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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
o 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: 001-39748
PUBMATIC, INC.
(Exact name of registrant as specified in its charter)
Delaware20-5863224
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Not applicableNot applicable
(Address of principal executive offices)(Zip Code)
Not applicable
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par value per sharePUBMThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 1, 2022, the registrant had 43,171,740 shares of Class A common stock outstanding and 9,394,402 shares of Class B common stock outstanding.

Table of Contents

TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and share data)
(Unaudited)
September 30,
2022		December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents$52,177 $82,505 
Marketable securities113,914 77,121 
Accounts receivable, net 277,265 286,916 
Prepaid expenses and other current assets14,885 14,207 
Total Current Assets458,241 460,749 
Property, equipment and software, net74,975 50,140 
Operating lease right-of-use assets27,733 21,613 
Acquisition-related intangible assets, net8,819 — 
Goodwill29,832 6,250 
Deferred tax assets469 515 
Other assets, non-current2,095 10,948 
TOTAL ASSETS$602,164 $550,215 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable$258,478 $244,321 
Accrued liabilities14,819 18,780 
Operating lease liabilities, current5,668 3,864 
Total Current Liabilities278,965 266,965 
Operating lease liabilities, non-current22,465 17,842 
Deferred tax liabilities3,212 6,067 
Other liabilities, non-current4,919 2,161 
TOTAL LIABILITIES309,561 293,035 
Commitments and contingencies (Note 8)
Stockholders' Equity
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; No shares issued and outstanding as of September 30, 2022 and December 31, 2021
— — 
Common stock, par value $0.0001 per share; 1,000,000,000 Class A shares authorized as of September 30, 2022 and December 31, 2021; 43,034,577 and 40,695,140 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; 1,000,000,000 Class B shares authorized as of September 30, 2022 and December 31, 2021; 9,474,402 and 11,159,609 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
6 6 
Treasury stock, at cost; 3,140,437 shares as of September 30, 2022 and December 31, 2021
(11,486)(11,486)
Additional paid-in capital189,085 169,401 
Accumulated other comprehensive loss(221)(36)
Retained earnings115,219 99,295 
TOTAL STOCKHOLDERS’ EQUITY292,603 257,180 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$602,164 $550,215 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue$64,500 $58,086 $182,084 $151,352 
Cost of revenue21,591 16,020 58,557 41,408 
Gross profit42,909 42,066 123,527 109,944 
Operating expenses:
Technology and development5,080 4,139 14,928 11,738 
Sales and marketing16,087 15,004 50,755 41,790 
General and administrative12,120 8,875 33,847 25,593 
Total operating expenses33,287 28,018 99,530 79,121 
Operating income9,622 14,048 23,997 30,823 
Total other income (expense), net(4,898)277 (3,345)237 
Income before income taxes4,724 14,325 20,652 31,060 
Provision for income taxes1,398 799 4,728 2,695 
Net income$3,326 $13,526 $15,924 $28,365 
Net income per share attributable to common stockholders:
Basic$0.06 $0.27 $0.31 $0.57 
Diluted$0.06 $0.24 $0.28 $0.50 
Weighted-average shares used to compute net income per share attributable to common stockholders:
Basic52,435,601 50,559,636 52,168,853 49,754,449 
Diluted56,944,230 56,498,891 56,895,162 56,575,867 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income$3,326 $13,526 $15,924 $28,365 
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities, net of tax166 — (185)(1)
Comprehensive income$3,492 $13,526 $15,739 $28,364 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Common StockTreasury
Stock		Additional
Paid-In Capital		Accumulated Other
Comprehensive Loss		Retained
Earnings		Total
Stockholders’ Equity
SharesAmount
Balance — December 31, 202151,854,749 $6 $(11,486)$169,401 $(36)$99,295 $257,180 
Stock-based compensation— — — 5,469 — — 5,469 
Exercise of stock options130,958 — — 481 — — 481 
Issuance of common stock related to RSU vesting25,033 — — — — — — 
Other comprehensive loss— — — — (203)— (203)
Net income— — — — — 4,779 4,779 
Balance — March 31, 202252,010,740 6 (11,486)175,351 (239)104,074 267,706 
Stock-based compensation— — — 5,780 — — 5,780 
Exercise of stock options96,276 — — 357 — — 357 
Issuance of common stock related to employee stock purchase plan141,709 — — 2,402 — — 2,402 
Issuance of common stock related to RSU vesting89,623 — — — — — — 
Other comprehensive loss— — — — (148)— (148)
Net income— — — — — 7,819 7,819 
Balance — June 30, 202252,338,348 6 (11,486)183,890 (387)111,893 283,916 
Stock-based compensation— — — 4,973 — — 4,973 
Exercise of stock options77,754 — — 222 — — 222 
Issuance of common stock related to RSU vesting92,877 — — — — — — 
Other comprehensive income— — — — 166 — 166 
Net income— — — — — 3,326 3,326 
Balance — September 30, 202252,508,979 $6 $(11,486)$189,085 $(221)$115,219 $292,603 


The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Common StockTreasury
Stock		Additional
Paid-In Capital		Accumulated Other
Comprehensive Loss		Retained
Earnings		Total
Stockholders’ Equity
SharesAmount
Balance — December 31, 202048,988,142 $6 $(11,434)$144,163 $1 $42,691 $175,427 
Stock-based compensation— — — 3,318 — — 3,318 
Exercise of stock options278,412 — — 451 — — 451 
Repurchase of treasury stock, at cost(693)— (27)— — — (27)
Other comprehensive loss— — — — (1)— (1)
Net income— — — — — 4,918 4,918 
Balance — March 31, 202149,265,861 6 (11,461)147,932 — 47,609 184,086 
Stock-based compensation— — — 3,837 — — 3,837 
Exercise of stock options800,426 — — 1,627 — — 1,627 
Repurchase of treasury stock, at cost(449)— (25)— — — (25)
Issuance of common stock related to employee stock purchase plan155,015 — — 2,635 — — 2,635 
Issuance of common stock related to RSU vesting21,973 — — — — — — 
Net income— — — — — 9,921 9,921 
Balance — June 30, 202150,242,826 6 (11,486)156,031 — 57,530 202,081 
Stock-based compensation— — — 3,981 — — 3,981 
Exercise of stock options615,673 — — 1,249 — — 1,249 
Issuance of common stock related to RSU vesting21,839 — — — — — — 
Net income— — — — — 13,526 13,526 
Balance — September 30, 202150,880,338 $6 $(11,486)$161,261 $— $71,056 $220,837 


The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
CASH FLOW FROM OPERATING ACTIVITIES:
Net income$15,924 $28,365 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization23,587 15,992 
Unrealized loss and impairment of equity investment5,948 — 
Stock-based compensation15,182 10,508 
Deferred income taxes(3,949)1,404 
Accretion of discount on marketable securities(170)(46)
Non-cash operating lease expense4,292 1,355 
Other98 (2)
Changes in operating assets and liabilities:
Accounts receivable12,626 (8,876)
Prepaid expenses and other current assets(1,354)(6,620)
Accounts payable4,013 16,648 
Accrued liabilities(4,806)3,386 
Operating lease liabilities(3,985)(1,546)
Other liabilities, non-current 448 (366)
Net cash provided by operating activities67,854 60,202 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(26,961)(22,846)
Capitalized software development costs(9,597)(6,755)
Purchases of marketable securities(100,113)(53,118)
Proceeds from maturities of marketable securities63,200 25,600 
Business combination, net of cash acquired(28,085)— 
Net cash used in investing activities(101,556)(57,119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock for employee stock purchase plan2,402 2,635 
Proceeds from exercise of stock options1,060 3,327 
Principal payments on finance lease obligations(88)— 
Payments for offering costs— (805)
Payments to acquire treasury stock— (52)
Net cash provided by financing activities3,374 5,105 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(30,328)8,188 
CASH AND CASH EQUIVALENTS - Beginning of period82,505 81,188 
CASH AND CASH EQUIVALENTS - End of period$52,177 $89,376 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid$7,564 $4,445 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Stock-based compensation capitalized as internal-use software costs$1,040 $628 
Property and equipment included in accounts payable and accrued expenses$7,550 $2,712 
Capitalized software costs included in accounts payable and accrued expenses$1,491 $1,115 
Operating lease right-of-use assets obtained in exchange for new lease obligations$10,412 $— 
Business combination purchase consideration - indemnification claims holdback$2,597 $— 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PUBMATIC, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Description of Business
PubMatic, Inc. (together with its subsidiaries, “the Company” or “PubMatic”) was founded in 2006. The Company has offices in California, New York, Europe, Asia, and Australia. The Company provides a specialized cloud infrastructure platform that enables real-time programmatic advertising transactions. The purpose-built technology and infrastructure provides superior outcomes for both publishers and advertisers leveraging an efficient design, machine learning, and data processing capabilities, with customer alignment and global omnichannel reach.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Fiscal Year
The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, September 30, and December 31. References to fiscal year 2022, for example, refer to the fiscal year ended December 31, 2022.
Unaudited Interim Condensed Consolidated Financial Information
The unaudited condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 1, 2022 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The accompanying condensed consolidated financial statements include the accounts of PubMatic, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses.
The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates and assumptions. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after September 30, 2022, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by the Company’s assumptions and estimates.
Business Combinations
The Company allocates the purchase consideration for acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the condensed consolidated statements of operations.
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Acquisition-related Intangible Assets and Goodwill
Acquisition-related intangible assets with finite lives are amortized over their estimated useful lives on a straight-line basis. Goodwill amounts are not amortized. Acquisition-related intangible assets and goodwill are tested for impairment at least annually, and more frequently upon the occurrence of certain events.
Impairment of Equity Investment
During the three months ended September 30, 2022, the Company concluded there was no longer a readily determinable fair value for its equity investment because the shares of the issuer were no longer publicly quoted pursuant to SEC Rule 15c2-11. The Company evaluated the measurement guidance for non-marketable equity securities and performed a qualitative assessment of various impairment indicators and concluded the equity investment was impaired as of September 30, 2022. As a result, the Company recognized an impairment loss equal to the difference between the fair value of the investment and its carrying amount. An impairment charge of $6.4 million was recorded within other income (expense), net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Stock-based Compensation
The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors, and nonemployees, including stock options, restricted stock units (“RSUs”), and purchases under the employee stock purchase plan (the “ESPP”) based on the fair value of the awards on the date of grant. The fair value of stock options and shares of common stock to be issued under the ESPP is estimated using the Black-Scholes option pricing model. The grant date fair value of RSUs is based on the closing market price of the Company’s Class A common stock on the date of grant. The Black-Scholes option pricing model is impacted by the fair value of the Company’s common stock, as well as changes in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates, and the expected dividend yield.
For additional information regarding stock-based compensation and the assumptions used for determining the fair value of stock options and ESPP awards, refer to Note 9 — “Stockholders’ Equity and Stock Option Plans.”
Concentration of Revenue and Accounts Receivable
The Company defines its revenue concentration based on revenue recognized from individual publishers. For the three months ended September 30, 2022 and 2021, one publisher represented 13% and 17%, respectively, and 13% and 18% for the nine months ended September 30, 2022 and 2021, respectively, of the Company’s revenue. As of September 30, 2022, two buyers accounted for 36% and 14%, respectively, of accounts receivable. As of December 31, 2021, two buyers accounted for 29% and 19%, respectively, of accounts receivable.
Adoption of Topic 842
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) which, along with other ASU's containing minor amendments and technical corrections, provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within US GAAP. Topic 842 supersedes the legacy Topic 840 lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing right-of-use lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. Lease expense continues to be recognized in a manner similar to legacy GAAP.
The effect of adopting Topic 842 resulted in the recognition of operating right-of-use assets and corresponding lease liabilities on the Company’s consolidated balance sheet. The Company adopted Topic 842 in the fourth quarter of our fiscal 2021 reflecting an initial application date of January 1, 2021 using the modified retrospective transition approach under which the adoption date of Topic 842 became the application date, with the comparative periods presented and disclosed under the Topic 840 requirements.
Interim financial data for the comparable prior-year quarter ended September 30, 2021 has been revised to reflect the adoption of Topic 842 and differs from what was disclosed in the prior year Form 10-Q filed on November 10, 2021. The standard did not affect the Company’s consolidated statements of operations, comprehensive income, and stockholders’ equity for the three and nine months ended September 30, 2021. Though net cash provided by operating, investing, and financing activities were unchanged, the standard did affect certain operating cash flow line items within the Company’s consolidated statements of cash flows for the nine months ended September 30, 2021.
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Select condensed consolidated cash flow items, which reflects the adoption of the new standard as reported for the nine months ended September 30, 2021, are as follows (in thousands):
Nine Months Ended September 30, 2021
Balances Without Adoption of Topic 842Effect of Change
As Reported(As Previously Reported in the Prior Year 10-Q)Higher (Lower)
Non-cash operating lease expense$1,355 $— $1,355 
Operating lease liabilities$(1,546)$— $(1,546)
Accrued liabilities$3,386 $3,195 $191 
Net cash provided by operating activities$60,202 $60,202 $— 
Recent Accounting Pronouncements Not Yet Adopted
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Under current GAAP, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. ASU 2021-08 is effective for the Company in fiscal year 2023 and the adoption, including the impact and required disclosures, will be included in its 2023 Form 10-K. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements, however, any financial impact will depend on the magnitude and nature of future business combinations.
Note 3 – Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):
September 30, 2022
Level 1Level 2Level 3Total
Financial Assets
Money market funds$37,859 $— $— $37,859 
Certificates of deposit— 4,534 — 4,534 
Cash equivalents37,859 4,534 — 42,393 
Commercial paper— 57,146 — 57,146 
U.S. Treasury and government debt securities— 56,768 — 56,768 
Marketable securities— 113,914 — 113,914 
Total Financial Assets$37,859 $118,448 $— $156,307 
December 31, 2021
Level 1Level 2Level 3Total
Financial Assets
Money market funds$65,311 $— $— $65,311 
Certificates of deposit— 5,942 — 5,942 
Cash equivalents65,311 5,942 — 71,253 
Commercial paper— 50,954 — 50,954 
U.S. Treasury and government debt securities— 26,167 — 26,167 
Marketable securities— 77,121 — 77,121 
Equity investment5,948 — — 5,948 
Non-current assets5,948 — — 5,948 
Total Financial Assets$71,259 $83,063 $— $154,322 
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The Company’s financial assets consist of Level 1 and 2 assets. The Company had no Level 3 assets or liabilities for the periods presented. The Company classifies its cash equivalents and marketable securities within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. The Company’s fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
Note 4 – Balance Sheet Components
Marketable Securities
The following tables summarize the Company’s marketable securities by significant investment categories (in thousands):
September 30, 2022
Amortized CostUnrealized LossFair Value
Commercial paper$57,146 $— $57,146 
U.S. Treasury and government debt securities56,989 (221)56,768 
Total$114,135 $(221)$113,914 
December 31, 2021
Amortized CostUnrealized LossFair Value
Commercial paper$50,954 $— $50,954 
U.S. Treasury and government debt securities26,203 (36)26,167 
Total$77,157 $(36)$77,121 
The remaining contractual maturity of all marketable securities was within one year as of September 30, 2022 and December 31, 2021. Realized gains and losses were immaterial for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022 and 2021, there were no securities that were in an unrealized loss position for more than twelve months.
Property, Equipment and Software, Net
Property, equipment and software, net consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Internal-use software$40,871 $30,581 
Network hardware, computer equipment and software127,878 92,561 
Leasehold improvements3,774 2,426 
Furniture and fixtures1,678 1,448 
Property, equipment and software, gross174,201 127,016 
Less: accumulated depreciation and amortization(99,226)(76,876)
Total property, equipment and software, net$74,975 $50,140 
Depreciation and amortization expense related to property, equipment, and software (excluding amortization of internal-use software) was $6.4 million and $4.4 million for the three months ended September 30, 2022 and 2021, respectively, and $16.3 million and $10.7 million for the nine months ended September 30, 2022 and 2021, respectively.
The Company capitalized $3.5 million and $2.6 million in software development costs during the three months ended September 30, 2022 and 2021, respectively, and $10.3 million and $7.2 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense of internal-use software was $2.6 million and $1.9 million during the three months ended September 30, 2022 and 2021, respectively, and $7.2 million and $5.3 million for the nine months ended September 30, 2022 and 2021. These costs are included within cost of revenue in the condensed consolidated statements of operations.
The Company did not recognize any impairment charges on its long-lived assets during the nine months ended September 30, 2022 and 2021, respectively.
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Acquisition-related Intangible Assets, Net
Acquisition-related intangible assets, net consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Developed technology$7,900 $— 
Customer relationships1,000 — 
Acquisition-related intangible assets, gross8,900 — 
Less: accumulated amortization(81)— 
Total acquisition-related intangible assets, net$8,819 $— 
The amortization period for developed technology and customer relationships is 5 years and 2 years, respectively. Amortization expense related to acquisition-related intangibles was $0.1 million for the three and nine months ended September 30, 2022.
As of September 30, 2022, estimated future amortization expense for acquisition-related intangible assets was as follows (in thousands):
Remainder of 2022$520 
20232,080 
20241,936 
20251,580 
20261,580 
Thereafter1,123 
Total estimated future amortization expense for acquisition-related intangible assets$8,819 
Accounts Payable
Accounts payable consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Payable to publishers$238,358 $235,440 
Trade payables20,120 8,881 
Total accounts payable$258,478 $244,321 
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Accrued compensation$12,563 $17,271 
Accrued and other current liabilities2,256 1,509 
Total accrued liabilities$14,819 $18,780 
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Note 5 – Loan and Security Agreement
In June 2021, the Company amended and restated its loan and security agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides a senior secured revolving credit facility of up to $25.0 million or 80% of eligible accounts receivable less certain reserves, minus the aggregate principal amount of all outstanding advances. Interest accrues on advances under the revolving line of credit at a variable rate equal to the greater of prime rate or 3.25%. As of September 30, 2022, the applicable interest rate under the revolving line of credit was 6.25%. An unused revolver fee in the amount of 0.40% per annum of the average unused portion of the revolver line is charged and is payable quarterly in arrears in any quarter where the average closing outstanding balance is less than $5.0 million. The maturity date of the revolving line of credit is June 6, 2024. As of September 30, 2022, there were no outstanding advances under the revolving line of credit.
The Company’s obligations under the line of credit and the letters of credit (described in Note 8) with SVB are secured by substantially all of its assets excluding its intellectual property. The Loan Agreement contains affirmative covenants including financial covenants that, among other things, require the Company to maintain an adjusted quick ratio of no less than 1.0 to 1.0. The adjusted quick ratio is defined as the ratio of unrestricted cash and cash equivalents at SVB, plus billed accounts receivable to total accounts payable plus all SVB loans outstanding and outstanding letters of credit. The Loan Agreement also restricts the Company from paying dividends to stockholders without prior consent from SVB. The Company was in compliance with the financial covenants as of September 30, 2022.
On October 17, 2022, the Company entered into a Senior Secured Credit Facilities Credit Agreement with the several lenders parties thereto, and Silicon Valley Bank, as administrative agent, lead arranger, issuing lender, and swingline lender. In connection with the entry into the Credit Agreement, the Company’s existing Loan Agreement described above was terminated. For additional information, see Note 14, “Subsequent Events.”
Note 6 – Leases
Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the right-of-use assets and interest expense for the outstanding lease liabilities, and results in a front-loaded expense pattern over the lease term.
The components of lease cost were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost$1,759 $592 $5,059 $1,846 
Finance lease cost - amortization of right-of-use assets43 — 130 — 
Finance lease cost - interest on lease liabilities4 — 14 — 
Total lease cost$1,806 $592 $5,203 $1,846 
No sublease income was recognized during the nine months ended September 30, 2022 and 2021. Short-term and variable lease expenses are not material to the Company’s condensed consolidated financial statements.
As of September 30, 2022, a weighted average discount rate of 3.40% and 2.24% has been applied to the remaining operating and finance lease payments, respectively, to calculate the lease liabilities included within the condensed consolidated balance sheets. The weighted average remaining lease term of operating and finance leases is 4.8 and 5.5 years, respectively, as of September 30, 2022.
As of September 30, 2022, the maturities of lease liabilities under operating and finance leases were as follows (in thousands):
Operating LeasesFinance LeasesTotal
Remainder of 2022$1,688 $34 $1,722 
20236,446 140 6,586 
20246,518 145 6,663 
20255,155 149 5,304 
20265,377 153 5,530 
Thereafter5,242 198 5,440 
Total minimum lease payments$30,426 $819 $31,245 
Less: imputed interest(2,293)(49)(2,342)
Total present value of lease liabilities$28,133 $770 $28,903 
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Note 7 – Business Combination
On September 16, 2022, the Company acquired all outstanding stock of ConsultMates, Inc. (dba “Martin”), a media measurement and reporting platform, for $30.8 million. The acquisition is in response to growing demand from the Company’s buy-side customers for enhanced tools to take advantage of the Company’s global omnichannel inventory, including market-leading addressability solutions and innovative technology to enable supply path optimization. The assets acquired and liabilities assumed were recorded at fair value. The purchase price excludes $14.2 million of post-acquisition cash compensation arrangements for certain key acquired employees to be paid ratably over three years following the closing of the acquisition (subject to forfeiture upon termination). The purchase price was attributed to $7.9 million of developed technology intangible assets (to be amortized over an estimated useful life of 5 years), $1.0 million of customer relationship intangible assets (to be amortized over an estimated useful life of 2 years), $23.6 million of goodwill, $1.1 million of deferred tax liabilities, and $0.6 million of net liabilities assumed. The fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received. The measurement period will end no later than one year from the acquisition date. The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating Martin’s technology into the Company’s platform. Goodwill is not expected to be deductible for tax purposes. The financial results of Martin are included in the Company’s condensed consolidated financial statements from the date of acquisition. Separate operating results and pro forma results of operations for Martin have not been presented as the effect of this acquisition was not material to the Company’s financial results. Acquisition-related costs were $0.9 million and are included in general and administrative expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Note 8 – Commitments and Contingencies
Purchase Obligations
The Company’s purchase obligations primarily relate to minimum contractual payments due to data center providers. During the three and nine months ended September 30, 2022, there were no material changes outside of the normal course of business to the Company’s non-cancelable purchase obligations disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Letters of Credit
As of September 30, 2022, the Company had two irrevocable letters of credit outstanding related to non-cancelable facilities leases in the amounts of $3.5 million and $0.5 million, with annual automatic renewal and final expiration dates in July 2028 and April 2025, respectively. As of December 31, 2021, the Company had two irrevocable letters of credit outstanding related to non-cancelable facilities leases in the amounts of $3.5 million and $0.7 million, with annual automatic renewal and final expiration dates in July 2028 and June 2022, respectively.
Legal Matters
From time to time, the Company has become involved in claims and other legal matters arising in the normal course of business. The Company investigates these claims as they arise and accrues for contingencies when the Company believes that a loss is probable and that the Company can reasonably estimate the amount of any such loss. The Company has made an assessment of the probability of incurring any such losses and whether or not those losses are estimable and although claims are inherently unpredictable, the Company concluded that these losses are not material to the Company’s business, financial position, results of operations, or cash flows. To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred, and the amount of such additional loss would be material, the Company will either disclose the estimated additional loss or state that such an estimate cannot be made.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any material claims or been required to defend any actions related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise due to their status or service as directors or officers of the Company. The terms of such obligations may vary.
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Note 9 – Stockholders’ Equity and Equity Incentive Plans
Equity Incentive Plans
The Company maintains the 2020 Equity Incentive Plan (“2020 Plan”), pursuant to which the Company may grant stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), deferred stock units (“DSUs”) performance awards, and stock bonus awards. As of September 30, 2022, the Company has reserved 7,333,638 shares of Class A common stock for the issuance of awards under the 2020 Plan. These available shares will increase automatically on January 1 for each of the first ten calendar years during the term of the 2020 Plan by the number of shares equal to the lesser of five percent (5%) of the aggregate number of outstanding shares of all classes of the Company’s common stock outstanding as of the immediately preceding December 31, or a number as may be determined by the Company’s board of directors or compensation committee.
To the extent outstanding awards under the 2017 Plan and the 2006 Plan are forfeited, expire unexercised, or would otherwise have been returned to the share reserve under the Prior Plans, the shares of Class B common stock subject to such awards instead will be available for future issuance as Class A common stock under the 2020 Plan. No new awards were issued under the 2006 Plan or 2017 Plan after the effective date of the 2020 Plan.
Stock Options
The following table summarizes stock option activity and related information under the Company’s equity incentive plans:
Stock Options
Number of Shares Underlying Outstanding OptionsWeighted-Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (in thousands)
Outstanding — December 31, 20216,542,351 $6.08 6.95$184,727 
Options granted450,153 26.05 
Options exercised(304,988)3.48