 

 

Outstanding number of shares

 

 

Weighted-average exercise price per share

 

 

Weighted-average

grant date fair value

 

Total intrinsic value of exercises

 

 

Weighted-average remaining contractual life

 

 

Aggregate intrinsic value

 

Balance at December 31, 2015

 

 

4,266

 

 

$

6.55

 

 

 

 

 

 

 

 

 

7.14

 

 

$

34,748

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(469

)

 

 

1.26

 

 

 

 

$

5,514

 

 

 

 

 

 

 

 

 

Options canceled

 

 

(864

)

 

 

16.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2016

 

 

2,933

 

 

$

4.46

 

 

 

 

 

 

 

 

 

5.71

 

 

$

18,486

 

Options exercisable and vested at

   September 30, 2016

 

 

2,276

 

 

$

3.20

 

 

 

 

 

 

 

 

 

5.21

 

 

$

16,021

 

Options vested and expected to vest at

   September 30, 2016

 

 

2,902

 

 

$

4.39

 

 

 

 

 

 

 

 

 

5.69

 

 

$

18,407

 

 

At September 30, 2016, there was approximately $3.5 million of total unrecognized compensation cost related to unvested options granted under the compensation plan. The remaining unrecognized compensation cost is expected to be recognized over the weighted-average remaining vesting period of approximately 1.44 years at September 30, 2016.

The fair value of options granted to employees is estimated on the date of grant and to non-employees at each measurement period using the Black-Scholes-Merton option valuation model. This stock-based compensation expense valuation model requires the Company to make assumptions and judgments regarding the variables used in the calculation. These variances include the expected term (weighted-average period of time that the options granted are expected to be outstanding), the expected volatility of the Company’s common stock, expected risk-free interest rate, expected dividends. To the extent actual results differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term. Expected volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. The expected risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Expected forfeitures are based on the Company’s historical experience.

 

15


There were no stock options granted in the three and nine months ended September 30, 2016. The following assumptions were used to calculate the fair value of options for the nine months ended September 30, 2015:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

Risk-free interest rate

 

1.18% to 1.63%

 

Dividend yield

 

—  %

 

Volatility

 

 

70%

 

Expected term

 

4.5 to 6.5 years

 

 

The following table summarizes the Plan’s RSU activity: 

 

 

 

 

 

 

 

Weighted-

 

 

 

Outstanding

 

 

Average

 

 

 

number of

 

 

Grant Date

 

 

 

shares

 

 

Fair Value

 

Balance at December 31, 2015

 

 

2,067

 

 

$

13.51

 

RSUs granted

 

 

3,770

 

 

 

10.33

 

RSUs released

 

 

(593

)

 

 

12.97

 

RSUs canceled

 

 

(314

)

 

 

12.98

 

Balance at September 30, 2016

 

 

4,930

 

 

$

11.16

 

 

The fair value of RSUs granted to employees is estimated on the date of grant and to non-employees at each measurement period using the fair value of the underlying common stock.

At September 30, 2016, there was approximately $45.5 million of total unrecognized compensation cost related to unvested RSUs granted under the compensation plan. The remaining unrecognized compensation cost is expected to be recognized over the weighted-average remaining vesting period of approximately 3.31 years at September 30, 2016.

The following table summarizes the effects of stock-based compensation in the Company’s accompanying condensed consolidated statements of operations:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Research and development

 

$

2,037

 

 

$

1,043

 

 

$

4,774

 

 

$

2,513

 

Sales and marketing

 

 

1,700

 

 

 

1,058

 

 

 

4,343

 

 

 

2,572

 

General and administrative

 

 

5,627

 

 

 

1,333

 

 

 

8,839

 

 

 

3,728

 

Total stock-based compensation

 

$

9,364

 

 

$

3,434

 

 

$

17,956

 

 

$

8,813

 

 

Employee Stock Purchase Plan

In February 2014, the Company’s Board of Directors adopted and the stockholders approved the Company’s 2014 Employee Stock Purchase Plan (ESPP), which became effective in July 2014. The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The administrator may, in its discretion, modify the terms of offering periods. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period. As of September 30, 2016, the Company had 874,123 shares available for sale under the ESPP. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year, equal to the least of (a) two percent of the number of shares of Stock issued and outstanding on the immediately preceding fiscal year, or (b) an amount determined by the Board of Directors. Shares purchased under the ESPP were 140,137 and 262,841 for the three and nine month periods ended September 30, 2016, respectively.

 

 

 


16


7. Net Loss per Share

 

The Company’s basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, RSUs and shares to be issued under the ESPP are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive as the Company had net losses for the three and nine months ended September 30, 2016 and September 30, 2015.

The following securities were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Employee stock options

 

 

2,933

 

 

 

4,498

 

RSUs

 

 

4,930

 

 

 

1,976

 

ESPP

 

 

180

 

 

 

122

 

Total

 

 

8,043

 

 

 

6,596

 

 

   

8. Income Taxes

The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested indefinitely.

The Company recorded an income tax provision of $275 and $48 for the three months ended September 30, 2016 and September 30, 2015, respectively, and $685 and $257 for the nine months ended September 30, 2016 and September 30, 2015, respectively, related to foreign income taxes and state minimum taxes. Based on the available objective evidence during the nine months ended September 30, 2016, management believes it is more likely than not that the tax benefits of the U.S. losses incurred during that period may not be realized by the end of the 2016 fiscal year. Accordingly, the Company did not record the tax benefits of the U.S. losses incurred during the nine months ended September 30, 2016. The primary difference between the effective tax rate and the federal statutory tax rate relates to not benefitting the U.S. losses, foreign tax rate differences, meals and entertainment, stock-based compensation and state and local minimum and capital taxes. As of September 30, 2016, the Company had no material uncertain tax positions.

Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the Code), and similar state provisions. Any annual limitation may result in the expiration of net operating losses before utilization.

 

 

 

 

 

 

17


Item 2.

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

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q), and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2015 included in our Annual Report on Form 10-K (File No. 001-36543). This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

TubeMogul is a leader in software for brand advertising. Advertisers use TubeMogul’s software platform to plan, buy, measure, and optimize their global brand advertising. By reducing complexity, improving transparency and leveraging real-time data, our platform enables advertisers to gain greater control of their advertising spend and achieve their brand advertising objectives.

By integrating programmatic technologies and disparate sources of inventory within a single platform, we enable our customers to launch sophisticated, scalable advertising campaigns — onto digital devices and televisions — within minutes. Brands use our platform to verify the success and impact of their 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 multiple 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 (Gross Rating Points) 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 the campaign 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, 2015 was 96%.

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, 2015 was 49%.

For 2015, campaigns were executed through our platform for over 5,000 brands, both directly and through agencies. Total Spend through our platform has increased to $414.2 million for the year ended December 31, 2015 from $254.3 million and $111.9 million for the years ended December 31, 2014 and 2013, respectively, representing a compound annual growth rate, or CAGR, of 92%. 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 were incorporated in California in 2007 and reincorporated in Delaware in March 2014.

18


Third Quarter 2016 Highlights

For the third quarter of 2016, we recorded revenue of $56.1 million, an increase of 21% as compared to the third quarter of 2015, and gross profit of $36.8 million, an increase of 18% as compared to the third quarter of 2015. Gross margin was 65.7%, compared with 67.0% in the third quarter of 2015.

Total Spend for the third quarter of 2016 was $138.3 million, an increase of 34% as compared to the third quarter of 2015.

The growth in total revenue is due to an increase in both Platform Services and Platform Direct businesses as compared to the third quarter of 2015, and is largely driven by the growth in our programmatic TV (PTV) product offering particularly as part of our Platform Services revenue. The lower gross margin percentage for our Platform Services business in the third quarter of 2016 was partially offset by slight increases in Platform Direct gross margins.

Operating loss was $11.1 million, compared to an operating loss of $3.0 million in the third quarter of 2015. Basic and diluted net loss per share was $0.34, compared to $0.11 in the third quarter of 2015. A portion of the change in operating loss is due to the recognition of $4.0 million of non-cash stock-based compensation cost related to the cancellation of stock options for certain executives.

Please see “Total Spend and Platform Direct Spend” below for a reconciliation of Total Spend and Platform Direct Spend to the most directly comparable financial measures calculated in accordance with GAAP.

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 and Adjusted EBITDA. Total Spend, Platform Direct Spend and Adjusted EBITDA 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.”

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

 

(in thousands, except for percentages)

 

Key Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform Direct revenue

 

$

20,916

 

 

$

17,895

 

 

$

64,963

 

 

$

50,025

 

Platform Services revenue

 

 

35,165

 

 

 

28,590

 

 

 

88,629

 

 

 

72,216

 

Total revenue

 

$

56,081

 

 

$

46,485

 

 

$

153,592

 

 

$

122,241

 

Gross profit

 

$

36,837

 

 

$

31,147

 

 

$

105,847

 

 

$

83,294

 

Gross margin

 

 

65.7

%

 

 

67.0

%

 

 

68.9

%

 

 

68.1

%

Adjusted EBITDA

 

$

(254

)

 

$

1,007

 

 

$

(1,612

)

 

$

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform Direct Spend

 

$