Trade Desk, Inc. (TTD)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Item 1A. Risk Factors” and the “Special Note About Forward-Looking Statements.”

Overview

We offer a self-service, cloud-based ad-buying platform that empowers our clients to plan, manage, optimize and measure more expressive data-driven digital advertising campaigns. Our platform allows clients to execute integrated campaigns across ad formats and channels, including CTV and other video, display, audio, and native, on a multitude of devices, such as televisions, streaming devices, mobile devices, computers and digital-out-of-home devices. Our platform’s integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and our enterprise APIs enable our clients to customize and expand platform functionality.

Our clients are advertising agencies, advertisers and other service providers for agencies or advertisers, with whom we enter into ongoing MSAs. We generate revenue by charging our clients a platform fee generally based on a percentage of our clients’ total spend on our platform and from providing value-added services and data to support their advertising campaigns.

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Executive Summary

Highlights

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Trends, Opportunities and Challenges

The growing digitization of media and fragmentation of audiences has increased the complexity of advertising, and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and expand our advertising inventory, value-added services and data to support our clients’ advertising campaigns. We believe that key opportunities include our ongoing global expansion, continuing development of our omnichannel ad inventory (including in channels such as CTV and other video, mobile, audio and others), adoption and utilization of retail data and continuing development and adoption of the data usage, measurement and targeting capabilities provided by our platform.

We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies and advertisers in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.

Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory we present to our clients. For example, we have expanded our CTV, audio and other advertising offerings through our integrations with supply-side partners and publishers.

We invest for long-term growth. We anticipate that our operating expenses will continue to increase in the foreseeable future as we invest in platform operations and technology and development to enhance our platform, including programmatic buying of CTV ad inventory, and hosting capabilities. We also anticipate that our sales and marketing expenses will continue to increase to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls to support our growing operations.

We believe the markets outside of the United States, and in particular across Europe and Asia in markets such as the U.K, Germany, France, China, Japan, India and Australia, offer opportunities for growth. However, such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.

We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.

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Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future long-term growth profitably.

Macroeconomic Uncertainty

Changes in interest and foreign currency exchange rates, inflation and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services in various industries, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion of the adverse impacts of macroeconomic uncertainty on our business.

Factors Affecting Our Performance

Growth in and Retention of Client Spend

Our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients. Our clients include some of the largest advertising agencies and advertisers in the world, and we believe there is significant room for us to expand further within these clients. As a result, future revenue growth depends upon our ability to retain our existing clients and to gain a larger amount of their spend through our platform in a highly competitive advertising market.

In order to analyze gross spend contributions and growth from existing clients, we measure annual gross spend for the set of clients, or cohort, that commenced spending on our platform in a specific year relative to subsequent periods. The gross spend from each of our cohorts has increased over subsequent periods. However, over time, we will likely lose clients from each cohort, clients may spend less on our platform and the growth rate of gross spend may change. Any such change could have a significant negative impact on gross spend and operating results.

Ability to Expand our Omnichannel Reach, Including CTV, and Innovate across our Platform

We enable the purchase of advertising inventory in a wide variety of ad formats and channels, including CTV and other video, display, audio, and native, on a multitude of devices, such televisions, streaming devices, mobile devices, computers and digital-out-of-home devices. Our future growth will depend on our ability to maintain and grow the inventory and spend across these channels, in addition to continued growth in CTV. Our future growth will also depend on our ability to continue innovating and improving the technology underlying our platform and related offerings and enhancing their functionality, including the development of new or improved value-added services or the inclusion of additional data. We believe that our ability to integrate and offer CTV and other advertising inventory for purchase through our platform, our ability to continuously improve the features and functionality of our platform and related offerings and, in particular, our ability to manage the increased costs that will accompany these efforts, will impact the future growth of our business.

Growth of the Programmatic Advertising Market

Our operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and any acceleration or slowing of this growth may affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business. Further, our ability to effectively manage our investments in infrastructure and headcount in response to this potential growth will impact our future profitability.

Development of International Markets

We have been increasing our focus on markets outside the United States to serve the global needs of our clients. As the middle class grows abroad, we believe that the global opportunity for programmatic advertising is significant and

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should continue to expand as publishers and advertisers outside the United States seek to adopt the benefits that programmatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presence internationally. Our growth and the success of our initiatives in newer markets will depend on the continued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about geographic concentrations of our business is set forth in Note 12—Segment and Geographic Information.

Seasonality

In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of the year reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Components of Our Results of Operations

We have one primary business activity and one operating segment.

Revenue

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, value-added services and data. We charge our clients for total spend on our platform, which includes spend and fees on advertising inventory, value-added services and data to support those purchases, in addition to the platform fee that is generally based on a percentage of our clients’ total spend on the platform. Generally, we report revenue on a net basis, which represents gross billings net of amounts we pay suppliers for the cost of advertising inventory, supplier-provided components of value-added services and data (collectively, “Supplier Components”).

Accounts receivable is recorded at the amount of gross billings to clients, net of allowances, for the amounts we are responsible to collect; and our accounts payable are recorded at the amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Revenue as a percentage of gross spend may fluctuate due to the types of services rendered and client-selected features purchased through our platform and certain volume discounts. We expect that our revenue as a percentage of gross spend will fluctuate in the future, especially as we introduce new and enhanced platform features on our platform that are adopted by our clients, expand our omnichannel capabilities, extend our reach to more CTV and other inventory and add additional clients whose businesses may have different underlying business models.

Refer to “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.

Operating Expenses

We classify our operating expenses into the following four categories and allocate overhead such as information technology infrastructure, rent, office support and occupancy charges based on headcount for these categories:

Platform Operations. Platform operations expense consists of expenses related to hosting our platform, which includes “internet traffic” associated with the viewing of available impressions or queries per second (“QPS”), purchasing data used to inform and improve the platform and providing support to our clients. Platform operations expense includes hosting costs, personnel costs, data-related costs and amortization of capitalized software costs for platform development. Personnel costs include salaries, bonuses, stock-based compensation, employee benefit costs and travel for personnel who support our platform and provide our clients with platform support. We capitalize certain costs associated with the development of our platform, which are amortized in platform operations expense over their estimated useful lives.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of QPS through our platform, invest in our hosting capabilities and hire additional personnel to support our clients.

Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs, commission costs and travel, for our sales and marketing

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personnel. Sales and marketing expense also includes costs for market development programs, marketing events, advertising and promotional and other marketing activities. Commissions costs are expensed as incurred.

Our sales organization focuses on marketing our platform to increase its adoption by existing and new clients. We are also focused on expanding our international business by growing our sales teams in countries in which we currently operate, as well as establishing a presence in additional countries. As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over periods and are impacted by the revenue seasonality in our industry and business.

Technology and Development. Technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and travel as well as third-party consultant costs associated with the ongoing development of our platform and related offerings as well as integrations with our advertising inventory and data suppliers. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization. We record capitalized software development costs related to platform development in other assets, non-current in our consolidated balance sheets, and we amortize those costs in platform operations expense.

We believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth. Therefore, we expect technology and development expense to increase as we continue to invest in the development of our platform to support additional platform features and functionality, increase the number of advertising inventory and data suppliers and support the anticipated increase in volume of advertising spend on our platform. Our development efforts also include additional platform functionality to support our international expansion. We also intend to invest in technology to further automate our business processes.

General and Administrative. General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and travel associated with our executive, finance, legal, human resources, compliance and other administrative personnel, as well as accounting and legal professional services fees, local business taxes and fees and credit loss expense. General and administrative expenses also include stock-based compensation expense related to the CEO Performance Option.

We expect to continue to invest in corporate infrastructure to support growth. Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase in absolute dollars in future periods.

Other Income, Net

Interest Expense. Interest expense is mainly related to our debt, which carries a variable interest rate.

Interest Income. Interest income is mainly related to our cash, cash equivalents and short-term investments, which carry variable interest rates.

Foreign Currency Exchange Loss (Gain), Net. Foreign currency exchange loss (gain), net consists primarily of gains and losses on foreign currency transactions net of gains and losses on foreign currency forwards. We do not designate foreign currency forwards as hedges for accounting purposes. We have foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound, Canadian Dollar, Australian Dollar, Japanese Yen, Indian Rupee, Indonesian Rupiah, Hong Kong Dollar and Singapore Dollar.

Provision for Income Taxes

The provision for income taxes consists primarily of U.S. federal, state and foreign income taxes. Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate, and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period. Our income tax provision may also be affected by the timing of vesting and/or exercise of our stock-based awards. The extent of the impact may be subject to volatility resulting from changes in our stock price and volume of transactions by employees.

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Our effective tax rate differs from the U.S. federal statutory tax rate of 21% primarily due to research and development tax credits, tax benefits associated with employee exercises of stock options and vesting of restricted stock, nondeductible stock-based compensation and foreign tax rate differences and state taxes.

Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence, both positive and negative. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.

We maintain a full valuation allowance against our U.K. net deferred tax assets, based on the history of cumulative losses and the conclusion that future taxable profit may not be available for the utilization of the deferred tax assets for U.K. income tax purposes. We expect to maintain this valuation allowance for the near term, until it becomes more likely than not that the benefit of these U.K. deferred tax assets will be realized by way of expected future taxable income. To the extent sufficient positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. A release of the valuation allowance, if any, would result in the recognition of certain deferred tax assets and may result in a material income tax benefit for the period in which such release is recorded.

Refer to Note 11—Income Taxes for additional information.

Results of Operations for the Year Ended December 31, 2024 Compared with the Year Ended December 31, 2023

The following discusses the results of our operations for the year ended December 31, 2024 compared with the year ended December 31, 2023. For a discussion of the results of our operations for the year ended December 31, 2023 compared with the year ended December 31, 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with SEC on February 15, 2024. References to “Notes” are notes to our consolidated financial statements in “Item 8. Financial Statements and Supplementary Data.”

The following table sets forth our consolidated results of operations for the periods presented.

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Note: Percentages may not sum due to rounding.

Revenue

Revenue increased by $499 million, or 26%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by more campaigns executed by existing clients, new clients and higher spend per campaign.

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Revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix, changes in our platform or related offerings and the extent to which clients utilize our platform’s value-added services and data.

Platform Operations

Platform operations expense increased by $106 million, or 29%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily due to increases of $80 million in hosting costs and $21 million in personnel costs, which included an $8 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards and the impact of the rising stock price on our 2024 employee stock purchase plan (the “ESPP”); an increase in platform support by engineers; headcount growth; an increase in taxes on equity awards; and an increase in travel.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform, invest in our hosting capabilities and hire additional personnel to support our growth.

Sales and Marketing

Sales and marketing expense increased by $99 million, or 22%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily due to increases of $84 million in personnel costs, which included a $23 million increase in stock-based compensation, $10 million in allocated facilities costs and $5 million in marketing costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel. The increase in stock-based compensation was primarily driven by new equity awards and the impact of the rising stock price on the ESPP. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement.

We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.

Technology and Development

Technology and development expense increased by $52 million, or 13%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily due to increases of $43 million in personnel costs, which included an $18 million increase in stock-based compensation, and $7 million in allocated facilities costs. The increase in personnel costs was primarily attributable to headcount growth to maintain and support further development of our platform, an increase in taxes on equity awards and an increase in travel. The increase in stock-based compensation was due to a $32 million increase primarily driven by new equity awards and the impact of the rising stock price on the ESPP; this was partially offset by the cancellation of unvested equity awards for our former Chief Technology Officer (“CTO”) in 2023, which resulted in the recognition of $14 million in incremental stock-based compensation in the year ended December 31, 2023, that did not recur in the year ended December 31, 2024. Refer to Note 10—Stock-Based Compensation for further detail. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform and related offerings to support additional platform features and functionality, increase the number of advertising inventory and data suppliers and support the anticipated increase in volume of advertising spend by our clients on our platform. We also intend to invest in technology to further automate our business processes.

General and Administrative

General and administrative expense increased by $16 million, or 3%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily due to increases of $33 million in personnel

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costs and $28 million in administrative costs, partially offset by a $46 million decrease in stock-based compensation. The increase in personnel costs was primarily due to increased headcount to support our growth, an increase in travel and an increase in taxes on equity awards. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily driven by a $70 million decrease from the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $24 million increase primarily driven by new equity awards as well as the impact of the rising stock price on the ESPP.

Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth. For additional information regarding the CEO Performance Option, refer to Note 10— Stock-Based Compensation.

Other Income, Net

Total other income, net increased by $13 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments driven by higher amounts invested as well as rising portfolio interest rates.

Provision for Income Taxes

The difference between the effective tax rate in 2024 of 23% and the U.S. federal statutory income tax rate of 21% was primarily due to nondeductible stock-based compensation and the impact of taxes in foreign and state jurisdictions, partially offset by the impact of excess tax benefits associated with stock-based awards and research and development tax credits. For 2024, the provision for income taxes included $73 million of excess tax benefits associated with stock-based awards and $29 million of research and development tax credits.

The difference between the effective tax rate in 2023 of 33% and the U.S. federal statutory income tax rate of 21% was primarily due to nondeductible stock-based compensation and the impact of taxes in foreign and state jurisdictions, partially offset by the impact of excess tax benefits associated with stock-based awards and research and development tax credits. For 2023, the provision from income taxes included $53 million of excess tax benefits associated with stock-based awards and $23 million of research and development tax credits.

Refer to Note 11—Income Taxes for additional information.

Liquidity and Capital Resources

As of December 31, 2024, we had working capital of $2,463 million, which included $1,369 million in cash and cash equivalents, $88 million of which was held by our international subsidiaries, and $552 million in short-term investments in marketable securities. Additionally, we had $442 million available under our Amended Credit Facility (refer to the “Credit Facility” section below). For the year ended December 31, 2024, we generated $739 million in cash flows from operating activities.

We believe our existing cash and cash equivalents, cash flow from operations and our undrawn available balance under our Amended Credit Facility will be sufficient to meet our working capital requirements and investments we make from time to time for at least the next 12 months. We believe our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to fund our share repurchase program. Further, we have a shelf registration statement on Form S-3 on file with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

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There can be no assurance that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.

Credit Facility

On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars. On February 9, 2023, we further amended the Credit Facility (as amended, the “Amended Credit Facility”) to transition from a variable interest rate based on the London Interbank Offered Rate to a variable interest rate based on the secured overnight financing rate (“SOFR”).

As of December 31, 2024, we did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $442 million as of December 31, 2024, which is net of outstanding letters of credit of $8 million. The Amended Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of December 31, 2024, we were in compliance with all covenants.

For additional information regarding the Amended Credit Facility, refer to Note 7—Debt.

Share Repurchase Program

In February 2023, our board of directors approved a share repurchase program to repurchase our Class A common stock. The share repurchase program, which has no expiration date, is designed to help offset the impact of future share dilution from employee stock issuances. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases determined at our discretion, depending on market conditions and corporate needs. Open market repurchases are structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time at the discretion of our board of directors.

As of December 31, 2023, $53 million remained available and authorized for repurchases. In February 2024, an additional $647 million was authorized under this program, bringing the total amount available for future repurchases back to $700 million. During the year ended December 31, 2024, we repurchased and subsequently retired 2.5 million shares of our Class A common stock for an aggregate repurchase amount of $236 million. The repurchase amounts included in the consolidated statements of stockholders’ equity included immaterial amounts related to the 1% excise tax on share repurchases, net of share issuances, as a result of the IRA. As of December 31, 2024, $464 million remained available and authorized for repurchases. In January 2025, we repurchased $28 million of our Class A common stock and an additional $564 million was authorized under this program, bringing the total amount for future repurchases to $1 billion.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

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Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for Supplier Components. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.

In 2024, cash provided by operating activities of $739 million resulted primarily from net income adjusted for noncash items of $949 million and a net decrease from our operating assets and liabilities of $209 million. The net decrease was primarily due to a $474 million increase in accounts receivable, a $42 million decrease in operating lease liabilities and a $39 million increase in prepaid expenses and other assets, partially offset by a $299 million increase in accounts payable and a $47 million increase in accrued expenses and other liabilities. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in prepaid expenses and other assets was primarily due to the prepayment of certain travel costs, office lease deposits and software, networking and infrastructure costs to support our platform. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for Supplier Components. The increase in accrued expenses and other liabilities was primarily due to an increase in income tax liability driven by the current income tax provision net of tax payments; an increase in various accrued personnel-related costs primarily driven by headcount growth, growth in our business and the timing of accruals and payments; and an increase in the liability related to the ESPP for employee contributions toward the upcoming purchase of shares.

In 2023, cash provided by operating activities of $598 million resulted primarily from net income adjusted for noncash items of $721 million and a net decrease from our operating assets and liabilities of $123 million. The net decrease was primarily due to a $554 million increase in accounts receivable, a $53 million decrease in operating lease liabilities and a $27 million increase in prepaid expenses and other assets, partially offset by a $475 million increase in accounts payable and a $36 million increase in accrued expenses and other liabilities. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in prepaid expenses and other assets was primarily due to the prepayment of personnel travel costs and certain software, networking and infrastructure costs to support our platform. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for Supplier Components. The increase in accrued expenses and other liabilities was primarily due to the timing of payment of accrued payroll and incentive compensation costs, partially offset by a decrease in the income tax liability driven by tax payments net of the current income tax provision.

Investing Activities

Our primary investing activities consist of investing in short-term marketable securities, capital expenditures for property and equipment for the expansion of facilities to support our hosting capabilities and growing headcount as well as capital expenditures to develop our software in support of enhancing our platform. As our business grows, we expect our capital expenditures to increase, and our other investment activity may increase.

In 2024, we used $158 million of cash in investing activities, consisting of $98 million to purchase property and equipment, $50 million of net purchases of short-term investments and $9 million of investments in capitalized software.

In 2023, we used $108 million of cash in investing activities, consisting of $53 million of net purchases of short-term investments, $47 million to purchase property and equipment and $8 million of investments in capitalized software.

Financing Activities

Our financing activities consist primarily of repurchases of our Class A common stock, proceeds from our stock-based award plans and taxes paid to net settle restricted stock awards.

In 2024, we used $108 million of cash in financing activities, consisting of $235 million of cash paid for repurchases of Class A common stock and $139 million of taxes paid for restricted stock award settlements, partially offset by $216 million of proceeds from stock option exercises and $50 million of proceeds from the ESPP.

In 2023, we used $626 million of cash in financing activities, consisting of $647 million of cash paid for repurchases of Class A common stock and $79 million of taxes paid for restricted stock award settlements, partially offset by $61 million of proceeds from stock option exercises and $38 million of proceeds from the ESPP.

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Off-Balance Sheet Arrangements

We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any off-balance sheet arrangements at December 31, 2024 other than the indemnification agreements described below.

Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of non-cancelable operating leases for our various office and hosting facilities, and other contractual commitments consisting of obligations primarily to our hosting services, hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

The following table summarizes our non-cancelable contractual obligations as of December 31, 2024 (in thousands):

As of December 31, 2024, our total amount of gross unrecognized tax benefits was $107 million before netting with deferred tax assets for tax credit carryforwards and is considered a long-term obligation. Due to their nature, there is a high degree of uncertainty regarding the timing of future cash outflows and other events that extinguish these liabilities.

In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our consolidated financial statements. Accordingly, no material amounts have been recorded at December 31, 2024.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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Revenue Recognition

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, value-added services and data. We charge our clients for total spend on our platform, which includes spend and fees on advertising inventory, value-added services and data to support those purchases, in addition to the platform fee that is generally based on a percentage of our clients’ total spend.

Generally, we report revenue net of amounts we pay suppliers for Supplier Components. Judgment is required to determine whether we are the principal and report revenue on a gross basis for Supplier Components or the agent and report revenue on a net basis for the amount of fees charged to the client. In this assessment, we consider if we obtain control of the specified service before it is transferred to the client, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price.

From time to time, we may enter into agreements with data suppliers where the purchased data is used to inform and improve our platform, generally at no additional charge to our clients outside of our standard fees. Costs associated with this data (“data-related costs”) are recorded in platform operations expense.

For additional information regarding revenue and the assumptions used for determining our revenue recognition refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock awards and units (collectively, “restricted stock”), and awards granted under the ESPP is measured and recognized in our consolidated financial statements based on the fair value of the awards granted. In October 2021, we granted the CEO Performance Option under the 2016 Incentive Award Plan. The fair values of our ESPP and stock option awards are estimated on the grant date using the Black-Scholes option-pricing model, except for the CEO Performance Option that was estimated using the Monte Carlo valuation model. The fair value of restricted stock is calculated using the closing market price of our common stock on the date of grant.

Stock-based compensation expense related to restricted stock and stock options is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensation for the CEO Performance Option, which was granted in 2021, is recognized on a graded-vesting basis over a derived service period of approximately five years but may be accelerated if the vesting criteria is met prior to the estimated performance period. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.

Determining the fair value of stock options and ESPP awards requires judgment, and the models described above require the input of subjective assumptions such as the estimate of the volatility of the underlying common stock and the derived service period of the CEO Performance Option. For stock options granted in 2024, we determined the expected term of our stock options using historical option exercise behavior after obtaining sufficient historical exercise data. Prior to 2024, we applied the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. This change did not materially impact stock-based compensation expense.

On May 28, 2024, our stockholders approved the ESPP, an amendment and restatement of the original 2016 Employee Stock Purchase Plan (the “2016 ESPP”). The changes from the 2016 ESPP to the ESPP included removing the ten-year plan expiration date and changing the offering period commencement dates on future offering periods from May 16th and November 16th to May 15th and November 15th, respectively. Existing offering periods under the 2016 ESPP continue unchanged under the ESPP, and the provision for annual increases in shares authorized for grant under the ESPP will still end on and include January 1, 2026. These changes did not materially impact our financial statements for the year ended December 31, 2024. We do not currently expect the new or modified provisions of the ESPP to materially impact our financial statements in future periods.

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 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 10—Stock-Based Compensation.

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Income Taxes

Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate, changes to the evaluation of the realizability of our deferred tax assets and changes to other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimate based on changes in economic conditions. Regarding the realizability of deferred tax assets, and the determination of their valuation allowance, actual taxable income could differ from projected taxable income in future periods. Such changes could have a substantial impact on the income tax provision and deferred income tax assets and liabilities. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

For additional information regarding income taxes and the assumptions used for determining our income tax provision, as well as our related deferred income tax assets and liabilities, refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 11—Income Taxes.

Recently Issued Accounting Pronouncements

Refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies of our consolidated financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Item 1A. Risk Factors” and the “Special Note About Forward-Looking Statements.”

Overview

We offer a self-service, cloud-based ad-buying platform that empowers our clients to plan, manage, optimize and measure more expressive data-driven digital advertising campaigns. Our platform allows clients to execute integrated campaigns across ad formats and channels, including video (which includes connected television (“CTV”)), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our platform’s integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and our enterprise APIs enable our clients to customize and expand platform functionality.

Our clients are advertising agencies, advertisers and other service providers for agencies or advertisers, with whom we enter into ongoing MSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

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Executive Summary

Highlights

________

Trends, Opportunities and Challenges

The growing digitization of media and fragmentation of audiences has increased the complexity of advertising, and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and expand our advertising inventory and data offerings. We believe that key opportunities include our ongoing global expansion, continuing development of our omnichannel ad inventory (including in channels such as video, including CTV, mobile, audio and others), adoption and utilization of retail media and continuing development and adoption of the data usage, measurement and targeting capabilities provided by our platform.

We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.

Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our integrations with supply-side partners.

We invest for long-term growth. We anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.

We believe the markets outside of the United States (“U.S.”), and in particular across Europe and Asia in markets such as the United Kingdom (“U.K.”), Germany, France, China, Japan, India and Australia, offer opportunities for growth. However, such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.

We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.

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Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.

Macroeconomic Uncertainty and COVID-19

Rising interest rates, inflation, changes in foreign currency exchange rates, strikes and geopolitical developments, as well as the COVID-19 pandemic, including the emergence of variants and subvariants, have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion of the adverse impacts of macroeconomic uncertainty on our business.

During the second half of 2022, many of our employees adopted a hybrid work schedule consisting of both in-person work and working from home, primarily beginning in September 2022. Additionally, we resumed travel and in-person events in accordance with applicable regional guidance, resulting in an increase in operating expenses in 2023 compared to 2022, before most travel and in-person events resumed.

Factors Affecting Our Performance

Growth in and Retention of Client Spend

Our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients. Our clients include some of the largest advertising agencies in the world, and we believe there is significant room for us to expand further within these clients. As a result, future revenue growth depends upon our ability to retain our existing clients and to gain a larger amount of their advertising spend through our platform.

In order to analyze gross spend contributions and growth from existing clients, we measure annual gross spend for the set of clients, or cohort, that commenced spending on our platform in a specific year relative to subsequent periods. The gross spend from each of our cohorts has increased over subsequent periods. However, over time, we will likely lose clients from each cohort, clients may spend less on our platform and the growth rate of gross spend may change. Any such change could have a significant negative impact on gross spend and operating results.

Ability to Expand our Omnichannel Reach, Including CTV, and Innovate across our Platform

We enable the purchase of advertising inventory in a wide variety of ad formats and channels, including video (which includes CTV), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our future growth will depend on our ability to maintain and grow the inventory and spend across these channels, in addition to continued growth in CTV. Our future growth will also depend on our ability to continue innovating and improving the technology underlying our platform and related offerings and enhancing their features and functionality. We believe that our ability to integrate and offer CTV and other advertising inventory for purchase through our platform, our ability to continuously improve our platform’s and related offerings’ features and functionality and, in particular, our ability to manage the increased costs that will accompany these efforts, will impact the future growth of our business.

Growth of the Programmatic Advertising Market

Our operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and any acceleration or slowing of this growth may affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business.

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Development of International Markets

We have been increasing our focus on markets outside the U.S. to serve the global needs of our clients. As the middle class grows abroad, we believe that the global opportunity for programmatic advertising is significant and should continue to expand as publishers and advertisers outside the U.S. seek to adopt the benefits that programmatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presence internationally. Our growth and the success of our initiatives in newer markets will depend on the continued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about geographic gross billings is set forth in Note 12—Segment and Geographic Information.

Seasonality

In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of the year reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Components of Our Results of Operations

We have one primary business activity and operate in one reportable and operating segment.

Revenue

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the clients’ purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform. Generally, we report revenue on a net basis, which represents gross billings net of amounts we pay suppliers for the cost of advertising inventory, data and add-on features.

Accounts receivable is recorded at the amount of gross billings to clients, net of allowances, for the amounts we are responsible to collect; and our accounts payable are recorded at the amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Revenue as a percentage of gross spend may fluctuate due to the types of services and features selected by our clients through our platform and certain volume discounts. We expect that our revenue as a percentage of gross spend will fluctuate in the future, especially as we introduce new platform features that are adopted by our clients, expand our omnichannel capabilities, extend our reach to more CTV and other inventory and add additional clients whose businesses may have different underlying business models.

Refer to “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.

Operating Expenses

We classify our operating expenses into the following four categories and allocate overhead such as information technology infrastructure, rent, office support and occupancy charges based on headcount for these categories:

Platform Operations. Platform operations expense consists of expenses related to hosting our platform, which includes “internet traffic” associated with the viewing of available impressions or queries per second (“QPS”), purchasing data used to inform and improve the platform and providing support to our clients. Platform operations expense includes hosting costs, personnel costs, data-related costs and amortization of acquired technology and capitalized software costs for the development of our platform. Personnel costs include salaries, bonuses, stock-based compensation and employee benefit costs for personnel who support our platform and provide our clients with platform support. We capitalize certain costs associated with the development of our platform, which are amortized in platform operations over their estimated useful lives.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of QPS through our platform and hire additional personnel to support our clients.

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Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and commission costs, for our sales and marketing personnel. Sales and marketing expense also includes costs for market development programs, marketing events, advertising and promotional and other marketing activities. Commissions costs are expensed as incurred.

Our sales organization focuses on marketing our platform to increase its adoption by existing and new clients. We are also focused on expanding our international business by growing our sales teams in countries in which we currently operate, as well as establishing a presence in additional countries. As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over periods and are impacted by the revenue seasonality in our industry and business.

Technology and Development. Our technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs as well as third-party consultant costs associated with the ongoing development of our platform and integrations with our advertising and data inventory suppliers. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization. We record capitalized software development costs related to platform development in other assets, non-current in our consolidated balance sheets, and we amortize those costs in platform operations expense.

We believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth. Therefore, we expect technology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spend on our platform. Our development efforts also include additional platform functionality to support our international expansion. We also intend to invest in technology to further automate our business processes.

General and Administrative. Our general and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs associated with our executive, finance, legal, human resources, compliance and other administrative personnel, as well as accounting and legal professional services fees and credit loss expense. General and administrative expenses also include stock-based compensation expense related to the CEO Performance Option, as defined below.

We expect to continue to invest in corporate infrastructure to support growth. Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase in absolute dollars in future periods.

Other Expense (Income), Net

Interest Expense. Interest expense is mainly related to our debt, which carries a variable interest rate.

Interest Income. Interest income is mainly related to our cash, cash equivalents and short-term investments, which carry variable interest rates.

Foreign Currency Exchange Loss (Gain), Net. Foreign currency exchange loss (gain), net consists primarily of gains and losses on foreign currency transactions. We have foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound, Australian Dollar, Canadian Dollar, Japanese Yen, Indian Rupee, Indonesian Rupiah, Hong Kong Dollar and Singapore Dollar.

Provision for (benefit from) Income Taxes

The provision for (benefit from) income taxes consists primarily of U.S. federal, state and foreign income taxes. Our income tax provision (benefit) may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate, and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period. Our income tax provision (benefit) may also be affected by the timing of vesting and/or exercise of our stock-based

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awards. The extent of the impact may be subject to volatility resulting from changes in our stock price and volume of transactions by employees.

Our effective tax rate differs from the U.S. federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation, tax benefits associated with employee exercises of stock options and vesting of restricted stock units, research and development tax credits, foreign tax rate differences and state taxes.

Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.

Refer to Note 11—Income Taxes for additional information.

Results of Operations for the Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

The following discusses the results of our operations for the year ended December 31, 2023 compared with the year ended December 31, 2022. For a discussion of the results of our operations for the year ended December 31, 2022 compared with the year ended December 31, 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with SEC on February 15, 2023. References to “Notes” are notes to our consolidated financial statements in “Item 8. Financial Statements and Supplementary Data.”

The following table sets forth our consolidated results of operations for the periods presented.

__________________

Note: Percentages may not sum due to rounding.

Revenue

Revenue increased by $368 million, or 23%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by more advertisers and more campaigns executed by existing clients.

Revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix and the extent to which clients utilize our platform’s features.

Platform Operations

Platform operations expense increased by $84 million, or 30%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to increases of $54 million in hosting

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costs and $23 million in personnel costs, which includes $3 million in stock-based compensation. The increase in hosting costs was primarily attributable to support related to the increased use of our platform by our clients and by investment in new data centers to support our platform. The increase in personnel costs was primarily due to headcount growth as well as return-to-office, travel and employee engagement costs, including in-person events impacted by headcount growth. The increase in stock-based compensation was primarily due to new equity grants, partially offset by the impact of stock price volatility on ESPP expense.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our clients.

Sales and Marketing

Sales and marketing increased by $110 million, or 33%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to increases of $88 million in personnel costs, which includes $11 million of stock-based compensation; $16 million in marketing costs; and $6 million in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; higher incentive compensation driven by headcount growth and gross spend growth; and return-to-office, travel and employee engagement costs, including in-person events impacted by headcount growth. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by return-to-office support expenses as well as new leases for additional office space to support our future growth. The increase in stock-based compensation was primarily due to new equity grants, partially offset by the impact of stock price volatility on ESPP expense.

We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.

Technology and Development

Technology and development expense increased by $92 million, or 29%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to increases of $84 million in personnel costs, which includes $26 million of stock-based compensation and $7 million in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to maintain and support further development of our platform, as well as return-to-office, travel and employee engagement costs, including in-person events impacted by headcount growth. The increase in stock-based compensation was due to new equity grants, partially offset by the impact of stock price volatility on ESPP expense. The increase in stock-based compensation also included $14 million from the cancellation of unvested equity awards in connection with David R. Pickles stepping down from his role as our former Chief Technology Officer (“CTO”). Refer to Note 10—Stock-Based Compensation for further detail. The increase in allocated facilities costs was primarily driven by return-to-office support expenses as well as new leases for additional office space to support our future growth.

We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform and related offerings to support additional features and functions, increase the number of advertising and data inventory suppliers and support the anticipated increase in volume of advertising spending by our clients on our platform. We also intend to invest in technology to further automate our business processes.

General and Administrative

General and administrative expense decreased by $5 million, or 1%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was primarily due to a $47 million decrease in stock-based compensation, partially offset by increases of $36 million in personnel costs and $5 million in allocated facilities costs. The decrease in stock-based costs was primarily driven by a $64 million decrease in stock-based compensation cost related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, as well as a $5 million decrease in ESPP expense driven by the impact of stock price volatility, partially offset by a $22 million increase in expense related to new equity grants. The increase in personnel costs was primarily due to increased headcount to support our growth, an increase in bonus costs driven by revenue growth, and an increase in return-to-office, travel and employee engagement costs, including in-person events impacted by headcount

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growth. The increase in allocated facilities costs was primarily driven by return-to-office support expenses as well as new leases for additional office space to support our future growth.

Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth. For additional information regarding the CEO Performance Option, refer to Note 10— Stock-Based Compensation.

Other Income, Net

Total other income, net increased by $54 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates.

Provision for Income Taxes

The difference between the effective tax rate in 2023 of 33% and the U.S. federal statutory income tax rate of 21% was primarily due to nondeductible stock-based compensation and the impact of taxes in foreign and state jurisdictions, partially offset by the impact of excess tax benefits associated with stock-based awards and research and development tax credits. For 2023, the provision for income taxes included $53 million of excess tax benefits associated with stock-based awards and $23 million of research and development tax credits.

The difference between the effective tax rate in 2022 of 58% and the U.S. federal statutory income tax rate of 21% was primarily due to nondeductible stock-based compensation and the impact of taxes in foreign jurisdictions, partially offset by the impact of excess tax benefits associated with stock-based awards and research and development tax credits. For 2022, the provision from income taxes included $48 million of excess tax benefits associated with stock-based awards and $15 million of research and development tax credits.

Refer to Note 11—Income Taxes for additional information.

Liquidity and Capital Resources

As of December 31, 2023, we had cash and cash equivalents of $895 million, including $112 million held by our international subsidiaries, short-term investments in marketable securities of $485 million, working capital of $1,803 million and $445 million of availability under our Amended Credit Facility (refer to the “Credit Facility” section below). For the year ended December 31, 2023, we generated $598 million of cash flows from operating activities.

We believe our existing cash and cash equivalents, cash flow from operations and our undrawn available balance under our Amended Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. We believe our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to fund our share repurchase program. Further, we have a shelf registration statement on Form S-3 on file with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

There can be no assurance that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.

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Credit Facility

On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars. On February 9, 2023, we further amended the Credit Facility (as amended, the “Amended Credit Facility”) to transition from a variable interest rate based on the London Interbank Offered Rate to a variable interest rate based on the secured overnight financing rate (“SOFR”).

As of December 31, 2023, we did not have an outstanding debt balance under the Amended Credit Facility. Availability under the Amended Credit Facility was $445 million as of December 31, 2023, which is net of outstanding letters of credit of $5 million. The Amended Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of December 31, 2023, we were in compliance with all covenants.

For additional information regarding the Amended Credit Facility, refer to Note 7—Debt.

Share Repurchase Program

In February 2023, our board of directors approved a share repurchase program with authorization to purchase up to $700 million of our Class A common stock. The share repurchase program, which has no expiration date, is designed to help offset the impact of future share dilution from employee stock issuances. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases determined at our discretion, depending on market conditions and corporate needs. Open market repurchases are structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time at the discretion of our board of directors.

During the year ended December 31, 2023, we repurchased and subsequently retired 10 million shares of our Class A common stock for an aggregate repurchase amount of $648 million, which included an immaterial amount related to the 1% excise tax on net share repurchases as a result of the Inflation Reduction Act of 2022 (“IRA”). As of December 31, 2023, $53 million remained available and authorized for repurchases. In February 2024, an additional $647 million was authorized under this program, bringing the total amount for future repurchases back to $700 million.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.

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In 2023, cash provided by operating activities of $598 million resulted primarily from net income adjusted for noncash items of $721 million and a net decrease from our operating assets and liabilities of $123 million. The net decrease was primarily due to a $554 million increase in accounts receivable, a $53 million decrease in operating lease liabilities and a $27 million increase in prepaid expenses and other assets, partially offset by a $475 million increase in accounts payable and a $36 million increase in accrued expenses and other liabilities. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in prepaid expenses and other assets is primarily due to the prepayment of personnel travel costs and certain software, networking and infrastructure costs to support our platform. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features. The increase in accrued expenses and other liabilities is primarily due to the timing of payment of accrued payroll and incentive compensation costs, partially offset by a decrease in the income tax liability driven by tax payments net of the current income tax provision.

In 2022, cash provided by operating activities of $549 million resulted primarily from net income adjusted for noncash items of $643 million and a net decrease from our operating assets and liabilities of $94 million. The net decrease was primarily due to a $292 million increase in accounts receivable and a $48 million decrease in operating lease liabilities, partially offset by a $187 million increase in accounts payable and a $51 million decrease in prepaid expenses and other assets. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in prepaid expenses and other assets was primarily due to a decrease in the income tax receivable, including the receipt of an income tax refund, partially offset by current year estimated income tax payments.

Investing Activities

Our primary investing activities consist of investing in short-term investments in marketable securities, purchases of property and equipment to support of our growth and capital expenditures to develop our software to enhance our technology platform. As our business grows, our capital expenditures and our investment activity may increase.

In 2023, we used $108 million of cash in investing activities, consisting of $53 million of net purchases of short-term investments, $47 million to purchase property and equipment and $8 million of investments in capitalized software.

In 2022, we used $304 million of cash in investing activities, consisting of $212 million of net purchases of short-term investments, $84 million to purchase property and equipment and $8 million of investments in capitalized software.

Financing Activities

Our financing activities consist primarily of repurchases of our Class A common stock, proceeds from our stock-based award plans and taxes paid to net settle restricted stock awards.

In 2023, we used $626 million of cash in financing activities, consisting of $647 million of cash paid for repurchases of Class A common stock and $79 million of taxes paid for restricted stock award settlements, partially offset by $61 million of proceeds from stock option exercises and $38 million of proceeds from the employee stock purchase plan.

In 2022, cash provided by financing activities of $32 million was primarily due to $48 million of proceeds from stock option exercises and $33 million of proceeds from the employee stock purchase plan, partially offset by $49 million of taxes paid for restricted stock award settlements.

Off-Balance Sheet Arrangements

We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any off-balance sheet arrangements at December 31, 2023 other than the indemnification agreements described below.

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Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of non-cancelable operating leases for our various office facilities, and other contractual commitments consisting of obligations to our hosting services and hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

The following table summarizes our non-cancellable contractual obligations at December 31, 2023 (in thousands):

As of December 31, 2023, our total amount of gross unrecognized tax benefits was $98 million before netting with deferred tax assets for tax credit carryforwards and is considered a long-term obligation. Due to their nature, there is a high degree of uncertainty regarding the time of future cash outflows and other events that extinguish these liabilities.

In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our consolidated financial statements. Accordingly, no amounts for any obligation have been recorded at December 31, 2023.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Revenue Recognition

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the client’s purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform.

Generally, we report revenue net of amounts we pay suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). Judgment is required to determine whether we are the principal and report revenue on a gross basis for Supplier Features or the agent and report revenue on a net basis for the

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amount of platform fees charged to the client. In this assessment, we consider if we obtain control of the specified service before it is transferred to the client, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price.

From time to time, we may enter into agreements with data suppliers where the purchased data is used to inform and improve our platform, generally at no additional charge to our customers outside of our standard fees. Costs associated with this data (“data-related costs”) are recorded in platform operations expense.

For additional information regarding revenue and the assumptions used for determining our revenue recognition refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock awards and units (collectively, “restricted stock”), and awards granted under our employee stock purchase plan (“ESPP”) is measured and recognized in our consolidated financial statements based on the fair value of the awards granted. In October 2021, we granted a market-based performance award to our Chief Executive Officer (the “CEO Performance Option”) under the 2016 Incentive Award Plan. The fair values of our ESPP and stock option awards are estimated on the grant date using the Black-Scholes option-pricing model, except for the CEO Performance Option that was estimated using the Monte Carlo valuation model. The fair value of restricted stock is calculated using the closing market price of our common stock on the date of grant.

Stock-based compensation expense related to restricted stock and stock options is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensation for the CEO Performance Option, which was granted in 2021, is recognized on a graded-vesting basis over a derived service period of approximately five years but may be accelerated if the vesting criteria is met prior to the estimated performance period. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.

Determining the fair value of stock options and ESPP awards requires judgment, and the models described above require the input of subjective assumptions such as the estimate of the volatility of the underlying common stock and the derived service period of the CEO Performance Option. 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 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 10—Stock-Based Compensation.

Income Taxes

Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimate based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision and deferred income tax assets and liabilities. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

For additional information regarding income taxes and the assumptions used for determining our income tax provision, as well as our related deferred income tax assets and liabilities, refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 11—Income Taxes.

Recently Issued Accounting Pronouncements

Refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies of our consolidated financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Item 1A. Risk Factors” and the “Special Note About Forward-Looking Statements.”

Overview

We offer a self-service, cloud-based ad-buying platform that empowers our clients to plan, manage, optimize and measure more expressive data-driven digital advertising campaigns. Our platform allows clients to execute integrated campaigns across ad formats and channels, including video (which includes CTV), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our platform’s integrations with major inventory, publisher and data partners provide ad buyers reach and decisioning capabilities, and our enterprise APIs enable our clients to customize and expand platform functionality.

Our clients are advertising agencies, brands and other service providers for advertisers, with whom we enter into ongoing MSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

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Executive Summary

Highlights

________

Trends, Opportunities and Challenges

The growing digitization of media and fragmentation of audiences has increased the complexity of advertising, and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and expand our advertising inventory and data offerings. We believe that key opportunities include our ongoing global expansion, continuing development of our video (including CTV), audio and native ad inventory and continuing development and adoption of the data usage, measurement and targeting capabilities provided by our platform.

We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.

Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our integrations with supply-side partners.

We invest for long-term growth. We anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.

We believe the markets outside of the United States, and in particular across China, India and Indonesia, offer opportunities for growth. However, such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets where we are making significant investments in our platform and growing our team.

We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.

Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.

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COVID-19 and Other Macroeconomic Factors

The worldwide spread of COVID-19, including the emergence of variants and subvariants, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, including the duration and spread of COVID-19 and its variants and the duration and the extent of geopolitical disruption and their respective impacts on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion of the adverse impacts of macroeconomic factors on our business.

During the year ended December 31, 2022, many of our employees adopted a hybrid work schedule consisting of both in-person work and working from home. Additionally, we resumed travel and in-person events in accordance with applicable regional guidance. These changes primarily began during the latter half of 2022. Our costs and expenses may increase as we continue to increase office activity globally, further increase travel, participate in and hold more in-person meetings and events and increase capital expenditures for additional office space. We continue to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate to limit the impact on our business.

Factors Affecting Our Performance

Growth in and Retention of Client Spend

Our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients. Our clients include some of the largest advertising agencies in the world, and we believe there is significant room for us to expand further within these clients. As a result, future revenue growth depends upon our ability to retain our existing clients and to gain a larger amount of their advertising spend through our platform.

In order to analyze gross spend contributions and growth from existing clients, we measure annual gross spend for the set of clients, or cohort, that commenced spending on our platform in a specific year relative to subsequent periods. The gross spend from each of our cohorts has increased over subsequent periods. However, over time, we will likely lose clients from each cohort, clients may spend less on our platform and the growth rate of gross spend may change. Any such change could have a significant negative impact on gross spend and operating results.

Ability to Expand our Omnichannel Reach, Including CTV

We enable the purchase of advertising inventory in a wide variety of ad formats and channels, including video (which includes CTV), display, audio, digital-out-of-home, native and social, on a multitude of devices, such as computers, mobile devices, televisions and streaming devices. Our future growth will depend on our ability to maintain and grow the inventory and spend across these channels, in addition to continued growth in CTV. We believe that our ability to integrate and offer CTV and digital radio advertising inventory for purchase through our platform and, in particular, our ability to manage the increased costs that will accompany these purchases, will impact the future growth of our business.

Growth of the Programmatic Advertising Market

Our operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and any acceleration or slowing of this growth may affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business.

Development of International Markets

We have been increasing our focus on markets outside the United States to serve the global needs of our clients. As the middle class grows abroad, we believe that the global opportunity for programmatic advertising is significant and should continue to expand as publishers and advertisers outside the United States seek to adopt the benefits that programmatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presence

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internationally. Our growth and the success of our initiatives in newer markets will depend on the continued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about geographic gross billings is set forth in Note 12—Segment and Geographic Information.

Seasonality

In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of the year reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Components of Our Results of Operations

We have one primary business activity and operate in one reportable and operating segment.

Revenue

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the clients’ purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform. Generally, we report revenue on a net basis, which represents gross billings net of amounts we pay suppliers for the cost of advertising inventory, data and add-on features.

Accounts receivable is recorded at the amount of gross billings to clients, net of allowances, for the amounts we are responsible to collect; and our accounts payable are recorded at the amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Revenue as a percentage of gross spend may fluctuate due to the types of services and features selected by our clients through our platform and certain volume discounts. We expect that our revenue as a percentage of gross spend will fluctuate in the future, especially as we introduce new platform features that are adopted by our clients, expand our omnichannel capabilities, extend our reach to more CTV inventory and add additional clients whose businesses may have different underlying business models.

Refer to “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.

Operating Expenses

We classify our operating expenses into the following four categories and allocate overhead such as information technology infrastructure, rent and occupancy charges based on headcount for these categories:

Platform Operations. Platform operations expense consists of expenses related to hosting our platform, which includes “internet traffic” associated with the viewing of available impressions or queries per second (“QPS”), purchasing data used to inform and improve the platform and providing support to our clients. Platform operations expense includes hosting costs, data-related costs, personnel costs and amortization of acquired technology and capitalized software costs for the development of our platform. Personnel costs include salaries, bonuses, stock-based compensation and employee benefit costs for personnel who support our platform and provide our clients with platform support. We capitalize certain costs associated with the development of our platform, which are amortized in platform operations over their estimated useful lives.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of QPS through our platform and hire additional personnel to support our clients.

Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and commission costs, for our sales and marketing personnel. Sales and marketing expense also includes costs for market development programs, marketing events, advertising and promotional and other marketing activities. Commissions costs are expensed as incurred.

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Our sales organization focuses on marketing our platform to increase its adoption by existing and new clients. We are also focused on expanding our international business by growing our sales teams in countries in which we currently operate, as well as establishing a presence in additional countries. As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over periods and are impacted by the revenue seasonality in our industry and business.

Technology and Development. Our technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development of our platform and integrations with our advertising and data inventory suppliers and amortization of capitalized third-party software used in the development of our platform. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization. We record capitalized software development costs related to platform development in other assets, non-current in our consolidated balance sheets, and we amortize those costs in platform operations expense.

We believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth. Therefore, we expect technology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spend on our platform. Our development efforts also include additional platform functionality to support our international expansion. We also intend to invest in technology to further automate our business processes.

General and Administrative. Our general and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs associated with our executive, finance, legal, human resources, compliance and other administrative personnel, as well as accounting and legal professional services fees and credit loss expense. General and administrative expenses also include stock-based compensation expense related to the CEO Performance Option, as defined below.

We expect to continue to invest in corporate infrastructure to support growth. Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase in absolute dollars in future periods.

Other Expense (Income), Net

Interest Expense. Interest expense is mainly related to our debt, which carries a variable interest rate.

Interest Income. Interest income is mainly related to our cash, cash equivalents and short-term investments, which carry variable interest rates.

Foreign Currency Exchange Loss (Gain), Net. Foreign currency exchange loss (gain), net consists primarily of gains and losses on foreign currency transactions. We have foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound, Australian Dollar, Canadian Dollar, Japanese Yen, Indonesian Rupiah and Singapore Dollar.

Provision for (benefit from) Income Taxes

The provision for (benefit from) income taxes consists primarily of U.S. federal, state and foreign income taxes. Our income tax provision (benefit) may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate, and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period. Our income tax provision (benefit) may also be affected by the timing of vesting and/or exercise of our stock-based awards. The extent of the impact may be subject to volatility resulting from changes in our stock price and volume of transactions by employees.

Our effective tax rate differs from the U.S. federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation, tax benefits associated with employee exercises of stock options and vesting of restricted stock units, research and development tax credits, foreign tax rate differences and state taxes.

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Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.

Results of Operations for the Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

The following discusses the results of our operations for the year ended December 31, 2022 compared with the year ended December 31, 2021. For a discussion of the results of our operations for the year ended December 31, 2021 compared with the year ended December 31, 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with SEC on February 16, 2022. References to “Notes” are notes to our consolidated financial statements in “Item 8. Financial Statements and Supplementary Data.”

The following table sets forth our consolidated results of operations for the periods presented.

__________________

Note: Percentages may not sum due to rounding.

Revenue

Revenue increased by $381 million, or 32%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was primarily due to an increase in gross spend on our platform, which was primarily driven by more advertisers and more campaigns executed by existing clients.

Revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix and the extent to which clients utilize our platform’s features.

Platform Operations

Platform operations expense increased by $60 million, or 27%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to increases of $21 million in personnel costs, which includes $2 million in stock-based compensation; $20 million in hosting costs; and $13 million in data-related costs. The increase in personnel costs was due to an increase in headcount, as well as employee engagement costs, including in-person events that did not occur in the prior year. The increase in hosting costs was primarily attributable to support related to the increased use of our platform by our clients as well as investment in new data centers to support our platform. The increase in data-related costs was primarily attributable to investments in new data providers.

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We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our clients.

Sales and Marketing

Sales and marketing increased by $89 million, or 36%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to increases of $69 million in personnel costs, which includes $14 million of stock-based compensation; $13 million in advertising and marketing costs; and $7 million in allocated facilities costs. The increase in personnel costs was primarily due to an increase in headcount to support our sales efforts and continue to develop and maintain relationships with our clients; an increase in incentive compensation; and return-to-office, travel and in-person event costs that did not occur in the prior year. The increase in advertising and marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.

Technology and Development

Technology and development expense increased by $94 million, or 41%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to increases of $87 million in personnel costs, which includes $37 million of stock-based compensation and $6 million in allocated facilities costs. The increase in personnel costs was primarily attributable to increased headcount to maintain and support further development of our platform, as well as return-to-office, travel and in-person event costs that did not occur in the prior year. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and support the increase in volume of advertising spending by our clients on our platform. We also intend to invest in technology to further automate our business processes.

General and Administrative

General and administrative expense increased by $151 million, or 40%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to increases of $138 million in personnel costs and $5 million in allocated facilities costs. The increase in personnel costs was primarily driven by a $104 million increase in stock-based compensation cost related to the CEO Performance Option, which was granted in the fourth quarter of 2021; and payroll related costs of $28 million due to hiring to support our growth, as well as return-to-office, travel and in-person event costs that did not occur in the prior year. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

Excluding the impact of the CEO Performance Option, we expect general and administrative expenses to increase primarily due to continued investment in corporate infrastructure to support growth. For additional information regarding the CEO Performance Option, refer to Note 10— Stock-Based Compensation.

Other Expense (Income), Net

Total other income, net increased by $16 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to higher interest income on our short-term investments driven by increased purchases and rising interest rates, partially offset by credit loss expense on available-for-sale securities.

Provision for (Benefit From) Income Taxes

The difference between the effective tax rate in 2022 of 58% and the U.S. federal statutory income tax rate of 21% was primarily due to nondeductible stock-based compensation and the impact of taxes in foreign jurisdictions, partially offset by the impact of tax benefits associated with stock-based awards and research and development tax credits. For 2022,

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the provision for income taxes included $48 million of benefits associated with stock-based awards and $15 million of research and development tax credits.

The difference between the effective tax rate in 2021 of (13)% and the U.S. federal statutory income tax rate of 21% was primarily due to the impact of tax benefits associated with stock-based awards and research and development tax credits, partially offset by nondeductible stock-based compensation and the impact of taxes in foreign jurisdictions. For 2021, the benefit from income taxes included $104 million of benefits associated with stock-based awards and $19 million of research and development tax credits.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $1,031 million, including $93 million held by our international subsidiaries, short-term investments in marketable securities of $416 million, working capital of $1,816 million and $445 million of availability under our Credit Facility (refer to the “Credit Facility” section below). For the year ended December 31, 2022, we generated $549 million of cash flows from operating activities.

We believe our existing cash and cash equivalents, cash flow from operations and our undrawn available balance under our Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. Further, we have a shelf registration statement on Form S-3 on file with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in “Item 1A. Risk Factors” in Part I of this Annual Report on Form 10-K.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current macroeconomic factors may have on our working capital requirements.

Credit Facility

On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). This Credit Facility replaced our prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.

As of December 31, 2022, we did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $445 million as of December 31, 2022, which is net of outstanding letters of credit of $5 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of December 31, 2022, we were in compliance with all covenants.

Subsequent to December 31, 2022, we amended our Credit Facility to transition from a variable interest rate based on LIBOR to a variable interest rate based on the secured overnight financing rate (“SOFR”).

For additional information regarding the Credit Facility, refer to Note 7—Debt.

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Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.

In 2022, cash provided by operating activities of $549 million resulted primarily from net income adjusted for noncash items of $643 million and a net decrease in our operating assets and liabilities of $94 million. The net decrease was primarily due to increase in accounts receivable of $292 million and a $48 million decrease in operating lease liabilities, partially offset by a $187 million increase in accounts payable and a $51 million decrease in prepaid expenses and other assets. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in prepaid expenses and other assets was primarily due to a decrease in the income tax receivable, including the receipt of an income tax refund, partially offset by current year estimated income tax payments.

In 2021, cash provided by operating activities of $379 million resulted primarily from net income adjusted for noncash items of $548 million and a net decrease in our operating assets and liabilities of $170 million. The net decrease was primarily due to increase in accounts receivable of $444 million and a $44 million decrease in operating lease liabilities, partially offset by a $309 million increase in accounts payable. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features.

Investing Activities

Our primary investing activities consist of investing in short-term investments in marketable securities, purchases of property and equipment to support of our growth and capital expenditures to develop our software to enhance our technology platform. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

In 2022, we used $304 million of cash in investing activities, consisting of $212 million of net purchases of short-term investments, $84 million to purchase property and equipment and $8 million of investments in capitalized software.

In 2021, we used $94 million of cash in investing activities, consisting of $55 million to purchase property and equipment, $20 million of net purchases of short-term investments, $13 million for certain assets accounted for as a business acquisition and $5 million of investments in capitalized software.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of our debt, proceeds from our equity compensation plans and taxes paid to net settle restricted stock awards.

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In 2022, cash provided by financing activities of $32 million was primarily due to $48 million of proceeds from stock option exercises and $33 million of proceeds from the employee stock purchase plan, partially offset by $49 million of taxes paid for restricted stock award settlements.

In 2021, cash provided by financing activities of $32 million was primarily due to $61 million of proceeds from stock option exercises and $29 million of proceeds from the employee stock purchase plan, partially offset by $57 million of taxes paid for restricted stock award settlements and $2 million paid for debt financing costs.

Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of non-cancelable operating leases for our various office facilities, and other contractual commitments consisting of obligations to our hosting services providers, marketing contracts and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

The following table summarizes our non-cancellable contractual obligations at December 31, 2022 (in thousands):

As of December 31, 2022, our total amount of gross unrecognized tax benefits was $91 million before netting with deferred tax assets for tax credit carryforwards and is considered a long-term obligation. Due to their nature, there is a high degree of uncertainty regarding the time of future cash outflows and other events that extinguish these liabilities.

In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations and acts or omissions, or the business operations, obligations and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our consolidated financial statements. Accordingly, no amounts for any obligation have been recorded at December 31, 2022.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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Revenue Recognition

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the client’s purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform.

Generally, we report revenue net of amounts we pay suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). Judgment is required to determine whether we are the principal and report revenue on a gross basis for Supplier Features or the agent and report revenue on a net basis for the amount of platform fees charged to the client. In this assessment, we consider if we obtain control of the specified service before it is transferred to the client, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price.

From time to time, we may enter into agreements with data suppliers where the purchased data is used to inform and improve our platform, generally at no additional charge to our customers outside of our standard fees. Costs associated with this data (“data-related costs”) are recorded in platform operations expense.

For additional information regarding revenue and the assumptions used for determining our revenue recognition refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock awards and units (collectively, “restricted stock”), and awards granted under our employee stock purchase plan (“ESPP”) is measured and recognized in our consolidated financial statements based on the fair value of the awards granted. In October 2021, we granted a market-based performance award to our Chief Executive Officer (the “CEO Performance Option”) under the 2016 Incentive Award Plan. The fair values of our ESPP and stock option awards are estimated on the grant date using the Black-Scholes option-pricing model, except for the CEO Performance Option that was estimated using the Monte Carlo valuation model. The fair value of restricted stock is calculated using the closing market price of our common stock on the date of grant.

Stock-based compensation expense related to restricted stock and stock options is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensation for the CEO Performance Option, which was granted in 2021, is recognized on a graded-vesting basis over a period of approximately five years but may be accelerated if the vesting criteria is met prior to the estimated performance period. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.

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 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 10—Stock-Based Compensation.

Income Taxes

Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimate based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision and deferred income tax assets and liabilities. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

For additional information regarding income taxes and the assumptions used for determining our income tax provision, as well as our related deferred income tax assets and liabilities, refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 11—Income Taxes.

Recently Issued Accounting Pronouncements

None.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations, and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Item 1A. Risk Factors” and the “Special Note About Forward-Looking Statements.”

Overview

We are a global technology company that empowers buyers of advertising. Through our self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and CTV. Our platform’s integrations with major data, inventory and publisher partners provide ad buyers reach and decisioning capabilities, and our enterprise APIs enable our clients to develop on top of the platform.

We commercially launched our platform in 2011, targeting the display advertising channel and have continued to add additional advertising channels. In 2021, the gross spend on our platform came from multiple channels including mobile, video (which includes CTV), display, audio, native, digital-out-of-home and social channels.

Our clients are primarily the advertising agencies and other service providers for advertisers, with whom we enter into ongoing MSAs. We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising. We also generate revenue from providing data and other value-added services and platform features.

Executive Summary

Highlights

_______

Trends, Opportunities and Challenges

The growing digitization of media and fragmentation of audiences has increased the complexity of advertising, and thereby increased the need for automation in ad buying, which we provide on our platform. In order to grow, we will need to continue to develop our platform’s programmatic capabilities and advertising inventory. We believe that key opportunities include our ongoing global expansion, continuing development of our CTV, video, audio, and native ad inventory, and continuing development of the data, usage, measurement and targeting capabilities provided by our platform.

We believe that growth of the programmatic advertising market is important for our ability to grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients. Although our clients include some of the largest advertising agencies in the world, we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform. We also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours.

Similarly, the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory that we present to our clients. For example, we have expanded our CTV, native and audio advertising offerings through our integrations with supply-side partners.

We invest for long-term growth. We anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features, including programmatic buying of CTV ad inventory, and in sales and marketing to acquire new clients and reinforce our relationships with

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existing clients. In addition, we expect to continue making investments in our infrastructure, including our information technology, financial and administrative systems and controls, to support our growing operations.

We believe the markets outside of the United States, and in particular China, offer an opportunity for growth, although such markets may also pose challenges related to compliance with local laws and regulations, restrictions on foreign ownership or investment, uncertainty related to trade relations and a variety of additional risks. We intend to make additional investments in sales and marketing and product development to expand in international markets, including China, where we are making significant investments in our platform and growing our team.

We believe that these investments will contribute to our long-term growth, although they may negatively impact profitability in the near term.

Our business model has allowed us to grow significantly, and we believe that our operating leverage enables us to support future growth profitably.

COVID-19

The worldwide spread of COVID-19, including the emergence of variants, has resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until the COVID-19 pandemic is contained, or economic activity normalizes. With the current uncertainty in economic activity, the impact on our revenue and our results of operations is likely to continue, the size and duration of which we are currently unable to accurately predict. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on a variety of factors, including the duration and spread of COVID-19 and its variants, and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

Factors Affecting Our Performance

Growth in and Retention of Client Spend

Our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients. Our clients include some of the largest advertising agencies in the world, and we believe there is significant room for us to expand further within these clients. As a result, future revenue growth depends upon our ability to retain our existing clients and to gain a larger amount of their advertising spend through our platform.

In order to analyze gross spend contributions and growth from existing clients, we measure annual gross spend for the set of clients, or cohort, that commenced spending on our platform in a specific year relative to subsequent periods. The gross spend from each of our cohorts has increased over subsequent periods. However, over time, we will likely lose clients from each cohort, clients may spend less on our platform, and the growth rate of gross spend may change. Any such change could have a significant negative impact on gross spend and operating results.

Ability to Expand our Omnichannel Reach, Including CTV and Digital Radio

We enable the purchase of advertising inventory in a wide variety of formats, such as display, mobile, video, audio, social and native. Our future growth will depend on our ability to maintain and grow the inventory of, and spend on, other channels in addition to display advertising. We believe that our ability to integrate and offer CTV and digital radio advertising inventory for purchase through our platform and, in particular, our ability to manage the increased costs that will accompany these purchases, will impact the future growth of our business.

Growth of the Programmatic Advertising Market

Our operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and any acceleration or slowing of this growth may affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business.

Development of International Markets

We have been increasing our focus on markets outside the United States to serve the global needs of our clients. As the middle class grows abroad, we believe that the global opportunity for programmatic advertising is significant and should continue to expand

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as publishers and advertisers outside the United States seek to adopt the benefits that programmatic advertising provides. To capitalize on this opportunity, we intend to continue investing in our presence internationally. Our growth and the success of our initiatives in newer markets will depend on the continued adoption of our platform by our existing clients, as well as new clients, in these markets. Information about geographic gross billings is set forth in Note 12—Segment and Geographic Information.

Seasonality

In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of the year reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Components of Our Results of Operations

We have one primary business activity and operate in one reportable and operating segment.

Revenue

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the client’s purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform. We report revenue on a net basis, which represents gross billings net of amounts we pay suppliers for the cost of advertising inventory, data and add-on features.

Accounts receivable is recorded at the amount of gross billings to clients, net of allowances, for the amounts we are responsible to collect, and our accounts payable are recorded at the amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Revenue as a percentage of gross spend may fluctuate from period to period due to a number of factors, such as changes in the proportion of spend represented by our larger clients with the lowest platform fees, our clients’ use of platform features and volume discounts. We expect that our revenue as a percentage of gross spend will fluctuate in the future, especially as we introduce and as our clients select new platform features, expand our omnichannel capabilities, extend our reach to more CTV inventory and add additional clients whose businesses may have different underlying business models.

Refer to “Critical Accounting Policies and Estimates—Revenue Recognition” below for a description of our revenue recognition policies.

Operating Expenses

We classify our operating expenses into the following four categories and allocate overhead such as information technology infrastructure, rent and occupancy charges based on headcount for these categories:

Platform Operations. Platform operations expense consists of expenses related to hosting our platform, which includes “internet traffic” associated with the viewing of available impressions or queries per second (“QPS”), and providing support to our clients. Platform operations expense includes hosting costs, personnel costs, and amortization of acquired technology and capitalized software costs for the development of our platform. Personnel costs include salaries, bonuses, stock-based compensation and employee benefit costs for personnel who support our platform and provide our clients with platform support. We capitalize certain costs associated with the development of our platform, which are amortized in platform operations over their estimated useful lives.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of QPS through our platform and hire additional personnel to support our clients.

Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, employee benefits costs and commission costs, for our sales and marketing personnel. Sales and marketing expense also includes costs for market development programs, advertising, promotional and other marketing activities. Commissions costs are expensed as incurred.

Our sales organization focuses on marketing our platform to increase its adoption by existing and new clients. We are also focused on expanding our international business by growing our sales teams in countries in which we currently operate, as well as establishing a presence in additional countries. As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels

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and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over periods and are impacted by the revenue seasonality in our industry and business.

Technology and Development. Our technology and development expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation and employee benefits costs, third-party consultant costs associated with the ongoing development of our platform and integrations with our advertising and data inventory suppliers, and amortization of capitalized third-party software used in the development of our platform. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization. We amortize capitalized software development costs relating to our platform in platform operations expense which are then recorded as capitalized software development costs included in other assets, non-current on our consolidated balance sheet.

We believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth. Therefore, we expect technology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers, and ramp up the volume of advertising spend on our platform. Our development efforts also include additional platform functionality to support our international expansion. We also intend to invest in technology to further automate our business processes.

General and Administrative. Our general and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and employee benefits costs associated with our executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, and credit loss expense.

We expect to continue to invest in corporate infrastructure to support growth. We expect general and administrative expenses to increase in absolute dollars in future periods.

Other Expense (Income), Net

Interest Expense. Interest expense is mainly related to our debt, which carries a variable interest rate.

Interest Income. Interest income is mainly related to our cash, cash equivalents and short-term investments, which carry variable interest rates.

Foreign Currency Exchange Loss, Net. Foreign currency exchange loss, net consists primarily of gains and losses on foreign currency transactions. We have foreign currency exposure related to our accounts receivable and, to a much lesser extent, accounts payable that are denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound, Australian Dollar, Canadian Dollar, Japanese Yen and Indonesian Rupiah.

Provision for (benefit from) Income Taxes

The provision for (benefit from) income taxes consists primarily of U.S. federal, state and foreign income taxes. Our income tax provision (benefit) may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate, and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period. Our income tax provision (benefit) may also be affected by the timing of vesting and/or exercise of our stock-based awards. The extent of the impact may be subject to volatility resulting from changes in our stock price and volume of transactions by employees.

Our effective tax rate differs from the U.S. federal statutory tax rate of 21% primarily due to tax benefits associated with employee exercises of stock options and vesting of restricted stock units, nondeductible stock-based compensation, research and development tax credits, foreign tax rate differences, and state taxes.

Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.

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Results of Operations for the Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

The following discusses the results of our operations for the year ended December 31, 2021 compared with the year ended December 31, 2020. For a discussion of the results of our operations for the year ended December 31, 2020 compared with the year ended December 31, 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with SEC on February 18, 2021. References to “Notes” are notes to our consolidated financial statements in “Item 8. Financial Statements and Supplementary Data.”

The following tables set forth our consolidated results of operations for the periods presented.

________________

Note: Percentages may not sum due to rounding.

Revenue

Revenue increased by $360.4 million, or 43%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was primarily due to a 47% increase in gross spend on our platform, which was driven by increases in the number of advertising campaigns executed per client.

Revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix and the extent to which clients utilize our platform’s features.

Platform Operations

Platform operations expense increased by $42.7 million, or 24%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to increases of $17.7 million in personnel costs, which includes $7.1 million in stock-based compensation; $12.2 million in hosting costs; and $10.9 million in facilities costs and allocated overhead. The increase in personnel costs was due to an increase in headcount. The increase in hosting costs was primarily attributable to support related to the increased use of our platform by our clients. The increase in facilities costs was primarily driven by new data center locations and leases for additional office space to support our future growth.

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of media impressions through our platform and hire additional personnel to support our clients.

Sales and Marketing

Sales and marketing expense increased by $74.6 million, or 43%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to increases of $57.5 million in personnel costs, which includes $20.9 million of stock-based compensation; $9.4 million in advertising and marketing costs; and $7.1 million in allocated facilities costs. The increase in personnel costs was primarily due to an increase in headcount in order to support our sales efforts and continue to develop and maintain relationships with our clients, as well as an increase in incentive compensation. The increase in advertising and marketing costs was primarily due to an increase in marketing campaigns and sponsorships. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

We expect sales and marketing expenses to increase in absolute dollars in future periods, as we focus on increasing the adoption of our platform with existing and new clients and expanding our international business.

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Technology and Development

Technology and development expense increased by $59.5 million, or 36%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to increases of $52.4 million in personnel costs, which includes $21.1 million of stock-based compensation, and $6.9 million in allocated facilities costs. The increase in personnel costs was primarily attributable to increased headcount to maintain and support further development of our platform. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

We expect technology and development expense to increase in absolute dollars as we continue to invest in the development of our platform to support additional features and functions, increase the number of advertising and data inventory suppliers and support the increase in volume of advertising spending by our clients on our platform. We also intend to invest in technology to further automate our business processes.

General and Administrative

General and administrative expense increased by $203.0 million, or 118%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to increases of $197.2 million in personnel costs and $6.4 million in allocated facilities costs. The increase in personnel costs was primarily driven by a $176.5 million increase in stock-based compensation costs, which included $157.7 million related to the CEO Performance Option, and payroll related costs of $20.7 million due to hiring to support our growth. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth.

We expect general and administrative expenses to increase primarily due to an increase in stock-based compensation expense associated with the CEO Performance Option and continued investment in corporate infrastructure to support growth. For additional information regarding the CEO Performance Option, refer to Note 10— Stock-Based Compensation.

Other Expense, Net

Total other expense, net increased by $2.5 million, or 812%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to lower interest income on our short-term investments and a net increase in foreign exchange losses.

Provision for (Benefit From) Income Taxes

The difference between the effective tax rate in 2021 of (13)% and the U.S. federal statutory income tax rate of 21% was primarily due to the impact of tax benefits associated with stock-based awards and research and development tax credits, partially offset by nondeductible stock-based compensation and the impact of taxes in foreign jurisdictions. For 2021, the provision for income taxes included $104.4 million of benefits associated with stock-based awards and $18.7 million of research and development tax credits.

The difference between the effective tax rate in 2020 of (68)% and the U.S. federal statutory income tax rate of 21% was primarily due to the impact of tax benefits associated with stock-based awards, research and development tax credits and net operating loss carryback from the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), partially offset by the impact of taxes in foreign jurisdictions. For 2020, the provision for income taxes included $134.6 million of benefits associated with stock-based awards, $20.2 million of research and development tax credits and $17.0 million of benefits associated with net operating loss carryback from the CARES Act.

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Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents of $754.2 million, including $49.7 million held by our international subsidiaries, short-term investments in marketable securities of $204.6 million, working capital of $1,288.3 million and full availability under our $450.0 million Credit Facility (refer to the “Credit Facility” section below). For the year ended December 31, 2021, we generated $378.5 million cash flows from operating activities.

We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our Credit Facility will be sufficient to meet our working capital requirements for at least the next 12 months. Further, in November 2020, we filed a shelf registration statement on Form S-3 with the SEC (the “Shelf Registration”), which permits us to issue equity securities and equity-linked securities from time to time, subject to certain limitations. The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in “Item 1A. Risk Factors” within this Annual Report on Form 10-K.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. In light of the recent worldwide COVID-19 pandemic we are closely monitoring the effect that current economic conditions may have on our working capital requirements.

Credit Facility

On June 15, 2021, we and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). This Credit Facility replaced our prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450.0 million revolving loan facility, with a $20.0 million sublimit for swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit. Under certain circumstances, we have the right to increase the Credit Facility by an amount not to exceed $300.0 million.

On December 17, 2021, we amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.

As of December 31, 2021, we did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $443.9 million as of December 31, 2021, which is net of outstanding letters of credit of $6.1 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026. As of December 31, 2021, we were in compliance with all covenants.

For additional information regarding the Credit Facility, refer to Note 7—Debt.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, we expect seasonality to impact cash flows from operating activities on a sequential quarterly basis during the year.

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In 2021, cash provided by operating activities of $378.5 million resulted primarily from net income adjusted for non-cash items of $548.2 million and a net decrease in our operating assets and liabilities of $169.7 million. The net decrease was primarily due to increase in accounts receivable of $444.3 million, and a $44.0 million decrease in operating lease liabilities, partially offset by a $309.4 million increase in accounts payable. The increase in accounts receivable resulted primarily from the growth of our business and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to the growth of our business and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features.

In 2020, cash provided by operating activities of $405.1 million resulted primarily from net income adjusted for noncash items of $390.1 million and a net increase in our operating assets and liabilities of $15.0 million. The net increase was primarily related to a $418.1 million increase in accounts receivable, $66.7 million increase in prepaid expenses and other assets, partially offset by a $481.3 million increase in accounts payable. The increase in accounts receivable resulted primarily from the growth in our business and the timing of cash receipts from clients. The increase in prepaid expenses and other assets was attributable to an increase in the income tax receivable primarily related to the tax benefits associated with employee exercises of stock options, vesting of restricted stock units and refunds due from the taxing authorities relating to net operating loss carrybacks. The increase in accounts payable was primarily due to the growth of our business which results in an increase in payables to suppliers for the cost of advertising inventory, data and add-on features.

Investing Activities

Our primary investing activities consist of investing in short-term investments in marketable securities, purchases of property and equipment to support of our growth, and capital expenditures to develop our software to enhance our technology platform. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

In 2021, we used $93.6 million of cash in investing activities, consisting of $278.4 million to purchase short-term investments, $54.8 million to purchase property and equipment, $13.3 million for certain assets accounted for as a business acquisition and $5.2 million of investments in capitalized software, partially offset by maturities of short-term investments of $253.4 million and sales of investments of $4.5 million.

In 2020, we used $143.3 million of cash in investing activities, consisting of $230.8 million to purchase short-term investments, $74.1 million to purchase property and equipment and $6.1 million of investments in capitalized software, partially offset by maturities of short-term investments of $167.6 million.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of our debt, proceeds from our equity compensation plans and taxes paid to net settle restricted stock awards.

In 2021, cash provided by financing activities of $31.9 million was primarily due to $61.5 million proceeds from stock option exercises and $29.2 million proceeds from the employee stock purchase plan, partially offset by $56.9 million of taxes paid for restricted stock award settlements and $1.9 million paid for debt financing costs.

In 2020, cash provided by financing activities of $44.7 million was primarily due to $76.1 million proceeds from stock option exercises and $21.7 million proceeds from the employee stock purchase plan, partially offset by $53.1 million of taxes paid for restricted stock award settlements.

Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of non-cancelable operating leases for our various office facilities, and other contractual commitments consisting of obligations to our hosting services providers, marketing contracts and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

The following table summarizes our non-cancellable contractual obligations at December 31, 2021 (in thousands):

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As of December 31, 2021, our total amount of gross unrecognized tax benefits was $86.3 million before netting with deferred tax assets for tax credit carryforwards and is considered a long-term obligation. Due to their nature, there is a high degree of uncertainty regarding the time of future cash outflows and other events that extinguish these liabilities.

In the ordinary course of business, we enter into agreements in which we may agree to indemnify clients, suppliers, vendors, lessors, business partners, lenders, stockholders and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. Generally, these indemnity and defense obligations relate to our own business operations, obligations, and acts or omissions. However, under some circumstances, we agree to indemnify and defend contract counterparties against losses resulting from their own business operations, obligations, and acts or omissions, or the business operations, obligations, and acts or omissions of third parties. These indemnity provisions generally survive termination or expiration of the agreements in which they appear. In addition, we have entered into indemnification agreements with our directors, executive officers and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers or employees. In the ordinary course of business, demands have been made upon us to provide indemnification under such agreements, but we are not aware of any claims that could have a material effect on our consolidated financial statements. Accordingly, no amounts for any obligation have been recorded at December 31, 2021.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, stock-based compensation expense and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Revenue Recognition

We generate revenue from clients who enter into agreements with us to use our platform to purchase advertising inventory, data and other add-on features. We charge our clients a platform fee, which is generally a percentage of the client’s purchases through the platform. In addition, we invoice our clients for the cost of advertising inventory purchased, plus data and any add-on features purchased through the platform.

We report revenue net of amounts we pay suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). Judgment is required to determine whether we are the principal and report revenue on a gross basis for Supplier Features or the agent and report revenue on a net basis for the amount of platform fees charged to the client. In this assessment, we consider if we obtain control of the specified service before it is transferred to the client, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.

For additional information regarding revenue and the assumptions used for determining our revenue recognition refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock awards and units (collectively, “restricted stock”), and awards granted under our employee stock purchase plan (“ESPP”) is measured and recognized in our consolidated financial statements based on the fair value of the awards granted. In October 2021, we granted a market-based performance award to our Chief Executive Officer (the “CEO Performance Option”) under the 2016 Incentive Award Plan. The fair values of our ESPP and stock option awards are estimated on the grant date using the Black-Scholes option-pricing model, except for the CEO Performance Option that is estimated using the Monte Carlo valuation model. The fair value of restricted stock is calculated using the closing market price of our common stock on the date of grant.

Stock-based compensation expense related to stock options and restricted stock is recognized on a straight-line basis over the requisite service periods of the awards, which is generally four years. Stock-based compensation for the CEO Performance Option is recognized on a graded-vesting basis over a period of approximately five years but may be accelerated if the vesting criteria is met prior to the estimated performance period. Stock-based compensation expense for ESPP awards is recognized on a graded-vesting attribution basis over the requisite service period of each award.

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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 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 10—Stock-Based Compensation.

Income Taxes

Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimate based on changes in economic conditions. Such changes could have a substantial impact on the income tax provision and deferred income tax assets and liabilities. We evaluate the judgments surrounding our estimates and make adjustments, as appropriate, each reporting period.

For additional information regarding income taxes and the assumptions used for determining our income tax provision, as well as our related deferred income tax assets and liabilities, refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies and Note 11—Income Taxes.

Recently Issued Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 2—Basis of Presentation and Summary of Significant Accounting Policies.