UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
(Mark One)
For the quarterly period ended March 31, 2023
OR
For the transition period from _____________ to _____________
Commission File Number: 001-36384
__________________
(Exact name of registrant as specified in its charter)
__________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices, including zip code) | |||||||||||
| Registrant's telephone number, including area code: | |||||||||||
( | |||||||||||
______________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
| Class | Outstanding as of May 3, 2023 | |||||||
| Common Stock, $0.00001 par value | ||||||||
MAGNITE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page No. | ||||||||
| Part I. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MAGNITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net | |||||||||||
Prepaid expenses and other current assets | |||||||||||
TOTAL CURRENT ASSETS | |||||||||||
Property and equipment, net | |||||||||||
Right-of-use lease asset | |||||||||||
Internal use software development costs, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Other assets, non-current | |||||||||||
TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
Accounts payable and accrued expenses | $ | $ | |||||||||
Lease liabilities, current | |||||||||||
Debt, current | |||||||||||
Other current liabilities | |||||||||||
TOTAL CURRENT LIABILITIES | |||||||||||
| Debt, non-current, net of debt issuance costs | |||||||||||
Lease liabilities, non-current | |||||||||||
| Deferred tax liability, net | |||||||||||
Other liabilities, non-current | |||||||||||
TOTAL LIABILITIES | |||||||||||
| Commitments and contingencies (Note 12) | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Accumulated deficit | ( | ( | |||||||||
TOTAL STOCKHOLDERS' EQUITY | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | |||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
3
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Expenses: | |||||||||||
| Cost of revenue | |||||||||||
| Sales and marketing | |||||||||||
| Technology and development | |||||||||||
| General and administrative | |||||||||||
| Merger, acquisition, and restructuring costs | |||||||||||
| Total expenses | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Other (income) expense: | |||||||||||
| Interest expense, net | |||||||||||
| Other income | ( | ( | |||||||||
| Foreign exchange loss, net | |||||||||||
| Gain on extinguishment of debt | ( | ||||||||||
| Total other (income) expense, net | ( | ||||||||||
| Loss before income taxes | ( | ( | |||||||||
| Benefit for income taxes | ( | ( | |||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Net loss per share: | |||||||||||
| Basic and diluted | $ | ( | $ | ( | |||||||
| Weighted average shares used to compute net loss per share: | |||||||||||
| Basic and diluted | |||||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
4
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Other comprehensive loss: | |||||||||||
| Foreign currency translation adjustments | |||||||||||
| Other comprehensive income | |||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
5
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to RSU vesting | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to RSU vesting | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
6
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Impairment of intangible assets | |||||||||||
| Gain on extinguishment of debt | ( | ||||||||||
| Gain on disposal of property and equipment | ( | ( | |||||||||
| Provision for doubtful accounts | ( | ||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Non-cash lease expense | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Unrealized foreign currency (gain) loss, net | ( | ||||||||||
| Other items, net | |||||||||||
| Changes in operating assets and liabilities, net of effect of business acquisitions: | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ( | |||||||||
| Other liabilities | ( | ||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capitalized internal use software development costs | ( | ( | |||||||||
| Mergers and acquisitions, net of cash acquired | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Repayment of debt | ( | ( | |||||||||
| Repurchase of Convertible Senior Notes | ( | ||||||||||
| Repayment of financing lease | ( | ( | |||||||||
| Purchase of treasury stock | ( | ||||||||||
| Taxes paid related to net share settlement | ( | ( | |||||||||
| Payment of indemnification claims holdback | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
| CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ( | |||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period | $ | $ | |||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
7
MAGNITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO CONSOLIDATED BALANCE SHEETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | |||||||||||
| Restricted cash included in other assets, non-current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Capitalized assets financed by accounts payable and accrued expenses | $ | $ | |||||||||
| Capitalized stock-based compensation | $ | $ | |||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
| Purchase consideration - indemnification claims holdback | $ | $ | |||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
8
MAGNITE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Summary of Significant Accounting Policies
Company Overview
Magnite, Inc. ("Magnite" or the "Company") was formed in Delaware and began operations on April 20, 2007. On April 1, 2020, Magnite completed a stock-for-stock merger with Telaria, Inc. ("Telaria" and such merger the "Telaria Merger"), a leading sell-side advertising platform and provider of connected television ("CTV") technology. On April 30, 2021, the Company completed its acquisition of SpotX, Inc. ("SpotX" and such acquisition the "SpotX Acquisition"), a leading CTV and video advertising platform. On July 1, 2021, the Company completed its acquisition of SpringServe, LLC ("SpringServe" and such acquisition the "SpringServe Acquisition"), a leading ad serving platform for CTV. Magnite has its principal offices in New York City, Los Angeles, Denver, London, and Sydney, and additional offices in Europe, Asia, North America, and South America.
The Company provides a technology solution to automate the purchase and sale of digital advertising inventory for buyers and sellers globally, across all channels, formats and auction types. The Company’s platform features applications and services for sellers of digital advertising inventory, or publishers, that own or operate websites, applications, CTV channels, and other digital media properties, to manage and monetize their inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, and demand side platforms, to buy digital advertising inventory; and a transparent, independent marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution at scale. The Company's clients include many of the world's leading sellers and buyers of digital advertising inventory.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim period presented have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any future interim period, the year ending December 31, 2023, or for any future year.
The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in its 2022 Annual Report on Form 10-K.
There have been no significant changes in the Company's accounting policies from those disclosed in its audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in its Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed financial statements and accompanying footnotes. Due to the economic uncertainty of macroeconomic challenges, such as inflation, global conflict, capital market disruptions and instability of financial institutions, the occurrence of a recession, and other macroeconomic factors, it has become more difficult to apply certain assumptions and judgments into these estimates. The extent of the impact of these factors on the Company's operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration and how quickly and to what extent normal economic and operating conditions can resume. During the three months ended March 31, 2023, this uncertainty continued to result in a higher level of judgment related to its estimates and assumptions. As of the date of issuance of the condensed consolidated financial statements for the three months ended March 31, 2023, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, judgments, or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ materially from these estimates.
Recently Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date
9
Note 2—Net Loss Per Share
The following table presents the basic and diluted net loss per share:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands, except per share data) | |||||||||||
| Basic and Diluted Loss Per Share: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Weighted-average common shares outstanding | |||||||||||
| Weighted-average common shares outstanding used to compute net loss per share | |||||||||||
| Basic and diluted loss per share | $ | ( | $ | ( | |||||||
The following weighted-average shares have been excluded from the calculation of diluted net loss per share attributable to common stockholders for each period presented because they are anti-dilutive:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Options to purchase common stock | |||||||||||
| Unvested restricted stock units | |||||||||||
| Unvested performance stock units | |||||||||||
| ESPP shares | |||||||||||
| Convertible Senior Notes | |||||||||||
| Total shares excluded from net loss per share | |||||||||||
For the three months ended March 31, 2023 and 2022, the Company excluded outstanding performance stock units from the calculation of diluted net loss per share because they were anti-dilutive. As of March 31, 2023, the performance stock units granted in 2020, 2021, 2022, and 2023 had expected achievement levels of 94 %, 0 54 % and 29 %, respectively. As of March 31, 2022, the performance stock units granted in 2020, 2021, and 2022 had expected achievement levels of 121 %, 0 %, and 51 % respectively. Refer to Note 9—"Stock-Based Compensation" for additional information related to performance stock units.
Note 3—Revenue
For the majority of transactions on the Company's platform, the Company reports revenue on a net basis as it does not act as the principal in the purchase and sale of digital advertising inventory because it does not have control of the digital advertising inventory and does not set prices agreed upon within the auction marketplace. For certain advertising campaigns that are transacted through insertion orders, the Company reports revenue on a gross basis, based primarily on its determination that the Company acts as the primary obligor in the delivery of advertising campaigns for buyers with respect to such transactions.
10
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Net basis | $ | % | $ | % | |||||||||||||||||||
| Gross basis | |||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||
The following table presents the Company's revenue by channel for the three months ended March 31, 2023 and 2022:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Channel: | |||||||||||||||||||||||
| CTV | $ | % | $ | % | |||||||||||||||||||
| Mobile | |||||||||||||||||||||||
| Desktop | |||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||
The following table presents the Company's revenue disaggregated by geographic location, based on the location of the Company's sellers for the three months ended March 31, 2023 and 2022:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| Total | $ | $ | |||||||||
Payment terms are specified in agreements between the Company and the buyers and sellers on its platform. The Company generally bills buyers at the end of each month for the full purchase price of impressions filled in that month. The Company recognizes volume discounts as a reduction of revenue as they are incurred. Specific payment terms may vary by agreement, but are generally 75 days or less. The Company's accounts receivable are recorded at the amount of gross billings to buyers, net of allowances for the amounts the Company is responsible to collect. The Company's accounts payable related to amounts due to sellers are recorded at the net amount payable to sellers (see Note 5). Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
Accounts receivable are recorded at the invoiced amount, are unsecured, and do not bear interest. The allowance for doubtful accounts is reviewed quarterly, requires judgment, and is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company reviews the status of the then-outstanding accounts receivable on a customer-by-customer basis, taking into consideration the aging schedule of receivables, its historical collection experience, current information regarding the client, subsequent collection history, and other relevant data, in establishing the allowance for doubtful accounts. Accounts receivable is presented net of an allowance for doubtful accounts of $1.7 million at March 31, 2023, and $1.1 million at December 31, 2022. Accounts receivable are written off against the allowance for doubtful accounts when the Company determines amounts are no longer collectible.
The Company reviews the associated payable to sellers for recovery of buyer receivable allowance and write-offs; in some cases, the Company can reduce the payable to sellers. The reduction of seller payables related to recovery of uncollected buyer receivables is netted against allowance expense. The contra seller payables related to recoveries were $1.1 million and $0.6 million as of March 31, 2023 and December 31, 2022, respectively.
11
The following is a summary of activity in the allowance for doubtful accounts for the three months ended March 31, 2023 and 2022:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Allowance for doubtful accounts, beginning balance | $ | $ | |||||||||
| Write-offs | ( | ||||||||||
| Increase (decrease) in provision for expected credit losses | ( | ||||||||||
| Recoveries of previous write-offs | |||||||||||
| Allowance for doubtful accounts, ending balance | $ | $ | |||||||||
During the three months ended March 31, 2023, the provision for expected credit losses associated with accounts receivable increased by $0.6 million, offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $0.5 million, which resulted in $0.1 million of bad debt expense. During the three months ended March 31, 2022, the provision for expected credit losses associated with accounts receivable decreased by $1.5 million, offset by decreases of contra seller payables related to recoveries of uncollected buyer receivables of an $0.9 million amount, which resulted in $0.6 million of bad debt expense.
Note 4—Fair Value Measurements
Recurring Fair Value Measurements
Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:
•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
•Level 3 – Unobservable inputs.
The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at March 31, 2023:
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2022:
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
At March 31, 2023 and December 31, 2022, cash equivalents of $22.6 million and $259.6 million, respectively, consisted of money market funds and commercial paper, with original maturities of three months or less. The carrying amounts of cash equivalents are classified as Level 1 or Level 2 depending on whether or not their fair values are based on quoted market prices for identical securities that are traded in an active market.
12
At March 31, 2023 and December 31, 2022, the Company had Convertible Senior Notes and its Term Loan B Facility (as defined in Note 13) included in its balance sheets. The estimated fair value of the Company's Convertible Senior Notes was $282.4 million and $305.0 million as of March 31, 2023 and December 31, 2022, respectively. The estimated fair value of Convertible Senior Notes is based on market rates and the closing trading price of the Convertible Senior Notes as of March 31, 2023 and December 31, 2022 and is classified as Level 2 in the fair value hierarchy. At March 31, 2023 and December 31, 2022, the estimated fair value of the Company's Term Loan B Facility was $341.3 million and $333.3 million, respectively. The estimated fair value is based on borrowing rates currently available to the Company for financing with similar terms and is classified as Level 2 in the fair value hierarchy.
There were no transfers between Level 1 and Level 2 fair value measurements during the three months ended March 31, 2023 and 2022.
Note 5—Other Balance Sheet Amounts
Accounts payable and accrued expenses included the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Accounts payable—seller | $ | $ | |||||||||
| Accounts payable—trade | |||||||||||
| Accrued employee-related payables | |||||||||||
| Accrued holdback - indemnification claims | |||||||||||
| Total | $ | $ | |||||||||
Note 6—Goodwill, Intangible Assets, Internal Use Software Development Costs, and Capitalized Costs Incurred in Cloud Computing Arrangements
The Company's goodwill balance as of March 31, 2023 and December 31, 2022 was $978.2 million.
The Company’s intangible assets as of March 31, 2023 and December 31, 2022 included the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Amortizable intangible assets: | |||||||||||
| Developed technology | $ | $ | |||||||||
| Customer relationships | |||||||||||
| In-process research and development | |||||||||||
| Non-compete agreements | |||||||||||
| Trademarks | |||||||||||
| Total identifiable intangible assets, gross | |||||||||||
| Accumulated amortization—intangible assets: | |||||||||||
| Developed technology | ( | ( | |||||||||
| Customer relationships | ( | ( | |||||||||
| In-process research and development | ( | ( | |||||||||
| Non-compete agreements | ( | ( | |||||||||
| Trademarks | ( | ( | |||||||||
| Total accumulated amortization—intangible assets | ( | ( | |||||||||
| Total identifiable intangible assets, net | $ | $ | |||||||||
Amortization of intangible assets for the three months ended March 31, 2023 and 2022 was $86.4 million and $38.5 million, respectively. During the first quarter of 2022, the Company abandoned certain in-process research and development projects and technology intangible assets. The abandonment resulted in $3.3 million of impairment costs in the three months ended
13
March 31, 2022, which was included within merger, acquisition, and restructuring costs in the condensed consolidated statement of operations.
During the fourth quarter of 2022, the Company reassessed the remaining estimated useful lives of the developed technology and in-process research and development related to the SpotX acquisition based on the remaining expected benefit from those assets. The change in the remaining estimated useful lives for developed technology and in-process research and development resulted in increased amortization expense of $52.1 million for the three months ended March 31, 2023. The increased amortization expense increased the basic and diluted loss per share by $0.38
The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of March 31, 2023:
| Fiscal Year | Amount | ||||
| (in thousands) | |||||
| Remaining 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Total | $ | ||||
The Company capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure. During the fourth quarter of 2022, the Company reassessed the remaining estimated useful lives of capitalized software projects related to integration of its technology platforms. The change in the remaining estimated useful lives for the related projects resulted in increased amortization expense of $1.1 million for the three months ended March 31, 2023. The increased amortization expense increased the basic and diluted loss per share by $0.01
The Company capitalizes costs related to arrangements for infrastructure as a service, platform as a service, and software as a service. As of March 31, 2023 and December 31, 2022, capitalized costs associated with these arrangements was included within prepaid expenses and other current assets in the amounts of $0.7 million and $0.7 million, respectively, and within other assets, non-current in the amounts of $0.4 million and $0.5 million, respectively. The amortization of these agreements was immaterial
Note 7—Business Combinations
Note 8—Merger, Acquisition, and Restructuring Costs
14
The following table summarizes merger, acquisition, and restructuring cost activity (in thousands):
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Personnel related (severance and one-time termination benefit costs) | $ | $ | |||||||||
| Loss contracts (facilities related) | |||||||||||
| Exit costs | |||||||||||
| Impairment of property and equipment, net | |||||||||||
| Non-cash stock-based compensation (double-trigger acceleration and severance) | |||||||||||
Impairment costs of abandoned technology | |||||||||||
| Professional services (investment banking advisory, legal and other professional services) | |||||||||||
| Total merger, acquisition, and restructuring costs | $ | $ | |||||||||
During the three months ended March 31, 2023 and 2022, the Company incurred costs of $7.5 million and $6.8 million, respectively, related to restructuring activities as a result of the Company's consolidation of its legacy CTV and SpotX CTV platforms following the SpotX Acquisition. During the three months ended March 31, 2023, these activities included the Company's reduction of its global workforce primarily associated with the elimination of duplicative roles and other costs associated with the the consolidation of its platforms, including loss contracts office facilities the Company does not plan to continue to occupy and impairment charges related to certain assets it no longer plans to utilize. During the three months ended March 31, 2022 the Company incurred costs primarily related to restructuring activities following the SpotX Acquisition.
Accrued restructuring costs related to mergers and acquisitions were $2.8 million and $1.2 million at March 31, 2023 and December 31, 2022, respectively, and were primarily related the Company's consolidation of its platforms as mentioned above and the Telaria Merger. Accrued restructuring costs associated with personnel costs are included within accounts payable and accrued expenses and accruals related to exit costs are included within other current liabilities and other liabilities, non-current on the Company's condensed consolidated balance sheets.
| (in thousands) | |||||
Accrued restructuring costs at December 31, 2022 | $ | ||||
| Personnel related and non-cash stock-based compensation | |||||
| Loss contracts (facilities related) | |||||
| Exit costs | |||||
| Impairment of property and equipment, net | |||||
| Cash paid for restructuring costs | ( | ||||
| Non-cash loss contracts (facilities related) | ( | ||||
| Non-cash impairments | ( | ||||
| Non-cash stock-based compensation | ( | ||||
Accrued restructuring costs at March 31, 2023 | $ | ||||
15
Note 9—Stock-Based Compensation
Stock Options
A summary of stock option activity for the three months ended March 31, 2023 is as follows:
| Shares Under Option | Weighted- Average Exercise Price | Weighted- Average Contractual Life | Aggregate Intrinsic Value | ||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Outstanding at December 31, 2022 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Expired | ( | $ | |||||||||||||||||||||
| Outstanding at March 31, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | |||||||||||||||||||||
The total intrinsic value of options exercised during the three months ended March 31, 2023 was $1.7 million. At March 31, 2023, the Company had unrecognized employee stock-based compensation expense relating to nonvested stock options of approximately $8.3 million, which is expected to be recognized over a weighted-average period of 2.4 years. Total grant date fair value of options vested during the three months ended March 31, 2023 was $2.2 million.
The Company estimates the fair value of stock options that contain service and/or performance conditions using the Black-Scholes option pricing model. The grant date fair value of options granted during the three months ended March 31, 2023 was $7.27 per share. The weighted-average input assumptions used by the Company were as follows:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Expected term (in years) | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Dividend yield | % | % | |||||||||
Restricted Stock Units
A summary of restricted stock unit activity for the three months ended March 31, 2023 is as follows:
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| (in thousands) | |||||||||||
Restricted stock units outstanding at December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Canceled | ( | $ | |||||||||
| Vested and released | ( | $ | |||||||||
Restricted stock units outstanding at March 31, 2023 | * | $ | |||||||||
| Restricted stock units outstanding and unvested | $ | ||||||||||
*At March 31, 2023, outstanding restricted stock units included | |||||||||||
The weighted-average grant date fair value per share of restricted stock units granted during the three months ended March 31, 2023 was $10.72 . The intrinsic value of restricted stock units that vested during the three months ended March 31, 2023 was $23.5 million. At March 31, 2023, the intrinsic value of unvested restricted stock units was $130.7 million. At March 31, 2023, the Company had unrecognized stock-based compensation expense relating to unvested restricted stock units of approximately $167.0 million, which is expected to be recognized over a weighted-average period of 3.1 years.
16
Performance Stock Units
The Company has granted performance stock units ("PSU") to select executive employees that vest based on share price metrics tied to total shareholder return relative to a peer group over a three-year period. The grant date fair value for such PSUs was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. Between 0 % and 150 % of the performance stock units will vest on the third anniversary of the respective grant date.
The Company has additionally granted PSUs to the Company's CEO which are subject to both time-based and performance-based vesting conditions. The PSUs consist of three equal tranches (each, a "Performance Tranche"), based on achievement of a share price condition if the Company achieves share price targets of $60.00 , $80.00 , and $100.00 , respectively, over 60 consecutive trading days during a performance period commencing on August 26, 2022 and ending on August 26, 2026. The grant date fair value for such PSUs was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. To the extent any of the performance-based requirements are met, the Company's CEO must also provide continued service to the Company through at least August 26, 2024 to receive any shares of common stock underlying the grant and through August 26, 2026 to receive all of the shares of common stock underlying the performance units that have satisfied the applicable performance-based requirement.
Stock-based compensation expense for PSUs is based on a performance measurement of 100 %. The compensation expense will not be reversed if the performance metrics are not met.
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| (in thousands) | |||||||||||
Outstanding at December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
Outstanding at March 31, 2023 | $ | ||||||||||
The grant date fair value for the PSUs was estimated using a Monte-Carlo simulation model. The weighted-average input assumptions used by the Company were as follows:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Expected term (in years) | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected volatility of Magnite | % | % | |||||||||
| Expected volatility of selected peer companies | % | % | |||||||||
| Expected correlation coefficients of Magnite | |||||||||||
| Expected correlation coefficients of selected peer companies | |||||||||||
| Dividend yield | % | % | |||||||||
As of March 31, 2023, the Company had unrecognized stock-based compensation expense relating to outstanding PSUs of approximately $12.0 million, which will be recognized over a weighted-average period of 2.9 years.
Stock-Based Compensation Expense
Total stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows:
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cost of revenue | $ | $ | |||||||||
| Sales and marketing | |||||||||||
| Technology and development | |||||||||||
| General and administrative | |||||||||||
| Merger, acquisition, and restructuring costs | |||||||||||
| Total stock-based compensation expense | $ | $ | |||||||||
17
An aggregate of 14,781,139 shares remained available for future grants at March 31, 2023 under the Company's 2014 Equity Incentive Plan. The 2014 Equity Incentive Plan has an evergreen provision pursuant to which the share reserve automatically increased on January 1, 2023 in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31, 2022. This plan expires in November 2023.
As of March 31, 2023, the Company has reserved 5,169,575 shares of its common stock for issuance under the Company's 2014 Employee Stock Purchase Plan ("ESPP"). The ESPP has an evergreen provision pursuant to which the share reserve automatically increased on January 1, 2023 in the amount equal to 1 % of the total number of shares of capital stock outstanding on December 31, 2022. This plan expires in April 2024.
Note 10—Income Taxes
In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income. The Company's annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, foreign taxes, deductible stock option expenses, nondeductible executive compensation, and changes in the Company's valuation allowance.
The Company recorded an income tax benefit of $0.3 million and $2.0 million for the three months ended March 31, 2023 and 2022, respectively. The tax benefit for the three months ended March 31, 2023 and March 31, 2022 is primarily the result of recognizing the benefit of deferred tax assets ("DTAs") previously subject to the domestic valuation allowance and the foreign income tax provision. The Company continues to maintain a partial valuation allowance for the domestic DTAs.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law. The IRA includes a new corporate alternative minimum tax (the “Corporate AMT”) of 15% on the adjusted financial statement income (the “AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period. The Corporate AMT is effective for tax years beginning after December 31, 2022 and is not expected to impact the Company. Additionally, the IRA imposes an excise tax of 1% on the fair market value of net stock repurchases made after December 31, 2022. The impact of this latter provision to the Company will be dependent upon the extent of share repurchases made in future periods.
Due to uncertainty as to the realization of benefits from the Company's domestic and certain international DTAs, including net operating loss carryforwards and research and development tax credits, the Company has a partial valuation allowance reserved against