Business Combinations

2015 Acquisition

Chango Inc.

On April 24, 2015, or the Acquisition Date, the Company completed the acquisition of all the issued and outstanding shares of Chango, a Toronto, Canada based intent marketing technology company. The acquisition expanded the Company's premium advertising marketplace with intent marketing technology.

The purchase consideration for the acquisition included 4,191,878 shares of the Company's common stock, with a fair value of approximately $72.5 million, based on the Company's stock price as reported on the NYSE on the Acquisition Date. 639,318 of the 4,191,878 shares of the Company's common stock were placed in escrow to secure post-closing indemnification obligations of the sellers and any shares remaining in escrow after satisfaction of any resolved indemnity claims, less any shares withheld to satisfy pending or resolved claims, will be released from escrow on July 24, 2016. In addition, the Company issued 106,553 shares of the Company's common stock on the date of the acquisition, which were placed in escrow, related to employee future service requirements which were excluded from the purchase consideration and were expensed in the Company's post acquisition consolidated statement of operations. The Company also used approximately $9.1 million of cash to repay Chango's outstanding debt, including accrued interest, and to pay Chango's outstanding transaction expenses.

The purchase consideration also included contingent consideration of up to approximately $18.2 million worth of cash or shares of the Company's common stock and 126,098 shares held in escrow based upon Chango's performance against certain agreed-upon operating objectives for the year ending December 31, 2015. The Company had the option to pay the contingent consideration in cash or common stock, or a combination thereof. The number of shares issued in connection with the contingent consideration, excluding the escrow shares, was based on a price per share of $18.77. On the Acquisition Date, the fair value was estimated using a Monte-Carlo model as the fair value of the contingent consideration was dependent on both the performance milestones being achieved and the post-acquisition prices of the Company's common stock. The total contingent consideration was recorded at an estimated fair value of $16.2 million. The fair value of the contingent consideration assumed the probability of the performance milestones being achieved and the probability that the Company would settle the contingent consideration in common stock. The contingent consideration was recorded as a non-current liability in the consolidated balance sheet as the contingent consideration was payable in a variable number of shares at the Acquisition Date. Changes in the fair value of the contingent consideration liability were recorded in the Company's consolidated statement of operations. Subsequent to the Acquisition Date, the operations of Chango were fully integrated into the operations of the Company. Accordingly, pursuant to the acquisition agreement, because Chango would no longer be operated separate from the Company's other operations in accordance with the agreed-upon business plan, the entire contingent consideration was deemed earned. As a result, the changes in the fair value of the contingent consideration liability post-acquisition were primarily dependent on prices of the Company's common stock for periods subsequent to the Acquisition Date. On December 31, 2015, the Company converted the contingent consideration to equity and issued 971,481 shares in addition to releasing 126,098 shares from escrow.

As part of the acquisition, existing stock options to purchase common stock of Chango were exchanged for 428,798 options to purchase the Company's common stock. The fair value of stock options exchanged on the Acquisition Date attributable to pre-acquisition services of approximately $4.3 million was recorded as purchase consideration. The fair value of stock options exchanged on the Acquisition Date attributable to post-acquisition services of $2.4 million will be recorded as additional stock-based compensation expense in the Company's consolidated statements of operations over their remaining requisite service (vesting) periods. During the fourth quarter of 2015, the Company recorded a decrease to goodwill related to the Chango acquisition for an insignificant adjustment to purchase price associated with the fair value of stock-based awards exchanged in the amount of $0.3 million and a reduction to the fair value of stock options exchanged on the Acquisition Date attributable to post-acquisition services of $0.7 million.

As part of the acquisition, the Company recorded deferred tax liabilities related to acquired intangibles of $13.9 million net of deferred tax assets of $2.0 million, primarily related to net operating loss carry forwards. During the fourth quarter of 2015, the Company recorded a decrease to goodwill related to the Chango acquisition for a measurement period adjustment for a reduction in deferred tax liabilities in the amount of $0.5 million.

The total purchase consideration and the allocation of the total purchase consideration to assets acquired and liabilities assumed is summarized below (in thousands):



Shares of the Company's common stock	$	72,477
Estimated fair value of contingent consideration	16,171
Fair value of stock-based awards exchanged	4,058
Cash paid	9,097
Working capital adjustment	(184		)
Total purchase consideration	101,619
Cash	450
Accounts receivable	13,333
Prepaid and other assets	1,025
Fixed assets	265
Intangible assets, including in process research and development of $580	52,420
Goodwill	51,732
Total assets acquired	$	119,225
Accounts payable and accrued expenses	5,825
Other liabilities	443
Deferred tax liability, net	11,338
Total liabilities assumed	17,606
Total net assets acquired	$	101,619

The fair value of the consideration transferred to acquire Chango was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth above. This allocation was final as of December 31, 2015.

The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands):



			Estimated Useful Life
Developed technology	$	22,000	3 - 5 years
In-process research and development	580		3 years*
Customer relationships	22,000		5 years
Backlog	3,090		<1 year
Non-compete agreements	4,500		2 years
Trademarks	250		<1 year
Total intangible assets acquired	$	52,420
* In-process research and development was completed and placed in service as of December 31, 2015 and amortization commenced.

The intangible assets are generally amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenues, the amortization of customer relationships and backlog is included in sales and marketing, the amortization of non-compete agreements is included in technology and development and general and administrative, and the amortization of trademarks is included in general and administrative in the consolidated statements of operations.

The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. The goodwill resulting from the Chango acquisition is not tax deductible.

During the year ended December 31, 2015, the Company recognized approximately $1.3 million in professional fees directly related to the acquisition of Chango, primarily composed of legal, accounting, and valuation costs, which are recorded within general and administrative expenses in the Company’s consolidated statements of operations. In addition, as part of the acquisition of Chango, the Company acquired Chango's NOLs of approximately $6.9 million.

Unaudited Pro Forma Information - 2015 Acquisition

The following table provides unaudited pro forma information as if Chango had been acquired as of January 1, 2014. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. The pro forma results do not include any anticipated cost synergies or other effects of the integration of Chango or recognition of compensation expense relating to the contingent consideration. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.



	Year Ended
	December 31, 2015		December 31, 2014

	(in thousands, except per share data)
Pro forma revenues	$	265,134	$	167,860
Pro forma net income (loss)	$	673	$	(39,225	)
Pro forma net income (loss) per share, basic	$	0.02	$	(1.27	)
Pro forma net income(loss) per share, diluted	$	0.01	$	(1.27	)

Subsequent to the Acquisition Date, the operations of Chango were fully integrated into the operations of the Company and as a result, the determination of Chango’s post-acquisition revenues and operating results on a standalone basis are impracticable given the integration of the Chango operations with the Company's operations.

2014 Acquisitions

iSocket, Inc.

On November 17, 2014, the Company completed the acquisition of all the issued and outstanding shares of iSocket, Inc., or iSocket, a San Francisco, California based technology company focused on automating the direct buying and selling of premium, guaranteed ad inventory. iSocket provided automated applications for advertisers to plan, negotiate and purchase guaranteed inventory and for publishers to manage and streamline the direct sales process.

Purchase consideration for the acquisition was 840,885 shares of the Company’s common stock, with a fair value of approximately $11.2 million, based on the Company’s common stock price as reported on the NYSE on the acquisition date. 125,116 of the 840,885 shares were placed in escrow to secure post-closing indemnification obligations of the sellers and any shares remaining in escrow after satisfaction of any resolved indemnity claims, less any shares withheld to satisfy pending claims, will be released from escrow on February 17, 2016.

The purchase consideration also included contingent consideration of up to $12.0 million worth of common stock if certain performance milestones were achieved by December 31, 2015. The number of shares to be issued was based on the average closing price of the Company's common stock for the ten consecutive trading days ending on (and including) the last trading day of 2015. The Company determined it was probable that the performance milestones would be achieved and accordingly, the full amount of the contingent consideration of $12.0 million was discounted to fair value at a discount rate of 4.8%, based on an estimate of the Company's incremental borrowing rate. In accordance with ASC 480, Distinguishing Liabilities from Equity, the contingent consideration was recorded as a non-current liability in the consolidated balance sheet as the contingent consideration was payable in a variable number of shares.

During the fourth quarter of 2015, the Company identified an error in its consolidated financial statements for the year ended December 31, 2014 relating to the calculation of the contingent consideration amount associated with the acquisition of iSocket, which was completed on November 17, 2014. The contingent consideration amount with a fair value of $11.4 million on the date of acquisition was to be reduced by amounts associated with shares of the Company’s common stock subject to in-the-money options that were assumed as part of the acquisition. As a result, the contingent consideration amount should have been a fair value of approximately $9.1 million on the date of acquisition. The fair value of the assumed options was properly included in the initial accounting.

As a result, the purchase price, the fair value of the contingent consideration, and goodwill were overstated as of the acquisition date and as of December 31, 2014 by approximately $2.3 million. The impact of change in fair value to the previously issued income statement for the year ended December 31, 2014 was insignificant.

The Company has concluded that the correction of the error was not material to the consolidated financial statements for the year ended December 31, 2015 or to any previously issued annual or interim financial statements. On December 31, 2015, the Company converted the contingent consideration to equity and issued 585,170 shares.

As part of the acquisition, existing stock options to purchase common stock of iSocket, were exchanged for options to purchase shares of the Company's common stock. The fair value of stock options exchanged, measured on the acquisition date, of $3.1 million was attributed to pre-acquisition and post-acquisition services. The fair value attributed to pre-acquisition services of $2.1 million was recorded as purchase consideration and the fair value attributed to post-acquisition services of $1.0 million is expected to be recognized as compensation expense on the Company's consolidated statements of operations over their remaining vesting periods.

The total purchase consideration and the allocation of the total purchase consideration to assets acquired and liabilities assumed is summarized below (in thousands):



Fair value of common stock	$	11,200
Fair value of contingent consideration	9,065
Fair value attributed to pre-acquisition stock options exchanged	2,142
Total purchase consideration, including contingent consideration	22,407
Other assets, including cash acquired of $0.6 million	1,521
Intangible assets	12,193
Goodwill	9,461
Other liabilities	(768		)
Net assets acquired	$	22,407

The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands):



			Estimated Useful Life
Developed technology	$	9,310	5.0 years
Customer Relationships	2,880		2.5 years
Trademarks	3		0.5 years
Total intangible assets acquired	$	12,193

Goodwill is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Goodwill generated in the iSocket acquisition is not deductible for tax purposes.

The Company recognized approximately $0.4 million of acquisition related costs during the year ended December 31, 2014, that are recorded within general and administrative expenses in the Company’s consolidated statements of operations. The operations of iSocket were fully integrated into the operations of the Company upon acquisition. The results of operations of iSocket were insignificant to the Company’s consolidated statements of operations from the acquisition date of November 17, 2014 through the period ended December 31, 2014.

As part of the acquisition, the Company recorded deferred tax assets of $6.4 million, primarily related to net operating loss carry forwards, which were offset by deferred tax liabilities of $4.8 million related to acquired intangible assets, and a valuation allowance of $1.6 million. See Note 14 for additional information related to net operating loss carryforwards associated with this acquisition.

Shiny Inc.

On October 20, 2014, the Company completed the acquisition of all the issued and outstanding shares of Shiny Inc., or Shiny, a Toronto, Canada based technology company focused on providing an end-to-end automated direct advertising platform for digital buyers of all sizes. Shiny also offered an open application programming interface to support real-time buying of guaranteed advertising as well as a self-serve automated guaranteed platform for digital buyers and sellers.

The purchase consideration of Shiny was paid in cash by the Company at the acquisition date; $0.7 million of which was held in escrow subject to the continued employment of certain employees post-acquisition. The $0.7 million has been excluded from the purchase consideration; rather, the Company recorded it as compensation expense post acquisition.

The Company’s allocation of the total purchase considerations is summarized below (in thousands):



Cash purchase consideration (excluding $0.7 million tied to continued employment)	$	4,651
Other assets, including cash acquired of $0.1 million	737
Intangible assets	2,300
Goodwill	3,021
Other liabilities	(1,407		)
Net assets acquired	$	4,651

The following table summarizes the components of the acquired intangible assets and estimated useful lives (dollars in thousands):



			Estimated Useful Life
Developed technology	$	1,360	3.0 years
Customer relationships	450		2.5 years
Non-compete agreements	490		3.0 years
Total intangible assets acquired	$	2,300

Goodwill is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. A portion, $0.2 million, of the goodwill generated in the Shiny acquisition is not tax deductible while the remaining $2.8 million is deductible.

Unaudited Pro Forma Information - 2014 Acquisitions

The following table provides unaudited pro forma information as if Shiny and iSocket had been acquired as of January 1, 2013. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. The pro forma results do not include any anticipated cost synergies or other effects of the integration of Shiny and iSocket or recognition of compensation expense relating to the contingent consideration. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.



	Year Ended
	December 31, 2014			December 31, 2013

	(in thousands, except per share data)
Pro forma revenues	$	125,834		$	84,249
Pro forma net loss	$	(27,659	)	$	(23,419	)
Pro forma net loss per share, basic and diluted	$	(0.95	)	$	(1.92	)