UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 10-Q

__________________

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2019~~2020

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

For the transition period from _____________ to _____________

Commission File Number: 001-36384

__________________

~~THE~~ ~~RUBICON PROJECT,~~MAGNITE, INC.

(Exact name of registrant as specified in its charter)

__________________

Delaware

20-8881738

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

12181 Bluff Creek Drive,

4th Floor

Los Angeles,

90094

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:

(310)

207-0272

______________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.00001 per share	~~RUBI~~MGNI	~~New York Stock Exchange~~Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ 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.

Large accelerated filer

☐

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 ~~October 31, 2019~~August 6, 2020
Common Stock, $0.00001 par value						~~53,071,171~~110,250,959

~~THE RUBICON PROJECT,~~

Table of Contents

MAGNITE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


				Page No.
			~~Page No.~~
Part I.	FINANCIAL INFORMATION		34
Item 1.		Condensed Consolidated Financial Statements (Unaudited)		34
		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019		34
		Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019		45
		Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019		56
		Condensed Consolidated Statements of Stockholders' Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019		67
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019		89
		Notes to Condensed Consolidated Financial Statements		910
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		2125
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3342
Item 4.		Controls and Procedures		3343
Part II.		OTHER INFORMATION		3443
Item 1.		Legal Proceedings		3443
Item 1A.		Risk Factors		3444
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		3547
Item 6.		Exhibits		3548
Signatures				3649

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

~~THE RUBICON PROJECT,~~MAGNITE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	107,490	$	88,888

Accounts receivable, net	292,433		217,571
Prepaid expenses and other current assets	10,265		6,591
TOTAL CURRENT ASSETS	410,188		313,050
Property and equipment, net	19,704		23,667
Right-of-use lease asset	43,814		21,491
Internal use software development costs, net	17,256		16,053
Intangible assets, net	104,953		11,386
Other assets, non-current	3,403		2,103
Goodwill	157,804		7,370
TOTAL ASSETS	$	757,122	$	395,120
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	347,432	$	259,439
Lease liabilities, current	12,030		7,282
Other current liabilities	2,881		778
TOTAL CURRENT LIABILITIES	362,343		267,499

Lease liabilities, non-current	34,598		15,231
Other liabilities, non-current	2,710		454
TOTAL LIABILITIES	399,651		283,184
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000 shares authorized at June 30, 2020 and December 31, 2019; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019	—		—
Common stock, $0.00001 par value; 500,000 shares authorized at June 30, 2020 and December 31, 2019; 109,861 and 53,888 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	2		1
Additional paid-in capital	749,959		453,064
Accumulated other comprehensive loss	(2,603)		(45)
Accumulated deficit	(389,887)		(341,084)
TOTAL STOCKHOLDERS' EQUITY	357,471		111,936
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	757,122	$	395,120

September 30, 2019 December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 85,122
$ 80,452
Marketable securities —
7,524
Accounts receivable, net 172,284
205,683
Prepaid expenses and other current assets 5,773
6,882
TOTAL CURRENT ASSETS 263,179
300,541
Property and equipment, net 24,238
33,487
Right-of-use lease asset 22,720
—
Internal use software development costs, net 15,189
14,570
Intangible assets, net 7,870
10,174
Other assets, non-current 2,125
1,240
TOTAL ASSETS $ 335,321
$ 360,012
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 207,033
$ 239,678
Lease liabilities, current 6,993
—
Other current liabilities 498
1,304
TOTAL CURRENT LIABILITIES 214,524
240,982
Lease liabilities, non-current 16,495
—
Other liabilities, non-current 179
1,017
TOTAL LIABILITIES 231,198
241,999
Commitments and contingencies (Note 10)

STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000 shares authorized at September 30, 2019 and December 31, 2018; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018 —
—
Common stock, $0.00001 par value; 500,000 shares authorized at September 30, 2019 and December 31, 2018; 53,073 and 51,159 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 1
1
Additional paid-in capital 447,314
433,877
Accumulated other comprehensive loss (585)
(259)
Accumulated deficit (342,607)
(315,606)
TOTAL STOCKHOLDERS' EQUITY 104,123
118,013
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 335,321
$ 360,012

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

~~THE RUBICON PROJECT,~~

Table of Contents

MAGNITE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Revenue	$	42,348	$	37,870	$	78,643	$	70,286
Expenses:
Cost of revenue	21,545		15,085		35,548		30,201
Sales and marketing	20,029		11,519		31,298		22,111
Technology and development	13,063		9,839		23,756		19,555
General and administrative	15,780		10,027		24,907		20,307
Merger and restructuring costs	12,493		—		14,423		—

Total expenses	82,910		46,470		129,932		92,174
Loss from operations	(40,562)		(8,600)		(51,289)		(21,888)
Other (income) expense:
Interest (income) expense, net	2		(214)		(142)		(407)
Other income	(1,284)		(46)		(1,293)		(188)
Foreign exchange (gain) loss, net	(440)		(143)		(1,138)		158
Total other income, net	(1,722)		(403)		(2,573)		(437)
Loss before income taxes	(38,840)		(8,197)		(48,716)		(21,451)
Provision (benefit) for income taxes	288		84		87		(624)
Net loss	$	(39,128)	$	(8,281)	$	(48,803)	$	(20,827)
Net loss per share:
Basic and Diluted	$	(0.36)	$	(0.16)	$	(0.60)	$	(0.40)

Weighted average shares used to compute net loss per share:
Basic and Diluted	108,530		52,358		81,698		51,969

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Revenue $ 37,642
$ 29,729
$ 107,928
$ 83,253
Expenses:
Cost of revenue 13,869
14,687
44,070
44,514
Sales and marketing 11,040
10,654
33,151
34,046
Technology and development 10,293
9,299
29,848
29,038
General and administrative 9,121
9,355
29,428
33,340
Restructuring and other exit costs —
—
—
3,440
Total expenses 44,323
43,995
136,497
144,378
Loss from operations (6,681 ) (14,266 ) (28,569 ) (61,125 )
Other (income) expense:
Interest income, net (218 ) (232 ) (625 ) (777 )
Other income (48 ) (206 ) (236 ) (626 )
Foreign exchange gain, net (296 ) (120 ) (138 ) (363 )
Total other income, net (562 ) (558 ) (999 ) (1,766 )
Loss before income taxes (6,119 ) (13,708 ) (27,570 ) (59,359 )
Provision (benefit) for income taxes 55
84
(569 ) 233
Net loss $ (6,174 ) $ (13,792 ) $ (27,001 ) $ (59,592 )
Net loss per share:
Basic and Diluted $ (0.12 ) $ (0.27 ) $ (0.52 ) $ (1.19 )
Weighted average shares used to compute net loss per share:
Basic and Diluted 53,023
50,513
52,324
50,095

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

~~THE RUBICON PROJECT,~~

Table of Contents

MAGNITE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(In thousands)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Net loss	$	(39,128)	$	(8,281)	$	(48,803)	$	(20,827)
Other comprehensive income (loss):
Unrealized gain on investments	—		—		—		2
Foreign currency translation adjustments	(1,769)		(128)		(2,558)		(36)
Other comprehensive loss	(1,769)		(128)		(2,558)		(34)
Comprehensive loss	$	(40,897)	$	(8,409)	$	(51,361)	$	(20,861)

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019
September 30, 2018
Net loss $ (6,174 ) $ (13,792 ) $ (27,001 ) $ (59,592 )
Other comprehensive income (loss):
Unrealized gain on investments —
9
2
15
Foreign currency translation adjustments (292 ) (99 ) (328 ) (223 )
Other comprehensive loss (292 ) (90 ) (326 ) (208 )
Comprehensive loss $ (6,466 ) $ (13,882 ) $ (27,327 ) $ (59,800 )

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

~~THE RUBICON PROJECT,~~

Table of Contents

MAGNITE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(unaudited)


	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2018	51,159	$	1	$	433,877	$	(259)	$	(315,606)	$	118,013
Exercise of common stock options	76	—		251		—		—		251
Restricted stock awards, net	(182)	—		—		—		—		—
Issuance of common stock related to employee stock purchase plan	—	—		—		—		—		—
Issuance of common stock related to RSU vesting	1,171	—		—		—		—		—
Shares withheld related to net share settlement	(459)	—		(1,835)		—		—		(1,835)
Stock-based compensation	—	—		4,514		—		—		4,514
Other comprehensive income	—	—		—		94		—		94
Net loss	—	—		—		—		(12,546)		(12,546)
Balance at March 31, 2019	51,765	$	1	$	436,807	$	(165)	$	(328,152)	$	108,491
Exercise of common stock options	79	—		132		—		—		132
Restricted stock awards, net	—	—		—		—		—		—
Issuance of common stock related to employee stock purchase plan	118	—		477		—		—		477
Issuance of common stock related to RSU vesting	1,022	—		—		—		—		—
Shares withheld related to net share settlement	—	—		(12)		—		—		(12)
Stock-based compensation	—	—		4,949		—		—		4,949
Other comprehensive income	—	—		—		(128)		—		(128)
Net loss	—	—		—		—		(8,281)		(8,281)
Balance at Balance at June 30, 2019	52,984	$	1	$	442,353	$	(293)	$	(336,433)	$	105,628

Table of Contents


																		Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit				Total Stockholders’ Equity
	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity				Shares	Amount
	Shares		Amount
Balance at December 31, 2017	50,239		$	—	$	418,354		$	41		$	(253,784	)	$	164,611
Exercise of common stock options	9		—		6			—			—			6
Issuance of common stock related to RSU vesting	51		—		—			—			—			—
Shares withheld related to net share settlement	(19	)	—		(40		)	—			—			(40		)
Stock-based compensation	—		—		4,689			—			—			4,689
Other comprehensive income	—		—		—			204			—			204
Net loss	—		—		—			—			(27,816		)	(27,816		)
Balance at March 31, 2018	50,280		—		423,009			245			(281,600		)	141,654
Balance at December 31, 2019																	Balance at December 31, 2019	53,888	$	1	$	453,064							$	(45)		$	(341,084)	$	111,936
Exercise of common stock options	40		—		39			—			—			39			Exercise of common stock options	27	—		23				—		23
Restricted stock awards, net	(156	)	—		—			—			—			—			Restricted stock awards, net	—	—		—		—		—		—��
Issuance of common stock related to employee stock purchase plan	89		—		143			—			—			143			Issuance of common stock related to employee stock purchase plan	—	—		—		—		—		—
Issuance of common stock related to RSU vesting	779		1		—			—			—			1			Issuance of common stock related to RSU vesting	1,861	—		—		—		—		—
Shares withheld related to net share settlement	(282	)	—		(618		)	—			—			(618		)	Shares withheld related to net share settlement	(716)	—		(7,485)		—		—		(7,485)
Stock-based compensation	—		—		4,751			—			—			4,751			Stock-based compensation	—	—		4,218		—		—		4,218
Other comprehensive loss	—		—		—			(322		)	—			(322		)	Other comprehensive loss	—	—		—		(789)		—		(789)
Net loss	—		—		—			—			(17,984		)	(17,984		)	Net loss	—	—		—		—		(9,675)		(9,675)
Balance at June 30, 2018	50,750		1		427,324			(77		)	(299,584		)	127,664
Balance at March 31, 2020																	Balance at March 31, 2020	55,060	$	1	$	449,820	$	(834)	$	(350,759)	$	98,228
Exercise of common stock options	1		—		—			—			—			—			Exercise of common stock options	746	—		2,276		—		—		2,276

Issuance of common stock related to employee stock purchase plan																	Issuance of common stock related to employee stock purchase plan	159	—		693		—		—		693
Issuance of common stock related to RSU vesting																	Issuance of common stock related to RSU vesting	1,904	—		—		—		—		—
Shares withheld related to net share settlement																	Shares withheld related to net share settlement	(107)	—		(349)		—		—		(349)
Issuance of common stock associated with the Merger																	Issuance of common stock associated with the Merger	52,099	1		275,772		—		—		275,773
Exchange of stock options and RSU related to Merger																	Exchange of stock options and RSU related to Merger	—	—		11,646		—		—		11,646
Stock-based compensation	—		—		3,970			—			—			3,970			Stock-based compensation	—	—		10,101		—		—		10,101
Other comprehensive loss	—		—		—			(90		)	—			(90		)	Other comprehensive loss	—	—		—		(1,769)		—		(1,769)
Net loss	—		—		—			—			(13,792		)	(13,792		)	Net loss	—	—		—		—		(39,128)		(39,128)
Balance at September 30, 2018	50,751		$	1	$	431,294		$	(167	)	$	(313,376	)	$	117,752
Balance at Balance at June 30, 2020																	Balance at Balance at June 30, 2020	109,861	2		749,959		(2,603)		(389,887)		357,471

Common Stock Additional
Paid-In
Capital Accumulated Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2018 51,159
$ 1
$ 433,877
$ (259 ) $ (315,606 ) $ 118,013
Exercise of common stock options 76
—
251
—
—
251
Restricted stock awards, net (182 ) —
—
—
—
—
Issuance of common stock related to RSU vesting 1,171
—
—
—
—
—
Shares withheld related to net share settlement (459 ) —
(1,835 ) —
—
(1,835 )
Stock-based compensation —
—
4,514
—
—
4,514
Other comprehensive income —
—
—
94
—
94
Net loss —
—
—
—
(12,546 ) (12,546 )
Balance at March 31, 2019 51,765

1

436,807

(165 )
(328,152 )
108,491
Exercise of common stock options 79
—
132
—
—
132
Restricted stock awards, net —
—
—
—
—
—
Issuance of common stock related to employee stock purchase plan 118
—
477
—
—
477
Issuance of common stock related to RSU vesting 1,022
—
—
—
—
—
Shares withheld related to net share settlement —
—
(12 ) —
—
(12 )
Stock-based compensation —
—
4,949
—
—
4,949
Other comprehensive loss —
—
—
(128 ) —
(128 )
Net loss —
—
—
—
(8,281 ) (8,281 )
Balance at June 30, 2019 52,984

1

442,353

(293 )
(336,433 )
105,628
Exercise of common stock options 83
—
146
—
—
146
Issuance of common stock related to RSU vesting 6
—
—
—
—
—
Stock-based compensation —
—
4,815
—
—
4,815
Other comprehensive loss —
—
—
(292 ) —
(292 )
Net loss —
—
—
—
(6,174 ) (6,174 )
Balance at September 30, 2019 53,073

$ 1

$ 447,314

$ (585 )
$ (342,607 )
$ 104,123

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

~~THE RUBICON PROJECT,~~

Table of Contents

MAGNITE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended							Six Months Ended
	September 30, 2019			September 30, 2018				June 30, 2020		June 30, 2019
OPERATING ACTIVITIES:							OPERATING ACTIVITIES:
Net loss	$	(27,001	)	$	(59,592	)	Net loss	$	(48,803)	$	(20,827)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:							Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	24,841			26,355			Depreciation and amortization	22,081		16,814
Stock-based compensation	13,877			13,016			Stock-based compensation	13,948		9,164
Loss on disposal of property and equipment	92			149

(Gain) loss on disposal of property and equipment							(Gain) loss on disposal of property and equipment	(12)		16
Provision for doubtful accounts	897			217			Provision for doubtful accounts	44		966
Accretion of available-for-sale securities	24			(374		)	Accretion of available-for-sale securities	—		24
Non-cash lease expense	(469		)	—			Non-cash lease expense	(232)		(379)
Unrealized foreign currency (gains) losses, net	(391		)	(206		)
Unrealized foreign currency gains, net							Unrealized foreign currency gains, net	(2,296)		777
Deferred income taxes	(748		)	—			Deferred income taxes	361		(752)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	32,149			10,318			Accounts receivable	73,728		26,831
Prepaid expenses and other assets	672			2,919			Prepaid expenses and other assets	8,716		593
Accounts payable and accrued expenses	(34,018		)	(14,415		)	Accounts payable and accrued expenses	(83,193)		(27,567)
Other liabilities	(117		)	(939		)	Other liabilities	(5,838)		(127)
Net cash provided by (used in) operating activities	9,808			(22,552		)
Net cash (used in) provided by operating activities							Net cash (used in) provided by operating activities	(21,496)		5,533
INVESTING ACTIVITIES:							INVESTING ACTIVITIES:
Purchases of property and equipment	(5,605		)	(5,474		)	Purchases of property and equipment	(3,420)		(2,212)
Capitalized internal use software development costs	(6,000		)	(6,569		)	Capitalized internal use software development costs	(4,718)		(4,160)
Investments in available-for-sale securities	—			(23,991		)
Cash, cash equivalents and restricted cash acquired in Merger							Cash, cash equivalents and restricted cash acquired in Merger	54,595		—

Maturities of available-for-sale securities	7,500			55,650			Maturities of available-for-sale securities	—		7,500
Sales of available-for-sale securities	—			9,228
Net cash (used in) provided by investing activities	(4,105		)	28,844

Net cash provided by investing activities							Net cash provided by investing activities	46,457		1,128
FINANCING ACTIVITIES:							FINANCING ACTIVITIES:
Proceeds from exercise of stock options	529			45			Proceeds from exercise of stock options	2,299		383
Proceeds from issuance of common stock under employee stock purchase plan	477			143			Proceeds from issuance of common stock under employee stock purchase plan	693		477
Taxes paid related to net share settlement	(1,847		)	(658		)	Taxes paid related to net share settlement	(7,834)		(1,847)

Net cash used in financing activities	(841		)	(470		)	Net cash used in financing activities	(4,842)		(987)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(192		)	(110		)	EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(265)		(15)
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	4,670			5,712			CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	19,854		5,659
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	80,452			76,642			CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	88,888		80,452
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	85,122		$	82,354		CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	108,742	$	86,111
SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:							SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	$	300		$	272		Cash paid for income taxes	$	306	$	145
Cash paid for interest	$	46		$	46		Cash paid for interest	$	34	$	25
Capitalized assets financed by accounts payable and accrued expenses	$	2,005		$	3		Capitalized assets financed by accounts payable and accrued expenses	$	56	$	118
Capitalized stock-based compensation	$	401		$	394		Capitalized stock-based compensation	$	371	$	299
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	13,074		$	—		Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	162	$	3,237
Change in restricted cash							Change in restricted cash	$	1,252	$	—
Common stock and options issued for merger							Common stock and options issued for merger	$	287,418	$	—

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

~~THE RUBICON PROJECT,~~

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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"), formerly known as The Rubicon Project, Inc., ~~or Rubicon Project (the "Company"),~~ was formed ~~on April 20, 2007 in Delaware~~ and began operations in April 2007. On April 1, 2020, Magnite completed a stock-for-stock merger ("Merger") with Telaria, Inc., ("Telaria"), a leading provider of connected television ("CTV") technology. The Company ~~is headquartered~~operates a sell side advertising platform that offers buyers and sellers of digital advertising a single partner for transacting globally across all channels, formats, and auction types.

On June 8, 2020, the Company voluntarily delisted its common stock from the New York Stock Exchange ("NYSE") and commenced listing on The Nasdaq Global Select Market of The Nasdaq Stock Market LLC ("Nasdaq"). On June 30, 2020, the Company changed its name from "The Rubicon Project, Inc." to "Magnite, Inc." In connection with the name change, the Company also changed its ticker symbol from "RUBI" to "MGNI." Magnite has its principal offices in Los Angeles, ~~California.~~New York City, 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. The ~~Company's~~Company’s platform features applications and services for sellers of digital advertising ~~sellers, including~~inventory, or publishers, that own or operate websites, ~~mobile~~ applications, CTV channels, and other digital media properties, to manage and monetize their ~~representatives, to sell their digital advertising~~ inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, and demand side platforms, ~~or DSPs,~~ to buy digital advertising inventory; and a marketplace over which such transactions are executed. In the second quarter of 2019, the Company announced the beta program for Demand Manager, which helps sellers effectively monetize their advertising inventory by making it easier to deploy, configure, and optimize Prebid-based header bidding solutions.Prebid is a free and open source suite of software products designed by advertising community developers to enable publishers to implement header bidding on their websites and from within their apps. Together, these features power and enhance a comprehensive, transparent, independent ~~advertising~~ marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution ~~for the digital advertising inventory managed on the Company's platform.~~at scale. The Company's clients include many of the world's leading publishers of websites, ~~and~~CTV channels, mobile applications, and buyers of digital advertising inventory.

~~Advertising~~Publishers monetize their inventory ~~takes different forms, referred~~through the Company’s platform by seamlessly connecting to as advertising units, is purchased and sold through different transactional methods, and allows advertising content to be presented to consumers through different channels. The Company's solution enablesa global market of integrated buyers ~~and sellers to purchase and sell:~~

~~a comprehensive range of advertising units, including display, audio, and video;~~

that ~~are transacted~~transact through real-time bidding, which includes ~~(i)~~ direct sale of premium inventory ~~which the Company refers~~to a buyer, referred to as private marketplace ~~or PMP,~~("PMP"), and ~~(ii)~~ open auction bidding, ~~which~~where buyers bid against each other in a real-time auction for the ~~Company refers~~right to purchase a publisher’s inventory, referred to as open marketplace ~~or OMP;~~("OMP"). At the same time, buyers leverage the Company’s platform to manage their advertising spending and reach their target audiences, simplify order management and campaign tracking, obtain actionable insights into audiences for their advertising, and access impression-level purchasing from thousands of sellers.

~~that are displayed across digital channels, including mobile web, mobile application, and desktop, as well as across various out-of-home channels, such as digital billboards.~~

~~Risks and Uncertainties~~

The Company operates in the rapidly changing advertising industry and has faced demands by ad tech buyers for more efficiency and lower costs, changes in bidding technologies, and increased competition. The Company has adjusted its pricing model, which has reduced margins, and has lowered its expense structure to address these changes in the industry, resulting in net operating losses. The Company continues to incur net operating losses, despite having increased revenues and reduced costs. The Company must continue to increase revenues and/or manage costs in order to compensate for reduced margins, or it may not be able to grow its business and may continue to operate at a loss, depleting its cash resources and liquidity. If the Company continues to experience significant operating losses in the future, the Company may require additional liquidity to fund its operations.

Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles, 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 ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for any future interim period, the year ending December 31, ~~2019,~~2020, or for any future year.

The condensed consolidated balance sheet at December 31, ~~2018~~2019 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, ~~2018~~2019 included in its ~~2018~~2019 Annual Report on Form 10-K.

~~The Company adopted Accounting Standards Codification Topic 842 ("ASC 842")—Leases~~ on January 1, 2019 using a modified retrospective approach. The adoption of this standard impacted only the financial statements included as of September 30, 2019 and for the three and nine months ended September 30, 2019. See below for additional information regarding the Company's adoption of ASC 842. Aside from the adoption of ASC 842, thereThere 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, ~~2018~~2019 included in its Annual Report on Form 10-K.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. Specifically, this includes amounts reclassified during the six months ended June 30, 2020 to conform to the current presentation for the three months ended June 30, 2020 in the condensed consolidated statements of operations related to merger and restructuring costs.

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 as a result of the COVID-19 pandemic, it has become more difficult to apply certain assumptions and judgments into these estimates. The extent of the impact of COVID-19 pandemic 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 spread of the outbreak, its severity, including any resurgence, the actions to contain the virus or treat its impact, and

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how quickly and to what extent normal economic and operating conditions can resume, as discussed in more detail within Part II, Item 2: "Management's Discussion and Analysis" and Part II, Item 1A: "Risk Factors." During the six months ended June 30, 2020, this uncertainty resulted 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 and six months ended June 30, 2020, 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.~~

~~Adoption of ASC 842~~

~~On January 1, 2019, the Company adopted ASC 842, which requires the recognition of the right-of-use assets, or ROU assets,~~those estimates and related lease liabilities on the balance sheet using a modified retrospective approach. The consolidated financial statements related to periods prior to January 1, 2019 were not restated, and continue toany such differences may be ~~reported under ASC Topic 840—Leases~~ ("ASC 840"), which did not require the recognition of operating lease liabilities on the balance sheet. As a result, the consolidated financial statements related to periods prior to January 1, 2019 are not entirely comparative with current and future periods. As permitted under ASC 842, the Company elected several practical expedients that permit the Company to not reassess (1) whether existing contracts are or contain a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. In addition, the Company has elected not to recognize short-term leases on our balance sheet, nor separate lease and non-lease components for our data center leases. In addition, we utilized the portfolio approach to group leases with similar characteristics and did not use hindsight to determine lease term.

~~In addition~~material to the leases previously reported under ASC 840, the Company also reviewed its data center agreements to identify non-lease components that should not be included in the lease liability and lease expense under ASC 842. Certain fixed non-lease components of data center leases, primarily fixed minimum power commitments, have been included in the lease liability and ROU asset as the Company has elected the practical expedient for its data centers to not separate the lease and non-lease components; however, variable components have not been included. For identified leases, the Company used its incremental borrowing rate to discount the related future payment obligations as of January 1, 2019 to determine its lease liability as of adoption. As of the adoption date, the Company recognized a lease liability of $15.6 million and a corresponding ROU asset of $14.3 million; there was no equity impact from the adoption. The difference between the lease liability and the ROU asset primarily represents the existing deferred rent liabilities balances before adoption, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the ROU asset.Company's financial statements.

The Company records rent expense for operating leases, including leases of office locations, data centers, and equipment, on a straight-line basis over the lease term. The straight-line calculation of rent expense includes rent escalations on certain leases, as well as lease incentives provided by the landlords, including payments for leasehold improvements and rent-free periods. The Company begins recognition of rent expense on the commencement date, which is generally the date that the asset is made available for use. The lease liability is included in lease liabilities, current and lease liabilities, non-current within the condensed consolidated balance sheet, which are reduced as lease related payments are made. The ROU asset is amortized on a periodic basis over the expected term of the lease. See Note 11 for additional information.

~~Recent~~Recently Adopted Accounting ~~Pronouncements~~

Under the Jumpstart Our Business Startups Act, or the JOBS Act, the Company meets the definition of an emerging growth company through the end of 2019. The Company has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.Standards

In ~~March 2019,~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13—Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This guidance requires entities to use a current expected credit loss methodology to measure impairments of certain financial assets and to recognize an allowance for its estimate of lifetime expected credit losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 as of January 1, 2020. The standard had no material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU ~~2019-01—~~2018-13—~~Leases~~Fair Value Measurement (Topic ~~842)~~820): ~~Codification Improvements~~Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU ~~2019-01"~~2018-13"), ~~which clarifies~~to streamline the disclosure requirements of ASC Topic 820—Fair Value Measurement. ASU 2018 removes certain ~~topics~~disclosure requirements, including the valuation process for Level 3 fair value measurements, and adds certain quantitative disclosures around ~~lease guidance. One of the~~Level 3 fair value measurements. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The provisions of ASU 2019-01 pertains to the Company as it updates existing guidance by explicitly allowing an exception to transition disclosures typically required, while adopting ASC 842. Under this guidance, entities that have adopted ASC 8422018-13 are ~~not required to provide identical disclosures for the comparative previous year period in the year of adoption. ASU 2019-01 is~~ required to be adopted ~~concurrently~~retrospectively, with the ~~adoption~~exception of ~~ASC 842,~~disclosure of the range and ~~as such, the~~weighted average of significant unobservable inputs used to develop Level 3 measurements, which can be adopted prospectively. The Company adopted ASU ~~2019-01 during~~2018-13 as of January 1, 2020. The standard had no material impact on its consolidated financial statements and related disclosures.

In August 2018, the ~~first quarter~~FASB issued ASU 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 was issued to clarify the requirements of ~~2019.~~ASC 350-40—Intangibles—Goodwill and Other—Internal-Use Software ("ASC 350-40"). The ASU clarifies that implementation, setup and other upfront costs related to cloud computing agreements ("CCA") should be accounted for under ASC 350-40. ASC 2018-15will require companies to capitalize certain costs incurred when purchasing a CCA that is a service. Under the new guidance, companies will apply the same criteria for capitalizing implementation costs in a CCA service as they would for internal-use software. The capitalized implementation costs will generally be expensed over the term of the service arrangement and the related assets will be assessed for impairment using the same model applied to long-lived assets. This ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 as of January 1, 2020 on a prospective basis. The standard had no material impact on its consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12—Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and clarifies and amends existing guidance for clarity and consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020 including interim reporting periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements and related disclosures, but does not anticipate it will have a material impact.

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Note 2—Net Income (Loss) Per Share

The following table presents the basic and diluted net loss per share:

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands, except per share data)
Basic and Diluted EPS:
Net loss $ (6,174 ) $ (13,792 ) $ (27,001 ) $ (59,592 )
Weighted-average common shares outstanding 53,029
50,750
52,349
50,482
Weighted-average unvested restricted stock (6 ) (237 ) (25 ) (387 )
Weighted-average common shares outstanding used to compute net loss per share 53,023
50,513
52,324
50,095
Basic and diluted net loss per share $ (0.12 ) $ (0.27 ) $ (0.52 ) $ (1.19 )


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands, except per share data)
Basic and Diluted EPS:
Net loss	$	(39,128)	$	(8,281)	$	(48,803)	$	(20,827)
Weighted-average common shares outstanding	108,530		52,369		81,698		52,004
Weighted-average unvested restricted stock	—		(11)		—		(35)

Weighted-average common shares outstanding used to compute net loss per share	108,530		52,358		81,698		51,969
Basic and diluted net loss per share	$	(0.36)	$	(0.16)	$	(0.60)	$	(0.40)

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 Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Options to purchase common stock 1,078
162
732
72
Unvested restricted stock awards —
208
16
232
Unvested restricted stock units 5,168
2,324
3,911
1,709
ESPP 48
94
35
64
Total shares excluded from net loss per share 6,294
2,788
4,694
2,077


	Three Months Ended			Six Months Ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019
	(in thousands)			(in thousands)
Options to purchase common stock	1,999	605	1,619	559
Unvested restricted stock awards	1	5	1	24
Unvested restricted stock units	3,805	3,818	3,892	3,282
Unvested performance stock units	5	—	3	—
ESPP	30	28	45	28
Total shares excluded from net loss per share	5,840	4,456	5,560	3,893

Note 3—Revenues

The Company generates revenue from transactions where it provides a platform for the purchase and sale of digital advertising inventory. The ~~Company’s advertising automation solution~~Company also generates revenue from the fee it charges clients for use of its Demand Manager product, which generally is a ~~marketplace for sellers~~percentage of the client's advertising spending. The Company provides a technology solution to automate the purchase and sale of digital advertising inventory (providers of websites, mobile applications and other digital media properties, and their representatives) and buyers of digital advertising inventory (including advertisers, agencies, agency trading desks, and demand-side platforms). This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a distributed infrastructure. Together, these features form the basis for ~~the Company’s automated advertising solution that brings~~ buyers and ~~sellers together and facilitates intelligent decision-making and automated transaction execution for the digital advertising inventory managed on the Company's platform.~~sellers. Digital advertising inventory is created when consumers access sellers’ content. Sellers provide digital advertising inventory to the Company’s platform in the form of advertising requests, or ad requests. When the Company receives ad requests from sellers, it sends bid requests to buyers, which enable buyers to bid on sellers’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer.

The total volume of spending between buyers and sellers on the Company’s platform is referred to as advertising spend. The Company keeps a percentage of that advertising spend as a fee, and remits the remainder to the seller. The fee that the Company retains from the gross advertising spend on its platform is recognized as revenue. The fee earned on each transaction is based on the pre-existing agreement between the Company and the seller and the clearing price of the winning bid. The Company recognizes revenue upon fulfillment of its performance obligation to a client, which occurs at the point in time an ad renders and is counted as a paid impression, subject to an underlying agreement existing with the client and a fixed or determinable transaction price. Performance obligations for all transactions are satisfied, and the corresponding revenue is recognized, at a distinct point in time when an ad renders. The Company does not have arrangements with multiple performance obligations.

The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company ~~considers~~is acting as the ~~following when~~principal or an agent in the transaction. In determining ~~if a contract exists under which~~whether the ~~performance obligations have been satisfied: (i) contract approval by all parties, (ii) identification~~Company is acting as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Making such determinations involves judgment and is based on an evaluation of the terms of each ~~party’s rights regarding the goods~~arrangement, none of which are considered presumptive or ~~services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of~~determinative.

For substantially all oftransactions on the ~~consideration is probable.~~

~~The~~Company's platform, the Company ~~has determined that~~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, and therefore~~marketplace. However, for certain transactions related to revenue streams acquired in connection with the Merger with Telaria, the Company reports revenue on a ~~net basis.~~gross basis, based primarily on its

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determination that the Company acts as the primary obligor in the delivery of advertising campaigns for buyers with respect to such transactions. For the three months ended June 30, 2020, revenue reported on a gross basis was less than 2% of total revenue.

The following table presents our revenue by channel for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended														Six Months Ended
	June 30, 2020						June 30, 2019						June 30, 2020				June 30, 2019
	(in thousands, except percentages)
Channel:
CTV	$	7,919	19	%	$	—	—	%	$	7,919	10	%	$	—	—	%
Desktop	15,271		36		16,588		44		30,567		39		31,809		45
Mobile	19,158		45		21,282		56		40,157		51		38,477		55
Total	$	42,348	100	%	$	37,870	100	%	$	78,643	100	%	$	70,286	100	%

The following table presents our revenue disaggregated by geographic location, based on the location of the Company's sellers:


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
United States	$	30,587	$	25,790	$	56,120	$	47,276

International	11,761		12,080		22,523		23,010
Total	$	42,348	$	37,870	$	78,643	$	70,286

Payment terms are specified in agreements between the Company and the buyers and sellers on its ~~exchange~~ 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 seventy-five 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.

At June 30, 2020, two buyers accounted for 37% and 10%, respectively, of consolidated accounts receivable. At December 31, 2019, two buyers accounted for 23% and 17%, respectively, of consolidated accounts receivable.

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 $4.7 million at June 30, 2020, and $3.4 million at December 31, 2019. 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 $2.2 million and $0.9 million as of June 30, 2020 and December 31, 2019, respectively.

The following ~~table presents our revenue by channel~~is a summary of activity in the allowance for doubtful accounts for the three and ~~nine~~six months ended ~~September~~June 30, 2020 and 2019:

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	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
Allowance for doubtful accounts, Beginning Balance	$	3,080	$	4,530	$	3,400	$	1,340
Allowance for doubtful accounts, Merger-assumed	1,033		—		1,033		—
Write-offs	(1,156)		(3,177)		(1,896)		(3,207)
Provision for expected credit losses	1,715		367		2,128		3,587
Recoveries of previous write-offs	—		—		7		—
Allowance for doubtful accounts, June 30	$	4,672	$	1,720	$	4,672	$	1,720

During the three and six months ended June 30, 2020, the provision for expected credit losses associated with accounts receivable of $1.7 million and $2.1 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $1.7 million and $2.1 million, respectively, which resulted in an insignificant amount of bad debt expense during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, the provision for expected credit losses associated with accounts receivable of $0.4 million and ~~2018:~~$3.6 million was offset by increases of contra seller payables related to recoveries of uncollected buyer receivables of $0.2 million and $2.6 million, which resulted in bad debt expense during the period of $0.2 million and $1.0 million, respectively.

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands, except percentages)
Channel:
Desktop $ 15,936
42 % $ 12,481
42 % $ 47,745
44 % $ 40,453
49 %
Mobile 21,706
58
17,248
58
60,183
56
42,800
51
Total $ 37,642

100 %
$ 29,729

100 %
$ 107,928

100 %
$ 83,253

100 %

~~The following table presents our revenue disaggregated by geographic location, based on the location of the Company's sellers:~~

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
United States $ 26,378
$ 19,731
$ 73,654
$ 54,201
International 11,264
9,998
34,274
29,052
Total $ 37,642
$ 29,729
$ 107,928
$ 83,253

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 ~~September~~June 30, ~~2019:~~2020:

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 $ 13,447
$ 13,447
$ —
$ —


	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	$	3,541	$	3,541	$	—	$	—

The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, ~~2018:~~2019:


	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	$	13,501	$	13,501	$	—	$	—

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, cash equivalents of ~~$13.4~~$3.5 million and ~~$13.7~~$13.5 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. Corporate debt securities (which are included in marketable securities on the balance sheet) with fair values derived from similar securities rather than based on quoted market prices for identical securities, are classified as Level 2 as well. The fair values

Table of ~~the Company's U.S. treasury, government and agency debt securities are based on quoted market prices and classified as Level 1, and are included within marketable securities.~~Contents

Note 5—Other Balance Sheet Amounts

~~Investments in marketable securities as of December 31, 2018 consisted of the following:~~

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
(in thousands)
Available-for-sale—short-term:
U.S. Treasury, government and agency debt securities $ 7,526
$ —
$ (2 ) $ 7,524

The Company had 0 available-for-sale securities as of September 30, 2019. For the three and nine months ended September 30, 2019, there were 0 realized gains (losses) and there were 0 unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the condensed consolidated statements of operations for the sale of available-for-sale investments. For the nine months ended September 30, 2018, the Company sold $9.2 million of available-for-sale investments, on which the realized gains were de minimis and there were 0 unrealized holding gains (losses) reclassified out of accumulated other comprehensive loss into the condensed consolidated statements of operations.

Accounts payable and accrued expenses included the following:


	June 30, 2020		December 31, 2019
	(in thousands)
Accounts payable—seller	$	329,815	$	247,891
Accounts payable—trade	7,850		4,822
Accrued employee-related payables	9,767		6,726
Total	$	347,432	$	259,439

September 30, 2019 December 31, 2018
(in thousands)
Accounts payable—seller $ 195,467
$ 230,423
Accounts payable—trade 5,463
3,122
Accrued employee-related payables 6,103
6,133
Total $ 207,033
$ 239,678

Restricted cash was $1.3 million at June 30, 2020, which is included in the ending balance of cash, cash equivalents and cash in the condensed consolidated statement of cash flows for the six months ended June 30, 2020. Restricted cash of $0.3 million was included within prepaid and other current assets and $1.0 million was included within other assets, non-current. There was 0 restricted cash at December 31, 2019.

Note 6—Goodwill and Intangible Assets

The Company's goodwill balance as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~

~~Note 6—Intangible Assets~~2019 was $157.8 million and $7.4 million, respectively. The increase during the three and six months ended June 30, 2020 was a result of the merger with Telaria (Note 7).

The Company’s intangible assets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 included the following:


	June 30, 2020		December 31, 2019
	(in thousands)
Amortizable intangible assets:
Developed technology	$	77,158	$	19,658
Customer relationships	37,450		1,650
In-process research and development	8,230		—
Backlog	920		—
Non-compete agreements	70		70
Trademarks	200		20
Total identifiable intangible assets, gross	124,028		21,398
Accumulated amortization—intangible assets:
Developed technology	(14,390)		(9,823)
Customer relationships	(4,154)		(162)
In-process research and development	—		—
Backlog	(307)		—
Non-compete agreements	(24)		(7)
Trademarks	(200)		(20)
Total accumulated amortization—intangible assets	(19,075)		(10,012)
Total identifiable intangible assets, net	$	104,953	$	11,386

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September 30, 2019 December 31, 2018
(in thousands)
Amortizable intangible assets:
Developed technology $ 16,878
$ 16,878
Non-compete agreements —
690
Trademarks 20
20
Total identifiable intangible assets, gross 16,898
17,588
Accumulated amortization—intangible assets:
Developed technology (9,008 ) (6,888 )
Non-compete agreements —
(506 )
Trademarks (20 ) (20 )
Total accumulated amortization—intangible assets (9,028 ) (7,414 )
Total identifiable intangible assets, net $ 7,870
$ 10,174

Amortization of intangible assets for the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.7~~$8.0 million and $0.8 million, respectively, and ~~$2.3~~$9.1 million and ~~$2.4~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The estimated remaining amortization expense associated with the Company's intangible assets was as follows as of ~~September~~June 30, ~~2019:~~2020:


Fiscal Year	Amount
	(in thousands)
Remaining 2020	$	15,644
2021	30,772
2022	26,132
2023	13,881
2024	13,697
Thereafter	4,827
Total	$	104,953

Fiscal Year Amount
(in thousands)
Remaining 2019 $ 706
2020 2,826
2021 2,826
2022 1,512
2023 —
Thereafter —
Total $ 7,870

Due to the economic impact associated with the COVID-19 pandemic, the Company performed a qualitative assessment of its long-lived assets and goodwill and concluded based on the Company's assessment of current market capitalization, adequate cash position, and expected future results, that there were no impairment indicators as of June 30, 2020 that would indicate impairment of its long-lived assets, including fixed assets, intangibles, and internal use capitalized software costs, and goodwill.

Note 7—Business Combinations

On April 1, 2020, (the "Acquisition Date"), the Company completed the Merger with Telaria. Upon completion of the Merger, each share of Telaria common stock issued and outstanding was converted into 1.082 shares of Magnite common stock. As a result, the Company issued 52,098,945 shares of Magnite common stock. In connection with the Merger, Magnite also assumed Telaria’s 2013 Equity Incentive Plan, as amended; 2008 Stock Plan, as amended; and the ScanScout, Inc. 2009 Equity Incentive Plan, as amended.

As of the Acquisition Date, former holders of Telaria common stock owned approximately 48% and pre-merger holders of Magnite common stock owned approximately 52% of the common stock of the combined company on a fully diluted basis.

The Merger was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, referred to as ASC 805, Business Combinations. Magnite management determined that Magnite was the acquiror for financial accounting purposes. In identifying Magnite as the accounting acquiror, management considered the structure of the transaction and other actions contemplated by the merger agreement, relative outstanding share ownership and market values, the composition of the combined company’s board of directors, the relative size of Magnite and Telaria, and the designation of certain senior management positions of the combined company.

In accordance with ASC 805, the Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective fair values as of the Acquisition Date. The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill. Any identified definite lived intangible assets will be amortized over their estimated useful lives and any identified intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill will be tested for impairment when certain indicators are present. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and selection of comparable companies.

Management's purchase price allocation is preliminary and subject to change pending finalization of the valuation, including finalization of tax attributes and tax related liabilities. Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset ("DTA") valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they are related to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment, and the Company will record the offset to goodwill. The Company records all other changes to DTA valuation allowances and liabilities related to uncertain tax positions in current- period income tax expense.

For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the unaudited condensed combined financial information, the Company has applied the guidance in ASC 820, Fair Value Measurement, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Under ASC 805, acquisition-related transaction costs and acquisition-related

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restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.

As part of the Merger, existing outstanding restricted stock units of Telaria common stock and stock options to purchase common stock of Telaria were exchanged for 1.082 restricted stock units of the Company and options to purchase the Company's common stock, respectively. The fair value of stock options exchanged on the date of the Merger attributable to pre-acquisition services was recorded as purchase consideration. The fair value of the restricted stock units and stock options exchanged on the date of the Merger attributable to post-acquisition services will be recorded as additional stock-based compensation expense in the Company's consolidated statements of operations over their remaining requisite service (vesting) periods.

The following table summarizes the total purchase consideration (in thousands):


Shares of Magnite common stock	$	274,604
Fair value of stock-based awards exchanged	11,646
Acceleration of single trigger equity awards, converted	1,168
Total purchase consideration	$	287,418

The purchase consideration for the acquisition included 52,008,316 shares of the Company's common stock with a fair value of approximately $274.6 million, based on the Company's stock price as reported on the NYSE on the Acquisition Date. The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to pre-acquisition services of approximately $10.4 million and $1.2 million, respectively, have been recorded as purchase consideration. In addition, the Company recorded additional purchase consideration associated with acceleration of 90,629 shares of common stock issued associated with single-trigger equity awards in the amount of $1.2 million.

The fair value of stock options and restricted stock units exchanged on the Acquisition Date attributable to post-acquisition services of $4.7 million and $12.2 million, respectively, will be recorded as additional stock-based compensation expense on the Company's consolidated statement of operations over their remaining requisite service (vesting) periods.

The fair value of the purchase price was allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition as set forth below:


Cash and cash equivalents	$	51,848
Accounts receivable, net	150,924
Prepaid expenses and other current assets	3,190
Property and equipment, net	1,814
Right-of-use lease asset	26,627
Intangible assets	102,650
Restricted cash	2,747
Other assets, non-current	9,628
Deferred tax assets, non-current	103
Goodwill	150,434
Total assets acquired	$	499,965
Accounts payable and accrued expenses	173,643
Lease liabilities - current portion	5,322
Deferred revenue	11
Other current liabilities	9,624
Lease liabilities - non-current portion	23,323
Other liabilities, non-current	624

Total liabilities assumed	212,547
Total purchase price	$	287,418

The Company believes the amount of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Goodwill will not be amortized but instead will be tested for impairment at least

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annually or more frequently if certain indicators of impairment are present. In the event that goodwill has become impaired, the Company will record an expense for the amount impaired during the quarter in which the determination is made. The goodwill generated in the Merger is not tax deductible.

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

Estimated Useful Life

Technology

57,500

5 years

In-process research and development

8,230

4.7 years*

Customer relationships

35,800

2.5 years

Backlog

920

0.75 years

Trademarks

200

0.25 years

Total intangible assets acquired

102,650

* In-process research and development consists of 2 projects with a weighted-average useful life of 4.7 years. Amortization begins once associated projects are completed and it is determined the projects have alternative future use.

The intangible assets are generally amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over their estimated useful lives. Amortization of developed technology is included in cost of revenues and the amortization of customer relationships, backlog, and trademarks is included in sales and marketing expenses in the condensed consolidated statement of operations. Once the projects associated with acquired in-process research and development are completed, amortization will be included in cost of revenues in the consolidated statement of operations. The intangible assets generated in the Merger are not tax deductible.

As such, as part of the Merger, deferred tax liabilities of $23.9 million were established related to the acquired intangible assets, which were fully offset by the estimated income tax effect of the partial release of Telaria's valuation allowance. The deferred tax liability was calculated based on an estimated combined tax rate of 23.3%.

The Company recognized approximately $12.5 million and $14.4 million of acquisition related costs during the three and six months ended June 30, 2020, respectively (Note 8). In addition, as part of the Merger, the Company acquired Telaria's U.S. federal NOLs of approximately $126.2 million and state NOLs of approximately $128.0 million. Pursuant to Section 382 of the Internal Revenue Code, Telaria, Inc. underwent an ownership change for tax purposes. As a result, the use of the NOLs will be subject to annual 382 use limitations. The Company believes the ownership change will not impact the Company's ability to utilize substantially all of the NOLs to the extent it generates taxable income that can be offset by such losses.

Unaudited Pro Forma Information

The following table provides unaudited pro forma information as if Telaria had been merged with the Company as of January 1, 2019. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed. The pro forma results do not include any anticipated cost synergies or other effects of the integration merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.


	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)		(in thousands)
Pro Forma Revenue	$	56,086	$	93,304	$	102,124
Pro Forma Net Loss	$	9,765	$	67,801	$	26,644
Pro forma net loss per share	$	0.10	$	0.63	$	0.25

During the three months ended June 30, 2020, post-Merger revenue on a stand-alone basis for Telaria was $13.1 million. During the three months ended June 30, 2020, due to the process of integrating the operations of Telaria into the operations of the Company, the determination of Telaria's post-Merger operating results on a standalone basis were impracticable.

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Note 8—Merger and Restructuring Costs

Merger and restructuring costs consist primarily of professional services fees and employee termination costs, including stock-based compensation charges, associated with the Merger and resulting restructuring activities.

The following table summarizes merger and restructuring cost activity (in thousands):


	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
	(in thousands)		(in thousands)
Professional Service (investment banking advisory, legal and other professional services)	$	6,754	$	8,581
Personnel related (severance and one-time termination benefit costs)	4,539		4,642
Non-cash stock-based compensation (double-trigger acceleration and severance)	1,200		1,200
Total merger and restructuring costs	$	12,493	$	14,423

Accrued restructuring costs related to the Merger were $5.1 million at June 30, 2020. Accrued restructuring costs are included within other liabilities on the Company's condensed consolidated balance sheets.


	(in thousands)
Accrued merger and restructuring costs at December 31, 2019	$	—
Restructuring costs, personnel related and non-cash stock-based compensation	5,842
Restructuring costs, Merger assumed loss contracts	3,592
Cash paid for restructuring costs	(3,171)
Non-cash stock-based compensation	(1,200)
Accrued merger and restructuring costs at June 30, 2020	$	5,063

Note 9—Stock-Based Compensation

The Company’s equity incentive plans provide for the grant of equity awards, including non-statutory or incentive stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs"), to the Company's employees, officers, directors, and consultants. The Company's board of directors administers the plans. Outstanding options vest based upon continued service at varying rates, but generally over four years from issuance with 25% vesting after one year of service and the remainder vesting monthly thereafter. RSAs and RSUs vest at varying rates, typically with approximately 25% vesting after approximately one year of service and the remainder vesting semi-annually thereafter, but with certain retention grants vesting 50% on each of the first and second anniversaries of the grant date. Restricted stock units granted in 2020 have approximately 25% of the award vesting after approximately one year of service and the remainder vesting quarterly thereafter. Options, RSAs, and RSUs granted under the plans accelerate under certain circumstances for certain participants upon a change in control, as defined in the governing ~~plan.~~plan or award agreement. An aggregate of ~~4,377,171~~9,665,082 shares remained available for future grants at ~~September~~June 30, ~~2019~~2020 under the plans.

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Stock Options

A summary of stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 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, 2018 3,488
$ 7.06

Granted 1,184
$ 4.98

Exercised (239 ) $ 2.21

Expired (36 ) $ 14.03

Forfeited (73 ) $ 2.62

Outstanding at September 30, 2019 4,324
$ 6.77
7.24 years $ 14,566
Exercisable at September 30, 2019 2,370
$ 8.71
5.94 years $ 5,889


	Shares Under Option	Weighted- Average Exercise Price		Weighted- Average Contractual Life	Aggregate Intrinsic Value
	(in thousands)				(in thousands)
Outstanding at December 31, 2019	4,262	$	6.82
Granted	1,098	$	5.28
Options assumed in Merger	4,998	$	3.80
Exercised	(773)	$	2.98
Expired	(92)	$	12.83
Forfeited	(113)	$	4.97
Outstanding at June 30, 2020	9,380	$	5.31	5.63 years	$	20,392
Exercisable at June 30, 2020	5,954	$	5.59	4.00 years	$	13,758

The total intrinsic values of options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$1.3~~$3.4 million. At ~~September~~June 30, ~~2019,~~2020, the Company had unrecognized employee stock-based compensation expense relating to ~~nonvested~~unvested stock options of approximately ~~$4.6~~$9.3 million, which is expected to be recognized over a weighted-average period of ~~2.75~~2.7 years. ~~The weighted-average grant date fair value per share of stock options granted during the nine months ended September 30, 2019 was $2.85.~~ Total fair value of options vested during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$1.3~~$1.7 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 and assumed during the six months ended June 30, 2020 was $3.17 per share. The grant date fair value of options granted during the six months ended June 30, 2020, was $3.20 per share and the fair value of options assumed in the Merger was $3.16 per share.

The weighted-average input assumptions used by the Company were as ~~follows:~~follows for options granted during the respective periods:

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Expected term (in years) N/A 5.4
6.1
5.7
Risk-free interest rate N/A 2.75 % 2.51 % 2.53 %
Expected volatility N/A 55 % 60 % 57 %
Dividend yield N/A — % — % — %


	Three Months Ended					Six Months Ended
	June 30, 2020		June 30, 2019	June 30, 2020		June 30, 2019
Expected term (in years)	6.3		N/A	6.3		6.1
Risk-free interest rate	0.46	%	N/A	0.46	%	2.51	%
Expected volatility	67	%	N/A	67	%	60	%
Dividend yield	—	%	N/A	—	%	—	%

Restricted Stock Awards

A summary of RSA activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows:

Number of Shares Weighted-Average Grant Date Fair Value
(in thousands)
Nonvested shares of restricted stock awards outstanding at December 31, 2018 197
$ 12.06
Granted —
$ —
Canceled (182 ) $ 11.92
Vested (10 ) $ 13.84
Nonvested shares of restricted stock awards outstanding at September 30, 2019 5
$ 13.49


	Number of Shares	Weighted-Average Grant Date Fair Value
	(in thousands)
Unvested shares of restricted stock awards outstanding at December 31, 2019	2	$	13.49
Granted	—	$	—
Canceled	—	$	—
Vested	(2)	$	13.49
Unvested shares of restricted stock awards outstanding at June 30, 2020	—	$	—

~~The aggregate fair value of restricted stock with service conditions that vested during the nine months ended September 30, 2019 was $0.1 million. At September 30, 2019, the Company had~~There is 0 unrecognized stock-based compensation expense for RSAs ~~with service conditions~~at June 30, 2020 as they were fully vested.

Table of ~~$37.9 thousand, which is expected to be recognized over a weighted-average period of 0.6 years.~~Contents

Restricted Stock Units

A summary of RSU activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows:

Number of Shares Weighted-Average Grant Date Fair Value
(in thousands)
Nonvested restricted stock units outstanding at December 31, 2018 6,100
$ 3.56
Granted 4,856
$ 4.77
Canceled (404 ) $ 3.74
Vested (2,199 ) $ 3.39
Nonvested restricted stock units outstanding at September 30, 2019 8,353
$ 4.30


	Number of Shares	Weighted-Average Grant Date Fair Value
	(in thousands)
Unvested restricted stock units outstanding at December 31, 2019	8,077	$	4.46
Granted	4,466	$	5.33
Restricted stock units assumed in Merger	2,416	$	5.40
Canceled	(605)	$	5.07
Vested	(3,765)	$	4.05
Unvested restricted stock units outstanding at June 30, 2020	10,589	$	5.15

The weighted-average grant date fair value per share of RSUs granted during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$4.77, which included 1.6 million RSUs that vest 50% annually over two years.~~$5.33. The aggregate fair value of RSUs that vested during ~~nine~~the six months ended ~~September~~June 30, ~~2019~~2020 was ~~$11.3~~$29.7 million. At ~~September~~June 30, ~~2019,~~2020, the intrinsic value of ~~nonvested~~unvested RSUs was ~~$72.8~~$70.6 million. At ~~September~~June 30, ~~2019,~~2020, the Company had unrecognized stock-based compensation expense relating to ~~nonvested~~unvested RSUs of approximately ~~$26.5~~$47.6 million, which is expected to be recognized over a weighted-average period of ~~2.3~~2.8 years.

Performance Stock Units

In April 2020, the Company granted the Company's CEO 146,341 restricted stock units that vest based on certain stock price performance metrics with a fair value of $0.9 million. The grant date fair value per share of restricted stock was $6.15, which was estimated using a Monte-Carlo lattice model. During the three and six months ended June 30, 2020, the Company recognized $0.1 million of stock-based compensation related to these performance stock units based on a performance measurement of 65.9%. At June 30, 2020, the Company had unrecognized employee stock-based compensation expense of approximately $0.8 million, which is expected to be recognized over the remaining 2.75 years. Between 0% and 150% of the performance stock units will vest on the third anniversary of its grant date. The compensation expense will not be reversed if the performance metrics are not met.

Employee Stock Purchase Plan

In November 2013, the Company adopted the Company's 2014 Employee Stock Purchase Plan ("ESPP"). The ESPP is designed to enable eligible employees to periodically purchase shares of the Company's common stock at a discount through payroll deductions of up to 10% of their eligible compensation, subject to any plan limitations. At the end of each ~~six-month~~six-month offering period, employees are able to purchase shares at a price per share equal to 85% of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the last trading day of the offering period. Offering periods generally commence and end in May and November of each year.

As of ~~September~~June 30, ~~2019,~~2020, the Company has reserved ~~2,001,256~~2,271,459 shares of its common stock for issuance under the ESPP. The ESPP has an evergreen provision pursuant to which the share reserve will automatically increase on January 1^st1st of each year in an amount equal to 1% of the total number of shares of capital stock outstanding on December 31^st31st of the preceding calendar year, although the Company’s board of directors may provide for a lesser increase, or no increase, in any year.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows:


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
Cost of revenue	$	189	$	106	$	290	$	198
Sales and marketing	2,534		1,459		3,619		2,804
Technology and development	2,225		1,166		3,408		2,225
General and administrative	3,743		2,064		5,431		3,937
Restructuring and other exit costs	1,200		—		1,200		—
Total stock-based compensation expense	$	9,891	$	4,795	$	13,948	$	9,164

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019
September 30, 2018
(in thousands) (in thousands)
Cost of revenue $ 110
$ 72
$ 308
$ 256
Sales and marketing 1,378
1,187
4,182
3,530
Technology and development 1,157
691
3,382
2,163
General and administrative 2,068
1,910
6,005
6,669
Restructuring and other exit costs —
—
—
398
Total stock-based compensation expense $ 4,713
$ 3,860
$ 13,877
$ 13,016

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Note ~~8—Restructuring and Other Exit Costs~~

As part of its on-going efforts to control costs and create efficiencies, the Company undertook restructuring events in 2018 to streamline operations, prioritize resources for growth initiatives and increase profitability. Restructuring and other exit costs of $3.4 million were incurred during the nine months ended September 30, 2018 related to severance and one-time termination benefit costs. There were no restructuring charges incurred during the three months ended September 30, 2018.

~~The following table summarizes restructuring and other exit cost activity for the nine months ended September 30, 2018 (in thousands):~~

Accrued restructuring and other exit costs at January 1, 2018 $ —
Restructuring and other exit costs 3,440
Cash paid for restructuring and other exit costs (2,884 )
Non-cash stock-based compensation for restructuring and other exit costs (398 )
Accrued restructuring and other exit costs at September 30, 2018 $ 158

As of December 31, 2018, the Company had $0.1 million accrued restructuring and other exit costs remaining. NaN restructuring and other exit costs were incurred during the three and nine months ended September 30, 2019, and all remaining accrued costs associated with the 2018 restructuring events were paid in the first quarter of 2019.

~~Note 9—~~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, nondeductible stock option expenses, and changes in the Company's valuation allowance.

The Company recorded income tax expense of $0.3 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively, and an income tax expense of $0.1 million and ~~an income tax~~ benefit of $0.6 million for the ~~three and nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~respectively, and income~~respectively. The tax ~~expenses of $0.1 million and $0.2 million~~expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively. The tax provision for the three and nine months ended September 30, 2019~~2020 is primarily the result of ~~the release of a foreign valuation allowance resulting from a change to a cost plus arrangement for a foreign subsidiary,~~ the domestic valuation allowance and the tax liability associated with the foreign subsidiaries.

On ~~December 22, 2017,~~March 27, 2020, President Trump signed into law the ~~U.S. government enacted the Tax Cuts~~Coronavirus Aid, Relief, and ~~Jobs~~Economic Security Act ~~(the “Tax Act”~~("CARES Act")~~. The Tax Act includes significant changes~~, in response to the ~~U.S. corporate income~~COVID-19 pandemic. The CARES Act is meant to infuse negatively affected companies with various tax ~~system including a federal corporate rate reduction from 34%~~cash benefits to ~~21%. For additional information and a discussion of~~ease the impact of the ~~Tax~~COVID-19 pandemic. The CARES Act, onamong other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, and net operating loss carryback periods. The Company has determined the tax implications of the CARES Act will not be material. To date the Company ~~refer to Note 15~~has not taken advantage of any relief under the ~~"Notes to Consolidated Financial Statements" within~~Cares Act. In addition, various foreign jurisdictions where the Company has activity have enacted or are considering enacting a variety of measures that could impact our ~~Annual Report on Form 10-K for December 31, 2018.~~tax liabilities. The Company is monitoring new legislation and evaluating the potential tax implications of these measures globally.

Due to uncertainty as to the realization of benefits from the Company's domestic and certain international deferred tax assets, including net operating loss carryforwards and research and development tax credits, the Company has a full valuation allowance reserved against such assets. The Company intends to continue to maintain a full valuation allowance on the deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

Due to the net operating loss carryforwards, all of the Company's United States federal and a majority of its state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. The 2017 US Income Tax Return for Telaria, Inc. is under examination by the IRS. The audit is in a preliminary phase and there have been no issues identified through the period ending June 30, 2020. For Canada, the Netherlands, and the United Kingdom, all tax years remain open for examination by the local country tax authorities, for France only 2018 forward are open for examination, for Singapore 2017 and forward are open for examination, for Brazil, New Zealand, and Malaysia 2016 and forward are open for examination, for Australia and Germany 2015 and forward are open for examination, and for Japan 2014 and forward remain open for examination.

Pursuant to Section 382 of the Internal Revenue Code, the Company and Telaria, Inc. both underwent ownership changes for tax purposes (i.e. a more than 50% change in stock ownership in aggregated 5% shareholders) on April 1, 2020 due to the Merger. As a result, the use of our total domestic NOL carryforwards and tax credits generated prior to the ownership change will be subject to annual 382 use limitations. We believe that the ownership change will not impact our ability to utilize substantially all of our NOLs and carryforward credits to the extent we generate taxable income that can be offset by such losses.

There were no material changes to the Company's unrecognized tax benefits in the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year. ~~Because of the Company's history of tax losses, all years remain open to tax audit.~~

Note ~~10—~~11—Commitments and Contingencies

Commitments

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~$2.5~~$4.3 million and ~~$2.9~~$2.5 million, respectively, of letters of credit associated with office leases available for borrowing, on which there were no outstanding borrowings as of either date. The Company also has operating lease agreements, discussed in more detail in Note ~~11.~~12. In addition, subsequent to June 30, 2020, the Company entered into an agreement for third-party cloud-managed services. As part of the agreement, the Company has a minimum commitment to pay $20.0 million over the course of five years, with no annual minimum commitment.

Guarantees and Indemnification

The Company’s agreements with sellers, buyers, and other third parties typically obligate itthe Company to provide indemnity and defense for 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 the Company’s own business operations, obligations, and acts or omissions. However, under some circumstances, the Company agrees 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. For example, because the Company’s business interposes the Company between buyers and sellers in various ways, buyers often require the Company to indemnify them against acts and omissions of sellers, and sellers often require the Company to indemnify them against acts and omissions of buyers. In addition, the Company’s agreements with sellers, buyers, and other third parties typically include provisions limiting the Company’s liability to

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the counterparty, and the counterparty’s liability to the Company. These limits sometimes do not apply to certain liabilities, including indemnity obligations. These indemnity and limitation of liability provisions generally survive termination or expiration of the agreements in which they appear. The Company has also entered into indemnification agreements with its directors, executive officers, and certain other officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No material demands have been made upon the Company to provide

indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on the Company’s condensed consolidated financial statements.

Litigation

The Company and its subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to their business activities and to the Company’s status as a public company. Such routine matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of the Company’s business, regulatory investigations or enforcement proceedings, and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to such matters as of ~~September~~June 30, ~~2019.~~2020. However, based on management’s knowledge as of ~~September~~June 30, ~~2019,~~2020, management believes that the final resolution of these matters known at such date, individually and in the aggregate, will not have a material adverse effect upon the Company’s condensed consolidated financial position, results of operations or cash flows.

Between February 5 and March 16, 2020, 9 lawsuits were filed by purported stockholders of Telaria in connection with the merger with Magnite, Inc. NaN lawsuits were brought as putative class actions (captioned Sabatini v. Telaria, Inc., et al. and Carter v. Telaria, Inc., et al). NaN lawsuits were brought by the plaintiffs individually (captioned Stein v. Telaria, Inc., et al; Lin v. Telaria, Inc. et al; Melool v. Telaria, Inc., et al; Robinson v. Telaria, Inc., et al; Wu v. Telaria, Inc., et al; Yang v. Telaria, Inc., et al; and Corthell v Telaria, Inc. et al (collectively, the “Complaints”)). The Complaints name as defendants Telaria and each member of its Board of Directors. The Sabatini complaint additionally names Magnite and Madison Merger Corp. ("Merger Sub") as defendants. On March 23, 2020, Telaria and Magnite filed supplemental disclosures to its Definitive Proxy Statement, mooting the Complaints and on April 1, 2020 the Merger was approved by stockholders of Telaria and Magnite. As of June 30, 2020, all of the Complaints have been voluntarily dismissed by plaintiffs.

Employment Contracts

The Company has entered into severance agreements with certain employees and officers. The Company may be required to pay severance and accelerate the vesting of certain equity awards in the event of involuntary terminations.

Note ~~11—~~12—Lease Obligations

The Company adopted ASC 842 as of January 1, 2019. As part of the implementation, the Company recognized its lease liabilities, including the current and non-current portions, within its condensed consolidated balance sheet as of the adoption date, which represents the present value of the Company’s obligation related to the estimated future lease payments. The Company also recognized a right-of-use asset, or ROU asset, which represents the right to use the leased asset over the period of the lease. The ROU asset was calculated as the lease liability less any asset or liability balances that existed at the time of adoption.

The lease term is generally specified in the lease agreement, however certain agreements provide for lease term extensions or early termination options. To determine the period for the estimated future lease payments, the Company evaluates whether it is reasonably certain that it will exercise the option at the commencement date and periodically thereafter. Certain data center lease agreements include one year extension options or month-to-month extension options, and one or more of these extensions have been assumed for each lease that the Company believes to be an integral part of our business in the near term. The lease terms of the Company’s operating leases generally range from one year to ten years, and the weighted average remaining lease term of leases included in the lease liability is ~~6.28 years~~ ~~as of September 30, 2019.~~

To determine the estimated future lease payments, the Company reviews each of its lease agreements to identify the various payment components. For real estate and equipment leases, the Company includes only the actual lease components in its determination of future lease payments, and for its data center leases, includes both the fixed lease and non-lease components in the estimated future lease payments. This typically includes a fixed minimum power commitment that is included in the data center agreements, but it does not include any variable or usage-based additional charges. Once the estimated future lease payments are determined, the Company uses a discount rate to calculate the present value of the future lease payments. As of September 30, 2019, a weighted average discount rate of 4.73% has been applied to the remaining lease payments to calculate the lease liabilities included within the condensed consolidated balance sheet. This represents the incremental borrowing rate the Company would be subject to on borrowings from its available revolving debt agreement (See Note 12).

For the three ~~and nine~~ months ended ~~September~~June 30, 2020 and 2019, the Company recognized ~~$2.0~~$3.8 million and ~~$5.7~~$1.8 million, respectively, and $5.9 million and $3.6 million during the six months ended June 30, 2020 and 2019, respectively, of lease expense under ASC 842, which included operating lease expenses associated with leases included in the lease liability and ROU asset on the condensed consolidated balance sheet. In addition, for the three ~~and nine~~ months ended ~~September~~June 30, 2020 and 2019, the Company recognized ~~$0.1~~$0.3 million and ~~$0.5~~$0.2 million, respectively, and $0.4 million and $0.4 million during the six months ended June 30, 2020 and 2019, respectively, of lease expense related to short-term leases, and $6.0 million and $3.3 million during the three months ended June 30, 2020 and 2019, respectively, and $8.4 million and $6.4 million during the six months ended June 30, 2020 and 2019, respectively, of variable and cloud-based services related to data centers that are not included in the ROU asset or lease liability balances. For the three and nine months ended September 30, 2018, the Company recognized rental expenses of $3.2 million and $9.7 million, respectively, under ASC 840, which included expenses related to short-term leases, and also included certain non-lease components including variable capacity related expenses at the data centers.

The Company also received rental income of ~~$48.4~~$1.3 million and $46 thousand ~~and $0.2 million~~ for real estate leases for which it subleases the property to a third ~~party~~parties during the three months ended ~~September~~June 30, 2020 and 2019, respectively, and ~~2018, respectively,~~$1.3 million and $0.2 million ~~and $0.6 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

As of June 30, 2020, a weighted average discount rate of 5.08% has been applied to the remaining lease payments to calculate the lease liabilities included within the condensed consolidated balance sheet.

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The maturity of the Company's lease liabilities were as follows (in thousands):

Fiscal Year
Remaining 2019 $ 1,932
2020 7,905
2021 4,348
2022 2,284
2023 1,968
Thereafter 8,491
Total lease payments (undiscounted) 26,928
Less: imputed interest (3,440 )
Lease liabilities—total (discounted) $ 23,488


Fiscal Year
Remaining 2020	$	7,481
2021	10,847
2022	7,582
2023	7,159
2024	6,740
Thereafter	14,954
Total lease payments (undiscounted)	54,763
Less: imputed interest	(8,135)
Lease liabilities—total (discounted)	$	46,628

In addition to the leases included in these condensed consolidated financial statements, the Company entered into ~~a lease~~an agreement ~~for an office location in New Jersey~~ during the ~~first half of 2019 that has not yet~~three months ended June 30, 2020, which commenced ~~as of September 30, 2019. The Company anticipates the recognition of approximately $0.4 million additional lease liabilities related to the New Jersey lease when the property is made available to~~on July 1, 2020, for a data center, in which the Company ~~for use, which is expected~~has commitments to ~~occur in~~pay $1.9 million over the ~~fourth quarter~~course of ~~2019.~~three years.

Note ~~12—~~13—Debt

In September 2018, the Company amended and restated its loan and security agreement with Silicon Valley Bank ("SVB") (the "Loan Agreement"). The Loan Agreement provides a senior secured revolving credit facility of up to $40.0 million with a maturity date of September 26, 2020. As of June 30, 2020, the amount available for borrowing was $40.0 million. The Company incurred $0.1 million of debt issuance fees that were capitalized and are being amortized over the term of the Loan Agreement.

An unused revolver fee in the amount of 0.15% per annum of the average unused portion of the revolver line is charged and is payable monthly in arrears. The Company may elect for advances to bear interest calculated by reference to prime or LIBOR. If the Company elects LIBOR, amounts outstanding under the amended credit facility bear interest at a rate per annum equal to (a) LIBOR plus 2.50% if a streamline period applies or (b) LIBOR plus 4.00% if a streamline period does not apply. If the Company elects prime, advances bear interest at a rate of (a) prime plus 0.50% if a streamline period applies or (b) prime plus 2.00% if a streamline period does not apply. A streamline period is any period during which an event of default does not exist and the Company's Adjusted Quick Ratio (as defined in the Loan Agreement) is at least 1.05 for each day in the preceding month.

The Loan Agreement is collateralized by security interests in substantially all of the Company's assets. Subject to certain exceptions, the Loan Agreement restricts the Company's ability to, among other things, pay dividends, sell assets, make changes to the nature of the business, engage in mergers or acquisitions, incur, assume or permit to exist, additional indebtedness and guarantees, create or permit to exist, liens, make distributions or redeem or repurchase capital stock, or make other investments, engage in transactions with affiliates, make payments with respect to subordinated debt, and enter into certain transactions without the consent of the financial institution. If a streamline period is not in effect, the Company is required to maintain a lockbox arrangement where clients' payments received in the lockbox will immediately reduce the amounts outstanding on the credit facility.

The Loan Agreement requires the Company to comply with financial covenants, including a minimum Adjusted Quick Ratio and the achievement of certain Adjusted EBITDA targets. On a monthly basis, or quarterly if there were no advances outstanding during the calendar quarter, the Company is required to maintain a minimum Adjusted Quick Ratio of: (i) 1.00 if the trailing six month Adjusted EBITDA is $0 or less, or (ii) 0.90 if the trailing six month Adjusted EBITDA is greater than $0. If the Company’s Adjusted Quick Ratio is 1.05 or greater, a streamline period applies. As of ~~September~~June 30, ~~2019,~~2020, the Company's Adjusted Quick Ratio was ~~1.15,~~1.10, which is in compliance with its covenant requirement and is higher than the minimum Adjusted Quick Ratio required to qualify for a streamline period. The Company must also maintain the following trailing twelve month Adjusted EBITDA targets as of the end of each quarter as follows: (1) September 30, 2018 through June 30, 2019 Adjusted EBITDA must be within 20% of the Adjusted EBITDA projections that were delivered to Silicon Valley Bank; (2) September 30, 2019 Adjusted EBITDA of $1 or greater; and (3) December 31, 2019 and thereafter, Adjusted EBITDA of $5.0 million or greater. As of ~~September~~June 30, ~~2019,~~2020, the Company was in compliance with the Adjusted EBITDA covenant.

The Loan Agreement also includes customary representations and warranties, affirmative covenants, and events of default, including events of default upon a change of control and material adverse change (as defined in the Loan Agreement). Following an event of default, SVB would be entitled to, among other things, accelerate payment of amounts due under the credit facility and exercise all rights of a secured creditor.

As of ~~September~~June 30, ~~2019,~~2020, there were no0 amounts outstanding under the Loan Agreement. Future availability under the credit facility is dependent on several factors including the available borrowing base and compliance with future covenant requirements.

~~Note 13—Subsequent Events~~

~~On October 21, 2019, the Company acquired RTK.io for cash consideration~~Table of ~~$11 million.~~ RTK.io is a provider of header bidding solutions that have much in common with the Company’s Demand Manager product, including a foundation in Prebid, the advertising technology industry's open source framework. The Company plans to integrate the 2 solutions to extend its Demand Manager product portfolio and client base, and to add talented header bidding experts and Prebid developers to its team. ~~The initial accounting for the acquisition is expected to be completed by December 31, 2019.~~Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and related statements by the Company contain forward-looking statements, including statements based upon or relating to our expectations, assumptions, estimates, and projections. In some cases, you can identify forward-looking statements by terms such as "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "design," "anticipate," "estimate," "predict," "potential," "plan" or the negative of these terms, and similar expressions. Forward-looking statements may include, but are not limited to, statements concerning the potential impacts of the COVID-19 pandemic on our business operations, financial condition, and results of operations and on the world economy; our anticipated financial performance, including, without limitation, revenue, advertising spend, ~~non-GAAP loss per share,~~ profitability, net ~~income (loss), Adjusted EBITDA, earnings~~loss, loss per share, and cash flow; anticipated benefits or effects related to the consummation of the merger with Telaria, including estimated synergies and cost savings resulting from the merger; strategic objectives, including focus on header bidding, connected television ("CTV"), mobile, video, Demand Manager, identity solutions, and private marketplace opportunities; investments in our business; development of our technology; industry growth rates for ad-supported CTV and the shift in video consumption from linear TV to CTV; introduction of new offerings; the impact of transparency initiatives we may undertake; the impact of our traffic shaping technology on our business; the effects of our cost reduction initiatives; scope and duration of client relationships; the fees we may charge in the future; business mix and expansion of our CTV, mobile, video and private marketplace offerings; sales growth; client utilization of our offerings; our competitive differentiation; our market share and leadership position in the industry; market conditions, trends, and opportunities; user reach; certain statements regarding future operational performance measures including ad requests, fill rate, paid impressions, average CPM, take rate, and advertising spend; benefits from supply path optimization; and ~~factors~~other statements that ~~could affect these and other aspects of our business.~~are not historical facts. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements. These risks include, but are not limited to:

•the severity, magnitude, and duration of the COVID-19 pandemic, including impacts of the pandemic and of responses to the pandemic by governments, business and individuals on our operations, personnel, buyers, sellers, and on the global economy and the advertising marketplace;

•our ability to ~~continue~~successfully integrate the Telaria business and realize the anticipated benefits of the merger;

•our ability to grow and to manage our growth effectively;

•our ability to develop innovative new technologies and remain a market leader;

•our ability to attract and retain buyers and sellers of digital advertising inventory, or publishers, and increase our business with them;

•our vulnerability to loss of, or reduction in spending by, buyers;

•our reliance on large sources of advertising demand, ~~and aggregators~~including demand side platforms ("DSPs") that may have or develop high-risk credit profiles or fail to pay invoices when due, including as a result of ~~advertising inventory;~~general liquidity constraints experienced by buyers from the COVID-19 pandemic, which has caused certain buyers to delay payments or seek revised payment terms;

•our ability to maintain and grow a supply of advertising inventory from sellers and to fill the increased inventory;

•the effect on the advertising market and our business from difficult economic conditions or uncertainty;

•the freedom of buyers and sellers to direct their spending and inventory to competing sources of inventory and demand;

•our ability to cause buyers and sellers to use our solution to purchase and sell higher value advertising and to expand the use of our solution by buyers and sellers utilizing evolving digital media platforms, including ~~connected television, or~~ CTV;

•our reliance on large aggregators of advertising inventory, and the concentration of CTV among a small number of large publishers that enjoy significant negotiating leverage;

•our ability to introduce new offerings and bring them to market in a timely manner, and otherwise adapt in response to client demands and industry trends, including shifts in linear TV to CTV, digital advertising growth from desktop to mobile channels and other platforms and from display to video formats and the introduction and market acceptance of Demand Manager;

•uncertainty of our estimates and expectations associated with new offerings, including CTV, header bidding, private marketplace, mobile, video, Demand Manager, and traffic shaping;

•the possibility of lower ~~fees and~~ take ~~rate~~rates and the need to grow through ~~advertising spend increases rather than fee increases;~~

~~our ability to compensate for a reduced take rate by~~ increasing the volume and/or value of transactions on our platform and increasing our fill rate;

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•our vulnerability to the depletion of our cash resources as a result of the adverse impacts of the COVID-19 pandemic, or as we incur additional investments in technology required to support the increased volume of transactions on our exchange and ~~development of~~to develop new offerings;

•our ability to support our growth objectives with reduced resources from our cost reduction initiatives;

•our ability to raise additional capital if needed and/or renew our working capital line of credit;

•our limited operating history and history of losses;

•our ability to continue to expand into new geographic markets and grow our market share in existing markets;

•our ability to adapt effectively to shifts in digital advertising;

•increased prevalence of ad-blocking or cookie-blocking technologies and the slow adoption of common identifiers;

•the development and use of proprietary identity solutions as a replacement for third party cookies and other identifiers currently used in our platform;

•the slowing growth rate of desktop display advertising;

•the growing percentage of online and mobile advertising spending captured by owned and operated sites (such as Facebook, Google, and Amazon);

•industry growth rates for ad-supported CTV and the shift in video consumption from linear TV to digital mediums such as CTV and over-the-top ("OTT");

•the adoption of programmatic advertising by CTV publishers;

•the effects, including loss of market share, of increased competition in our market and increasing concentration of advertising spending, including mobile spending, in a small number of very large competitors;

•the effects of consolidation in the ad tech industry;

•acts of competitors and other third parties that can adversely affect our business;

•our ability to differentiate our offerings and compete effectively in a market trending increasingly toward commodification, transparency, and disintermediation;

•requests for discounts, fee concessions or revisions, rebates, refunds, favorable payment terms and greater levels of pricing transparency and specificity;

~~potential adverse effects~~•our ability to ensure a high level of brand safety for our clients and to detect “bot” traffic and other fraudulent or malicious ~~activity such as fraudulent inventory and malware;~~activity;

•the effects of seasonal trends on our results of operations;

•costs associated with defending intellectual property infringement and other claims;

•our ability to attract and retain qualified employees and key personnel;

•political uncertainty and the ability of the company to attract political advertising spend;

•our ability to identify future acquisitions of or investments in complementary companies or technologies and our ability to consummate the acquisitions and integrate such companies or technologies; and

•our ability to comply with, and the effect on our business of, evolving legal standards and regulations, particularly concerning data protection and consumer privacy and evolving labor standards.

We discuss many of these risks and additional factors that could cause actual results to differ materially from those anticipated by our forward-looking statements under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report and in other filings we have made and will make from time to time with the Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and subsequent Quarterly Reports on Form ~~10-Q.~~10-Q for 2020. These forward-looking statements represent our estimates and assumptions only as of the date of the report in which they are included. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Without limiting the foregoing, any guidance we may provide will generally be given only in connection with quarterly and annual earnings announcements, without interim updates, and we may appear at industry conferences or make other public statements without disclosing material nonpublic information in our possession. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.

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Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed or will file with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

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Overview

Magnite, Inc., formerly known as The Rubicon Project, Inc. ("we," or "us"), was formed and began operations in April 2007. On April 1, 2020, we completed a stock-for-stock merger (“Merger”) with Telaria, Inc., (“Telaria”), a leading provider of connected television (“CTV”) technology, creating what we believe is the world’s largest independent sell-side advertising platform, offering a single partner for transacting globally across all channels, formats, and auction types.

We provide a technology solution to automate the purchase and sale of digital advertising ~~inventory for buyers and sellers.~~inventory. Our platform features applications and services for sellers of digital advertising inventory, ~~sellers, including~~or publishers, that own or operate websites, ~~mobile~~ applications, CTV channels, and other digital media properties, to manage and monetize their ~~representatives, to sell their digital advertising~~ inventory; applications and services for buyers, including advertisers, agencies, agency trading desks, and demand side platforms ~~or DSPs,~~("DSPs"), to buy digital advertising inventory; and a ~~marketplace over which such transactions are executed. Together, these features power and enhance a comprehensive,~~ transparent, independent ~~advertising~~ marketplace that brings buyers and sellers together and facilitates intelligent decision making and automated transaction execution ~~for the digital advertising inventory we manage on our platform.~~at scale. Our clients include many of the world’s leading publishers ~~of websites and mobile applications~~ and buyers of digital advertising inventory. We believe our platform reaches approximately one billion users creating a global, scaled, independent alternative to walled gardens, who both own and sell inventory and maintain control on the demand side.

~~Advertising~~Digital advertising inventory, ~~takes different forms, referred to as~~or advertising units, ~~is purchased~~can be monetized across multiple channels, including CTV, mobile, and ~~sold~~desktop and digital out-of-home, and takes various formats, including video, display, and audio. Publishers monetize their inventory through ~~different transactional methods, and allows advertising content~~our platform by seamlessly connecting to ~~be presented to consumers through different channels. Our solution enables~~a global market of integrated buyers ~~and sellers to purchase and sell:~~

~~a comprehensive range of advertising units, including display, audio, and video;~~

that ~~are transacted~~transact through real-time bidding, which includes ~~(i)~~ direct sale of premium inventory to a buyer, which we refer to as private marketplace ("PMP"), and ~~(ii)~~ open auction bidding, where buyers bid against each other in a real-time auction for the right to purchase a publisher’s inventory, which we refer to as open marketplace ("OMP");. Real-time bidding, or programmatic, transactions automate the publishers' sales process and improve workflow capabilities to increase productivity, while increasing revenue opportunities by enabling buyers and publishers to directly communicate and share data to deliver more valuable targeted advertising.

We provide a full suite of tools for publishers to control their advertising business and protect the consumer viewing experience. These controls are particularly important to CTV publishers who need to ensure a TV-like viewing and advertising experience for consumers. For instance, our "ad-pod" feature provides publishers with a tool analogous to commercial breaks in traditional linear television so that ~~are displayed across digital channels, including mobile web, mobile application, desktop,~~they can request and ~~connected TV ("CTV"), as well as across various out-of-home channels,~~manage several ads at once from different demand sources. Using this tool, publishers can establish business rules such as ~~digital billboards.~~competitive separation of advertisers to ensure that competing brand ads do not appear during the same commercial break. In addition, we offer audio normalization tools to control for the volume of an ad relative to content, frequency capping to avoid exposing viewers to repetitive ad placements, and creative review so that a publisher can review and approve the ad units being served to its properties.

At the same time, buyers leverage our platform to manage their advertising spending and reach their target audiences, simplify order management and campaign tracking, obtain actionable insights into audiences for their advertising, and access impression-level purchasing from thousands of sellers. Following the Merger, we believe that we will be an essential omni-channel partner for buyers to reach target audiences at scale, optimizing the supply path with industry-leading transparency, robust support for identity solutions and brand-safe premium inventory.

We generate revenue from ~~transactions where we provide a~~the use of our platform for the purchase and sale of digital advertising inventory. Digital advertising inventory is created when consumers access ~~sellers’~~sellers' content. Sellers provide digital advertising inventory to our platform in the form of advertising requests, or ad requests. When we receive ad requests from sellers, we send bid requests to buyers, which enable buyers to bid on sellers’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer. The volume of paid impressions measured as a percentage of ad requests is referred to as fill rate. The price that buyers pay for each thousand paid impressions purchased is measured in units referred to as ~~CPM.~~CPM, or cost per thousand.

We operate our business on a worldwide basis, with an established operating presence in North America, Australia, and Europe and a developing presence in Asia and South America. Substantially all of our assets are U.S. assets. Our non-U.S. subsidiaries and operations perform primarily sales, marketing, and service functions.

At the closing of the Merger, each share of Telaria common stock issued and outstanding as of the effective time of the Merger was converted into the right to receive 1.082 shares of Magnite common stock. Accordingly, on April 1, 2020, we issued 52,098,945 shares of common stock to the former stockholders of Telaria. On June 8, 2020, we voluntarily delisted our common stock from the New York Stock Exchange ("NYSE") and commenced listing on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC. On June 30, 2020, we changed our name from "The Rubicon Project, Inc." to "Magnite, Inc." In connection with the name change, we also changed our ticker symbol from "RUBI" to "MGNI."

~~Industry Trends and~~

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Trends in Our Business

~~Market Opportunities~~

Macroeconomic Factors - COVID-19 Pandemic Impact on the Economy and the Business

The COVID-19pandemic and resulting global disruptions have affected our business and the businesses of the buyers and sellers with whom we work and have also caused significant economic challenges and volatility in financial markets. Adverse economic conditions and general uncertainty about economic recovery or growth, particularly in North America and Europe, where we do most of our business, has caused a significant number of advertisers to reduce their advertising budgets, in particular with respect to certain categories of advertising that were particularly impacted by the pandemic and resulting stay-at-home orders. Our business depends on the overall demand for advertising and on the economic health of our current and prospective sellers and buyers. If advertisers' overall advertising spend is reduced, our revenue, and results of operations, cash flows, and financial condition will be adversely impacted. The economic health of our current and prospective buyers also impacts the collectability of our accounts receivable. To the extent we are unable to collect our accounts receivable on a timely basis or if buyers face financial difficulties that result in the delay in payment or non-payment of accounts receivable, our working capital could be adversely impacted. Given the current economic environment, mainly impacted by the COVID-19 pandemic worldwide, our liquidity may be severely impacted as we may need additional time to collect from buyers, which will impact our ability to pay sellers. While a significant number of advertisers have reduced their advertising budgets, the amount of ad requests that we process has spiked, as people around the world spend more time at home and in front of internet-connected devices. The increase in ad requests increases our costs, and our infrastructure may not be capable of processing the increased volume of ad requests.

Due to the substantial uncertainties associated with the COVID-19 pandemic, the extent to which the pandemic (and actions taken in response to it by governments, businesses, and individuals) will ultimately impact our business is currently unknown; however, in the short term we have experienced a significant negative effect on our revenue. We experienced some recovery in revenue in the latter half of the second quarter, which has accelerated in the third quarter; however, these trends may not continue as the impact of the COVID-19 pandemic on our business and operations remains uncertain and depends on various factors, including the spread of the virus, public health measures, travel and business restrictions, quarantines, shelter-in-place orders, and shutdowns.

In addition to the United States, we have personnel and operations in England, Canada, France, Australia, New Zealand, Germany, Italy, Japan, Singapore, and Brazil, and each of these countries has been affected by the outbreak and taken measures to try to contain it. Our global workforce maintained a work from home policy for the entirety of the second quarter of 2020 and this expected to continue in the foreseeable future for the majority of our employees. We intend to approach returning to our offices with caution and to prioritize the safety and health of our employees, while following the guidance set by local authorities and our landlords. Prior to returning to work, we expect to institute a number of protective measures and policies. These measures may increase our expenses as we modify our office spaces to accommodate social distancing, provision personal protective equipment, and rollout enhanced communication software to provide messaging to our employees. We believe that our employees have been able to work productively during the time period in which our global offices have been shut down. However, to the extent we have continued extended work from home requirements, or that work patterns are permanently altered, it is unclear how productivity may be impacted in the long-term, and we may have reduced workforce productivity which could increase our costs.

We may utilize a range of financing methods to fund our operations and capital expenditures if needed, and expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

There can be no assurance that any decrease in sales resulting from the COVID-19pandemic will be offset by increased sales in subsequent periods, or that our recently observed partial revenue recovery will continue or will be sustainable over the longer term. The full magnitude of the impact of the COVID-19 pandemic on our business and operations remains uncertain and depends on various factors, including the spread of the virus, public health measures, travel and business restrictions, quarantines, shelter-in-place orders, and shutdowns. Refer to Part II, Item 1A: "Risk Factors" for additional information related to this risk factor.

CTV, Mobile, and Desktop Trends

Publishers use our technology to monetize their content across all digital channels, including CTV, mobile and desktop. Each of these channels has its own industry growth rate, with CTV and mobile projected to continue to grow steadily, while desktop growth flattens. Prior to the COVID-19 pandemic, MAGNA had estimated compound annual growth rates from 2019 to 2023 for mobile and desktop at 22% and 1%, respectively, and over the same period, eMarketer projected CTV to grow at a 19% compound annual growth rate.

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Following the Merger, we expect CTV to be a significant driver of our revenue growth. CTV refers to the viewing of digital content on internet connected televisions, including through stand-alone streaming devices, gaming consoles and smart TV operating systems.

CTV viewership is growing rapidly. A June 2020 study from Leichtman Research Group found that 80 percent of TV-owning households in the U.S. have at least one internet-connected TV device. The adoption of CTV has disrupted the traditional linear TV distribution model, as eMarketer estimates that approximately 50 million people in the U.S. have "cut-the-cord" (i.e., canceled a pay TV service and continue without it) as of the end of 2019, with approximately 34% of US households not reachable through traditional TV. This disruption has created new options for consumers and new economic opportunities for content publishers to compete with traditional linear TV.

Despite the growth in CTV viewership, the CTV advertising market, in particular programmatic advertising, is still in its early stages. Historically, the largest streaming applications have been subscription-based. Moreover, CTV publishers with ad-supported models have been slower to adopt programmatic solutions compared to desktop and mobile publishers due to a variety of technical and business reasons. CTV inventory tends to be concentrated among larger publishers who often have their own direct sales forces and manage a number of media properties. Many of these publishers have backgrounds in cable or broadcast television and have limited experience with online advertising. For these publishers, it is extremely important to protect the quality of the viewer experience, to maintain brand goodwill and ensure that online advertising efforts do not create sales channel conflicts with their other media properties or otherwise detract from their direct sales efforts. In this regard, programmatic advertising presents a number of potential challenges, including the ability to ensure that ads are brand safe, comply with business rules around competitive separation, are not overly repetitive, are played at the appropriate volume, do not cause delays in load-time of content and can accommodate spikes in video consumption around landmark live events.

Our platform was built to solve these challenges with features such as ad-podding, frequency capping, dynamic live insertion, audio normalization and creative review. In addition, we have invested significant time and resources cultivating relationships with CTV publishers. The sales cycle for these publishers tends to be longer and often involves a competitive process, as these publishers tend to work with fewer partners than digital and mobile publishers. In order to deepen our relationships with CTV partners, our sales engineers often serve a consultative role within a client’s sales organization to help establish best practices and evangelize the benefits of programmatic CTV, and for certain larger CTV publishers, we may build custom features or functionality to help drive deeper adoption. For the foregoing reasons, we believe we compete favorably for CTV inventory and believe that we will be able to grow CTV revenue faster than industry growth rates.

As the number of CTV channels continues to proliferate, we believe that ad-supported models or hybrid models that rely on a combination of subscription fees and advertising revenue will continue to gain traction. Furthermore, as the CTV market continues to ~~experience growth. In October 2019, MAGNA estimated~~mature, we believe that a greater percentage of CTV advertising inventory will be sold programmatically, similar to trends that occurred in desktop and mobile. Although we expect the COVID-19 pandemic to cause temporary headwinds relating to demand challenges, we believe that the ~~global~~pandemic and resulting shelter-in-place orders have the potential to accelerate these long-term CTV trends. With people spending more time at home, we have seen a large increase in viewership on CTV. This increase in viewership has the potential to create long-term changes in viewing habits. At the same time, macroeconomic challenges are driving consumers away from pay subscriptions towards ad supported models. Prolonged macroeconomic challenges may also lead CTV advertisers and publishers to more readily embrace programmatic ~~market (excluding search~~advertising as they look to create economic efficiencies and ~~social)~~reduce costs.

We believe that as streaming continues to become mainstream and ad supported models become more prevalent, brand advertisers looking to engage with streaming viewers will continue to shift their budgets from linear to CTV. This inventory is highly sought after, as it combines a traditional TV-like viewing experience with the significant advantage of digital advertising, including the ability to target audiences and measure performance in real-time.

Due primarily to the impact of the COVID-19 pandemic, revenue from our mobile and desktop channels decreased year-over-year during the three months ended June 30, 2020. In future periods, we expect our mobile business will grow ~~from $44 billion in 2019 to $75 billion by 2023, which represents~~at a ~~14% compound annual growth~~higher rate ~~over that period. The expansion of the growth is continuously driven by the market need for automated buying and selling of advertising inventory, through various channels and across all formats.~~

~~An ongoing trend in the digital advertising industry is automating inventory transactions through new and developing channels, including mobile, which has market growth rates exceeding those of the~~than desktop, channel and is a critical area of operational focus for us. According to MAGNA estimates, mobile advertising is a $26 billion global market in 2019 that is expected to increase to $56 billion by 2023, producing a compound annual growth rate of 22%. Consistentconsistent with industry trends and our mobile business is growing faster than desktop. Our mobile revenue increased $17.4 million, or 41%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, while our desktop revenue increased 18% during the same period.historical results. Our mobile business consists of two components, mobile web and mobile applications. Initially our mobile business ~~was built upon~~consisted primarily of mobile web, which is ~~more~~ similar to our desktop business, but our mobile application ~~has become~~business is the growth driver behind our mobile business, and ~~has shown~~prior to the coronavirus pandemic showed growth rates in excess of industry projections. ~~Revenue from mobile applications is approximately half of our mobile business.~~

~~Another important trend~~Lower industry growth rates in the digital advertising industry is automating inventory transactions across all formats. We enable an omni-channel approach to expand beyond traditional display advertising and have observed growth trends in emerging formats like video and audio. According to MAGNA estimates, video advertising was $25 billion in 2019 and is projected to increase to $57 billion in 2023, with a compound annual growth rate of 22%. We expect video to be a meaningful driver of our future growth with a longer-term opportunity in connected television, or CTV, advertising as more linear TV budgets shift to programmatic.

~~The~~desktop will make growth of ~~programmatic advertising is also expanding into geographic markets outside of the United States, and~~desktop revenue more challenging; however, in ~~some markets, the adoption rate of programmatic digital advertising is greater than in the United States. We attribute advertising spend~~future periods we believe we will be able to the geographic location of the seller on whose inventory the advertising spend was directed. Our markets outside of the United States are more heavily built upon desktop display advertising than they are on mobile, and as such are subject to the same factors impactinggrow our desktop business in excess of industry projections by capturing market share through Supply Path Optimization ("SPO") and expansion of publisher relationships.

For the three months ended June 30, 2020, mobile, desktop and CTV represented 45%, 36%, and 19% of our revenue, respectively. Due to the higher growth rates for CTV and mobile, we expect our desktop business to decline as ~~described below.~~an overall percentage of our revenue. However, we expect our traditional desktop display business to continue to represent a significant part of our revenue in the near term. Therefore, the mix of our desktop display business will continue to have a significant effect on our growth rate until our advertising spend mix has shifted more fully to growth areas.

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Supply Path Optimization

SPO refers to efforts by buyers to consolidate the number of vendors they work with to find the most effective and cost-efficient paths to procure media. This practice emerged in 2018 and continues to gain momentum. SPO is important to buyers because it can increase the proportion of their advertising ultimately spent on working media, with the goal of increasing return on their advertising spending, and can help them gain efficiencies by reducing the number of vendors they work with in a complex ecosystem. There are a number of criteria that buyers use to evaluate supply partners, including transparency, cost, quality and breadth of inventory, access to unique inventory and to CTV inventory, privacy standards, brand safety standards, including compliance with ads.txt and similar industry standards, and fraudulent traffic prevention policies. We believe we are well positioned to benefit from supply path optimization in the long run as a result of our transparency, our pricing tools, which reduce the overall cost of working with us, our broad inventory supply across all channels and formats, buyer tools such as traffic shaping, and our brand safety measures. Our SPO positioning was further enhanced by the Merger with Telaria, which operates a leading sell-side video monetization platform built specifically for CTV, with strong research and development capabilities, differentiated technology and premium partner relationships. Following the combination, we offer buyers a single omni-channel partner to reach target audiences globally across all channels, including CTV, mobile, desktop, and digital out-of-home, and formats, including video, display, and audio. We believe the COVID-19 pandemic, and the resulting economic downturn, has the potential to accelerate SPO as buyers and publishers seek to work with established, trusted partners who have a strong balance sheet during times of uncertainty.

We believe that benefits from successful outcomes in the SPO process could drive meaningful increases of ad spend across our platform. In ~~addition, as programmatic advertising has grown in markets outside of the United States,~~order to achieve increased ad spend, we may negotiate discounts to our seller fees with agencies and advertisers, and we have ~~seen~~increasingly been receiving requests from buyers for discounts, rebates, or similar incentives in order to move more ~~competitors enter those markets aggressively and gain market share. Another factor impacting~~advertising spending to our platform. We believe that because our business has many fixed costs, increases in ad spend volume create opportunity to disproportionately improve net income, even with increased seller fee discounts. However, our results could be negatively impacted if our advertising spend increases and cost leverage is ~~that~~not adequate to compensate for discounted fees.

Impact of Header Bidding

Header bidding is a ~~large share of the growth in digital advertising spending worldwide is being captured by owned and operated sites,~~programmatic technique where publishers offer inventory to multiple ad exchanges, such as ~~Facebook, Google, and increasingly Amazon.~~

~~Macro Trends Impacting Our Business~~

InMagnite, at the same time. Header bidding has been rapidly adopted in recent years ~~we have seen an industry-wide slowdown~~ in the ~~growth rate for traditional~~ desktop ~~advertising,~~ and the growth rate for this portion of the market is expected to flatten in future years. According to MAGNA, programmatic desktop advertising is expected to grow at a 1% compound annual growth rate over the 2019-2023 period. This results from the market shift to mobile channels, and ~~other emerging formats noted above. These market factors still present long-term growth opportunities as we pursue spend consolidation on our platform; however, in~~while the ~~near term, these trends are dampening our~~

~~overall growth rate, because desktop advertising continues to be a meaningful part of our core business, representing 44% of revenue in the first nine months of 2019.~~

Header bidding, which increases competition for ad inventory by exposing impressions simultaneously to multiple sources of demand in a competitive auction, has been a transformative change in programmatic digital advertising over the last several years. While we initially lagged industryrise and rapid adoption header bidding now represents more than 80% of our revenue. Header bidding is going through an additional technical evolution from the client side, which involves the browser running the auction, to a server-side solution, in which a server runs the auction and offers the potential for improved performance and speed. We believe that our investments in our client-side header bidding solution, as well as server-side header bidding, have the potential to improve our competitiveness in all markets in future periods. However, we must continue to address certain technical and operational challenges, as described under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, in order to realize our header bidding solution's full potential.

~~While the rise~~ of header bidding increased revenue for sellers, it also created new challenges. Managing multiple exchanges on the page is technically complex, and in the early days of header bidding this complexity was exacerbated by the lack of independent technology standards. In 2017, we began to address these issues through our support of Prebid, a free and open source suite of software products designed by advertising community developers to enable publishers to implement header bidding on their websites and from within their apps. Despite Prebid’s adoption by a number of the world’s largest sellers, deploying and customizing it still requires dedicated technical resources. In ~~May~~the second quarter of 2019, we ~~introduced~~announced the beta ~~version of~~program for Demand Manager. Demand Manager ~~a new service that makes~~helps sellers effectively monetize their advertising inventory through configuration tools and analytics to make it ~~easy for sellers~~easier to deploy, configure, and optimize ~~their own~~ Prebid-based header bidding solutions. ~~This tool allows sellers to more effectively monetize their inventory. On~~In October ~~21,~~ 2019, we acquired RTK.io, ~~for cash consideration of $11 million.~~ ~~RTK.io is~~ a provider of header bidding solutions, ~~that have much in common with~~to complement and further bolster our Demand Manager product, including a foundation in Prebid. We plan to integrate the two solutions to extend its Demand Manager product portfolio and client base, and to add talented header bidding experts and Prebid developers to its team. technology. We believe that adoption of these tools will further strengthen our relationship with sellers and contribute to our future revenue growth.

~~In an effort to capture more inventory~~ We charge sellers a fee for ~~our buyers and deliver better monetization to our sellers, and to provide better transparency and predictability to~~Demand Manager that is based on all our clients, we made first price our default auction dynamic for header bidding transactions in 2018. This means that the first price or highest bid in our auction wins and that first price is passed to the downstream auction. To assist buyers in increasing advertising campaign returns and performance through the utilization of first price auction dynamics, we built and implemented an optional feature at no additional cost, which we call Estimated Market Rate ("EMR"). This feature uses algorithms that monitor existing market conditions against our dataset of auction outcomes to look for opportunities to reduce the amount of the bid that we pass through to the downstream auction on behalf of our winning bidder, while maintaining high fill rates. This is intended to help buyers bid on digital advertising inventory consistent with market values while preserving demand and budget for sellers on our platform. In addition to increasing the rate at which buyers win in our auctions, and the monetization that winning provides to sellers, our first price auction dynamic and EMR solution have contributed to higher CPMs, or cost per ad unit, for our header bidding inventory. While most exchanges had already transitioned to first price auction dynamics, the largest exchange — Google Ad Exchange — recently fully transitioned to first price auction dynamics in September 2019. As part of this transition, Google also removed a feature called last look, whereby it was able to run an auction after all other exchanges had provided their auction results. We believe that these changes will have a neutral to slightly positive impact on our business.

Supply Path Optimization, or SPO, refers to efforts by buyers to consolidate the number of vendors they work with to find the most effective and cost-efficient paths to procure media. This practice emerged in 2018 and continues to gain momentum in 2019. SPO is important to buyers because it can increase the proportion of their advertising that is ultimately spent on working media, with the goal of increasing return on theirsellers’ advertising spending and can help them gain efficiencies by reducing the number of vendors they work with in a complex ecosystem. There are a number of criteria that buyers use to evaluate supply partners, including transparency, cost, quality of inventory, privacy standards, brand safety, and fraudulent traffic prevention policies. We believe we are well positioned to benefit from supply path optimization in the long run, as a result of our broad inventory supply, buyer tools such as traffic shaping and EMR, which reduce the overall cost of working with us, our transparency, and our brand safety measures.

Ad tech exchange intermediaries like us have experienced market demands for greater transparency and reduced costs from all participants. The fees that we charge, or take rate, have been reduced significantly over the last several years. While we were able to increase take rates slightly over the course of 2018, we do not expect significant further increases in take rates.

Our take rate can be impacted by the type of advertising spend transacted on our platform, OMP or PMP, which carry different rates. OMP fees are higher than PMP, and our overall take rate could change depending on the mix. In addition, any discounts we negotiate with brands or agencies to consolidate spend in exchange for lower seller fees may also impact the average rate we are able to charge. If pressure for reduced costs continue, or if mix changes unfavorably, our revenue growth may be negatively impacted if we are not able to offset the related take rate reductionsmanaged through ~~increasing the volume of total advertising spend transacted on our platform.~~

Revenue growth from our traditional desktop display business has benefited from year-over-year take rate increases. Lower industry growth rates in desktop will make growth of desktop revenue more challenging unless we are able to grow market share through SPO or the expansion of additional inventory. Our strategic focus is on growth areas—including mobile, video, PMPs, Demand Manager, whether the actual inventory monetization runs through our exchange or otherwise.

Privacy Regulation and header bidding—that are expected to represent a majority of our revenue in future periods. However, despite our progress in mobile, our traditional desktop display business is expected to continue to represent a significant part of our revenue in the near term. Therefore, the mix of our desktop display business will continue to have a significant effect on our growth until our advertising spend mix has shifted more fully to growth areas.

Industry dynamics are challenging due to market and competitive pressures and make it difficult to predict the near-term effect of our growth initiatives. While we anticipate long-term benefits from these initiatives, unless we are able to continue to increase advertising spend on our platform, through higher transaction volumes or higher transaction values or both, our revenue growth may be limited.

~~Expense Reduction Initiatives~~

In addition to strategic decisions made to reduce costs paid by our clients on our platform while growing revenue through transaction volume, we have also focused on the cost structure of our business to enable us to compete more effectively. We must operate efficiently to relieve the pressure on our margins and cash resources that has resulted from our price reductions undertaken in 2017, and to compensate for the ongoing investments in technology and data processing capabilities required to support the increased volume of transactions that our growth plans require. As part of these efforts, during the first quarter of 2018 we undertook measures to reduce headcount by approximately 100 people, or 19% of our workforce, and to reduce other operating costs. Our actions included reductions in administrative staff to bring our general and administrative operations into better alignment with the current size of the business, as well as in sales and technical personnel as a result of offshoring certain development functions, organizational delayering and restructuring, and reducing investment in unprofitable projects. We are continuously evaluating our costs and pursuing additional cost-control and efficiency opportunities, including increased automation, across all aspects of the Company. However, we anticipate significant increases in ad request volume, and are developing internal tools to manage the volume increases and investing in software architectural improvements, filtering, and cloud services to accelerate innovation and further enable efficiencies.

~~Uncertainty Resulting from Privacy Regulations~~Identification Solutions

Our business is highly susceptible to emerging privacy regulations and ~~oversight. In Europe, data protection authorities have started to clarify certain requirements under~~oversight concerning the ~~European General Data Protection Regulation, or GDPR, but uncertainty remains.~~collection, use and sharing of data. Data protection authorities in a number of territories have expressed a desire to focus on the advertising technology ~~ecosystem specifically.~~ecosystem. In particular, this scrutiny has focused on the use of technology (including "cookies") to collect or aggregate information about Internet users’ online browsing activity. Because we, and our clients, rely upon large volumes of such data, it is essential that we monitor developments in this area domestically and globally, and engage in responsible privacy practices.

The use of and transfer of personal data in EU member states is currently governed by the General Data Protection Regulation (the "GDPR"). The GDPR sets out higher potential liabilities for certain data protection violations and establishes significant new regulatory requirements resulting in a greater compliance burden for us in the course of delivering our solution in the European Union. While data protection authorities have started to clarify certain requirements under GDPR, significant uncertainty remains as to how the regulation will be applied and enforced.

In addition to the GDPR, a number of new privacy regulations will or have already come into effect in 2020. The California legislature passed the California Consumer Privacy Act ~~(CCPA)~~("CCPA") in 2018, which ~~was signed into law.~~became effective January 1, 2020. This regulation imposes new obligations on businesses that handle the personal information of California residents. The

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obligations imposed ~~will~~ require ~~the Company~~us to ~~devote~~maintain ongoing significant resources ~~towards compliance.~~for compliance purposes. Certain requirements remain unclear due to ambiguities in the drafting of or incomplete guidance. Adding to the uncertainty facing the ad tech industry, a new initiative slated for California’s November ballot, titled the California Privacy Rights Act ("CPRA"), would impose additional notice and opt out obligations on the digital advertising space. If the CPRA passes (as it is widely expected to do), it will cause us to incur additional compliance costs and may impose additional restrictions on us and on our industry partners. These ambiguities and resulting impact on our business will need to be resolved over time. In addition, other privacy bills have been introduced at both the state and federal level. In September 2019, a new ballot initiative was introduced in California, which, if passed, would amend the CCPA and impose more stringent requirements on handling the personal information of California residents in 2021. Certain international territories are also imposing new or expanded privacy obligations. ~~For example, Brazil's data protection regulation, the LGPD, will also come into effect in August 2020.~~ In the coming years, we expect further consumer privacy regulation worldwide.

Until prevailing compliance practices standardize, the impact of worldwide privacy regulations on our business and, consequently, our revenue could be negatively impacted.

In addition to privacy regulations restricting the collection of data through identifiers (such as cookies), other industry participants in the advertising technology ecosystem have taken or may take action to eliminate or restrict the use of cookies and other identifiers. For instance, Google has announced plans to fully eliminate the use of third-party cookies, while Apple has further restricted the use of mobile identifiers on its devices. It is possible that these companies may rely on proprietary algorithms or statistical methods to track web users without cookies, or may utilize log-in credentials entered by users into other web properties owned by these companies, such as their digital email services, to track web usage, including usage across multiple devices, without cookies. Alternatively, such companies may build different and potentially proprietary user tracking methods into their widely-used web browsers and mobile operating systems.

While these new identification solutions will likely provide some level of consistency and compatibility with our platform, they are unreleased and unproven, and will require substantial development and commercial changes for us to support. There is also further risk that the changes will disproportionately benefit the owners of these platforms or the large walled gardens that have access to large amounts of first party data. To prepare for these risks, we are actively working with publishers to develop solutions that could leverage their first party data. We are also leading efforts through prebid.org, with industry support, to create standardized open identity solutions that ensure a smooth transition to a cookieless environment, and offer an alternative to proprietary solutions. Prebid.org is an independent organization designed to ensure and promote fair, transparent, and efficient header bidding across the industry.

We support privacy initiatives and believe they will be beneficial to consumers' confidence in advertising, which will ultimately be positive for the advertising ecosystem in the long term. In the short term, however, these changes could create some variability in our revenue across certain buyers or sellers, depending on the timing of changes and developed solutions. As the largest independent supply side platform, we believe we are well positioned to take a leadership position in driving open identity solutions that will benefit buyers and sellers on our platform.

Merger Costs Synergies and Expense Reduction Initiatives

In connection with the Merger, which closed on April 1, 2020, we previously announced expected annual run rate cost synergies to exceed $20 million, with expected areas of synergy to include duplicative public company costs, vendor rationalization, overlapping general and administrative costs, and other operational streamlining. As a result of these efforts, we reduced our headcount by approximately 8% of our combined workforce during the second quarter of 2020 and expect some additional reductions for individuals involved in integration and transition activities later in the year. Given the timing in implementing these synergies and the impact of one-time severance and other costs, the majority of the cost reductions will not be realized until late 2020 but should be fully realized in early 2021.

In addition, given the significant impact resulting from the COVID-19pandemic, we have taken additional short-term actions, including compensation reductions, a hiring freeze, and deferment of certain capital expenditures; and, as expected, we will have lower costs from marketing events and travel. We expect that the timing of the temporary reductions will benefit us immediately and remain in place until such time we see a sustainable recovery in revenue.

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Components of Our Results of Operations

We report our financial results as one operating segment. Our consolidated operating results ~~together with non-GAAP financial measures,~~ are regularly reviewed by our chief operating decision maker, principally to make decisions about how we allocate our resources and to measure our consolidated operating performance.

Revenue

We generate revenue from the purchase and sale of digital advertising inventory through our platform. We also generate revenue from the fee we charge clients for use of our Demand Manager product, which generally is a percentage of the client's advertising spending on any advertising marketplace. We recognize revenue upon the fulfillment of our contractual obligations in connection with a completed transaction, subject to satisfying all other revenue recognition criteria. For substantially all transactions executed through our platform, we act as an agent on behalf of the publisher that is monetizing its inventory, and revenue is recognized net of any advertising inventory costs that we remit to publishers. With respect to certain revenue streams acquired in connection with the Merger with Telaria, we report revenue on a gross basis, based primarily on our determination that the Company acts as the primary obligor in the delivery of advertising campaigns for our buyer clients with respect to such transactions. The revenue that we recognized on a gross basis was less than 2% of total revenue during the three months ended June 30, 2020. Our revenue recognition policies are discussed in more detail ~~within~~in Note 3 of the accompanying Notes to the Condensed Consolidated Financial Statements.

Expenses

We classify our expenses into the following categories:

Cost of Revenue. Our cost of revenue consists primarily of data center costs, bandwidth costs, ad protection costs, depreciation and maintenance expense of hardware supporting our revenue-producing platform, amortization of software costs for the development of our revenue-producing platform, amortization expense associated with acquired developed technologies, personnel costs, facilities-related costs, and cloud computing costs. Personnel costs included in cost of revenue include salaries, bonuses, and stock-based compensation, ~~and employee benefit costs,~~ and are primarily attributable to personnel in our network operations group who support our platform. We capitalize costs associated with software that is developed or obtained for internal use and amortize the costs associated with our revenue-producing platform in cost of revenue over their estimated useful lives. We amortize acquired developed technologies over their estimated useful lives.

Sales and Marketing. Our sales and marketing expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, ~~and the sales bonuses paid to our sales organization,~~ as well as marketing expenses such as brand marketing, travel expenses, trade shows and marketing materials, professional services, and amortization expense associated with client relationships and backlog from our business acquisitions, and to a lesser extent, facilities-related costs and depreciation and amortization. Our sales organization focuses on increasing the adoption of our solution by existing and new buyers and sellers. We amortize acquired intangibles associated with client relationships and backlog from our business acquisitions over their estimated useful lives.

Technology and Development. Our technology and development expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, ~~and bonuses,~~ as well as professional services associated with the ongoing development and maintenance of our solution, and to a lesser extent, facilities-related costs and depreciation and ~~amortization, including amortization expense associated with acquired intangible assets from our business acquisitions that are related to technology and development functions.~~amortization. These expenses include costs incurred in the development, implementation, and maintenance of internal use software, including ~~our~~ platform and related infrastructure. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with internal use software development that qualifies for capitalization, which are then recorded as internal use software development costs, net, on our ~~condensed~~ consolidated balance ~~sheet.~~sheets. We amortize internal use software development costs that relate to our revenue-producing activities on our platform to cost of revenue and amortize other internal use software development costs to technology and development costs or general and administrative expenses, depending on the nature of the related project. We amortize acquired intangibles associated with technology and development functions from our business acquisitions over their estimated useful lives.

General and Administrative. Our general and administrative expenses consist primarily of personnel costs, including salaries, bonuses, and stock-based compensation, ~~and bonuses,~~ associated with our executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, facilities-related costs and depreciation and amortization, and other corporate-related expenses. General and administrative expenses also include amortization of internal use software development costs and acquired intangible assets from our business acquisitions over their estimated useful lives that relate to general and administrative functions.

~~Restructuring~~Merger and ~~Other Exit~~Restructuring Costs. Our ~~restructuring~~merger and ~~other exit~~restructuring costs consist primarily of professional services fees associated with the Merger and employee termination costs, including stock-based compensation ~~charges.~~charges, associated with the Merger and restructuring activities.

Other (Income), Expense

Interest (Income) Expense, Net. Interest income consists of interest earned on our cash equivalents and marketable securities. Interest expense is mainly related to our credit ~~facility and was insignificant for the nine months ended September 30, 2019 and 2018.~~facility.

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Other Income. Other income consists primarily of rental income from commercial office space we hold under lease and have sublet to other tenants.

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

Provision (Benefit) for Income Taxes

~~Provision (benefit) for~~We are subject to income taxes ~~consists~~in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of ~~federal, state,~~business for which the ultimate tax determination is uncertain. Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and ~~foreign income taxes and is primarily~~geographies, intercompany transactions, the result of the release of a foreign valuation allowance resulting from a change to a cost-plus arrangement for a foreign subsidiary, the domestic valuation allowance, and the tax liability associated with foreign subsidiaries. Due to uncertainty as to the realization of benefits from the predominant portionrelative amount of our ~~domestic and international net deferred tax assets,~~foreign earnings, including ~~net operating loss carryforwards and research and development tax credits,~~earnings being lower than anticipated in jurisdictions where we have ~~a full valuation allowance reserved against such net deferred~~lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax ~~assets. We intend to continue to maintain a full valuation allowance on~~benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets ~~until there is sufficient evidence to support the~~

~~reversal of all or some portion of these allowances. Release of the~~and liabilities and their valuation, ~~allowance would result~~changes in the ~~recognition~~laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.

Table of certain net deferred tax assets and a decrease to income tax expense or recognition of a benefit for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to achieve.Contents

Results of Operations

The following table sets forth our condensed consolidated results of operations:


	Three Months Ended						Change %			Six Months Ended					Change %
	June 30, 2020		June 30, 2019						June 30, 2020			June 30, 2019
	(in thousands)									(in thousands)
Revenue	$	42,348	$	37,870	12	%	$	78,643		$	70,286		12	%
Expenses ⁽¹⁾⁽²⁾:
Cost of revenue	21,545		15,085		43	%	35,548			30,201			18	%
Sales and marketing	20,029		11,519		74	%	31,298			22,111			42	%
Technology and development	13,063		9,839		33	%	23,756			19,555			21	%
General and administrative	15,780		10,027		57	%	24,907			20,307			23	%
Merger and restructuring costs	12,493		—		100	%	14,423			—			100	%
Total expenses	82,910		46,470		78	%	129,932			92,174			41	%
Loss from operations	(40,562)		(8,600)		(372)	%	(51,289)			(21,888)			(134)	%
Other income, net	(1,722)		(403)		327	%	(2,573)			(437)			489	%
Loss before income taxes	(38,840)		(8,197)		(374)	%	(48,716)			(21,451)			(127)	%
Provision (benefit) for income taxes	288		84		243	%	87			(624)			(114)	%
Net loss	$	(39,128)	$	(8,281)	(373)	%	$	(48,803)		$	(20,827)		(134)	%


(1) Stock-based compensation expense included in our expenses was as follows:
	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
Cost of revenue	$	189	$	106	$	290	$	198
Sales and marketing	2,534		1,459		3,619		2,804
Technology and development	2,225		1,166		3,408		2,225
General and administrative	3,743		2,064		5,431		3,937
Merger and restructuring costs	1,200		—		1,200		—
Total stock-based compensation expense	$	9,891	$	4,795	$	13,948	$	9,164


(2) Depreciation and amortization expense included in our expenses was as follows:
	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
Cost of revenue	$	9,817	$	7,758	$	16,828	$	15,803
Sales and marketing	4,365		113		4,645		238
Technology and development	97		178		197		374
General and administrative	278		125		411		399
Total depreciation and amortization expense	$	14,557	$	8,174	$	22,081	$	16,814

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Three Months Ended Favorable/(Unfavorable) % Nine Months Ended Favorable/(Unfavorable) %
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Revenue $ 37,642
$ 29,729
27 % $ 107,928
$ 83,253
30 %
Expenses ⁽¹⁾⁽²⁾:

Cost of revenue 13,869
14,687
6 % 44,070
44,514
1 %
Sales and marketing 11,040
10,654
(4 )% 33,151
34,046
3 %
Technology and development 10,293
9,299
(11 )% 29,848
29,038
(3 )%
General and administrative 9,121
9,355
3 % 29,428
33,340
12 %
Restructuring and other exit costs —
—
NM
—
3,440
100 %
Total expenses 44,323
43,995
(1 )% 136,497
144,378
5 %
Loss from operations (6,681 ) (14,266 ) 53 % (28,569 ) (61,125 ) 53 %
Other income, net (562 ) (558 ) 1 % (999 ) (1,766 ) (43 )%
Loss before income taxes (6,119 ) (13,708 ) 55 % (27,570 ) (59,359 ) 54 %
Provision (benefit) for income taxes 55
84
35 % (569 ) 233
NM
Net loss $ (6,174 ) $ (13,792 ) 55 % $ (27,001 ) $ (59,592 ) 55 %

~~NM - Not Meaningful~~

(1) Stock-based compensation expense included in our expenses was as follows:
Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Cost of revenue $ 110
$ 72
$ 308
$ 256
Sales and marketing 1,378
1,187
4,182
3,530
Technology and development 1,157
691
3,382
2,163
General and administrative 2,068
1,910
6,005
6,669
Restructuring and other exit costs —
—
—
398
Total stock-based compensation expense $ 4,713
$ 3,860
$ 13,877
$ 13,016

(2) Depreciation and amortization expense included in our expenses was as follows:
Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Cost of revenue $ 7,737
$ 8,271
$ 23,540
$ 24,785
Sales and marketing 67
141
305
455
Technology and development 102
215
476
683
General and administrative 121
140
520
432
Total depreciation and amortization expense $ 8,027
$ 8,767
$ 24,841
$ 26,355

The following table sets forth our condensed consolidated results of operations for the specified periods as a percentage of our revenue for those periods presented:


	Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Revenue	100	%	100	%	100	%	100	%	Revenue	100	%	100	%	100	%	100	%
Cost of revenue	37		49		41		53		Cost of revenue	51		40		45		43
Sales and marketing	29		36		31		41		Sales and marketing	47		30		40		31
Technology and development	27		31		28		35		Technology and development	31		26		30		28
General and administrative	25		32		26		40		General and administrative	37		27		32		29
Restructuring and other exit costs	—		—		—		4
Merger and restructuring costs									Merger and restructuring costs	30		—		18		—
Total expenses	118		148		126		173		Total expenses	196		123		165		131
Loss from operations	(18	)	(48	)	(26	)	(73	)	Loss from operations	(96)		(23)		(65)		(31)
Other income, net	(2	)	(2	)	—		(2	)	Other income, net	(5)		(1)		(3)		—
Loss before income taxes	(16	)	(46	)	(26	)	(71	)	Loss before income taxes	(91)		(22)		(62)		(31)
Provision (benefit) for income taxes	—		—		(1	)	1		Provision (benefit) for income taxes	1		—		—		(1)
Net loss	(16	)%	(46	)%	(25	)%	(72)	%	Net loss	(92)	%	(22)	%	(62)	%	(30)	%

Comparison of the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

Revenue

Revenue increased ~~$7.9~~$4.5 million, or ~~27%~~12%, for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018.~~ 2019. Our revenue growth was driven primarily by the Merger, completed on April 1, 2020, which contributed $13.1 million in revenue during the three months ended June 30, 2020. Excluding the impact of the Merger, our revenue decreased 23%, primarily due to the impact of the COVID-19 pandemic, which led to an overall decrease in advertiser demand.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, revenue increased ~~$24.7~~$8.4 million, or ~~30%~~12%, compared to the prior year ~~period. Our~~period, primarily due to the Merger. Excluding the impact of the Merger, our revenue ~~growth for~~decreased 7%, primarily due to the ~~three and nine months ended September 30, 2019 was driven by ongoing increases in advertising spend transacted on our platform and by increases in take rate, or~~impact of the ~~fee we earn on advertising spend, with the majority of take rate increases having occurred in 2018.~~ COVID-19 pandemic.

Revenue is impacted by shifts in the mix of advertising spend by transaction type and channel, changes in the fees we charge for our services, and other factors such as changes in the market, our execution of the business, and competition. In addition, an increase in PMP transactions as a percentage of the transactions on our platform could also result in reduced revenue, if not offset by increased volume, because PMP transactions can carry lower fees than OMP transactions. We expect the percentage of PMP transactions to increase following the Merger since CTV is largely transacted through PMP. Industry dynamics are challenging due to market and competitive pressures and make it difficult to predict the near-term effect of our growth initiatives. ~~While~~

As a result of the Merger, we ~~anticipate long-term benefits from these initiatives, unless we are able to continue~~expect revenue to increase ~~advertising spend on our platform, through higher transaction volumes or higher transaction values or both, our revenue growth~~in 2020 compared to 2019, specifically related to CTV. However, these increases have been tempered, and may be ~~limited.~~partially offset in the future, by reductions in revenue resulting from the economic impact of the COVID-19 pandemic. We ~~expect that~~experienced some recovery in revenue in the ~~fourth~~latter half of the second quarter, ~~of 2019 will increase,~~ which ~~is consistent with normal fourth quarter seasonal patterns. However, because take rates in 2019 have been and are expected to be roughly equivalent to those~~has accelerated in the ~~fourth quarter~~third quarter; however, these trends may not continue as the impact of ~~2018, we expect~~the COVID-19 pandemic on our business and operations remains uncertain and depends on various factors, including the spread of the virus, public health measures, travel and business restrictions, quarantines, shelter-in-place orders, and shutdowns. There can be no assurance that ~~year-over-year revenue growth~~any decrease in sales resulting from the COVID-19 pandemic will be offset by increased sales in subsequent periods in the ~~fourth quarter~~year. Although the full magnitude of ~~2019~~the impact of the COVID-19 pandemic on our business and operations remains uncertain, the continued spread of COVID-19, the imposition of related public health measures, and travel and business restrictions will ~~be driven primarily by ad spend growth. As a result,~~adversely impact the ~~year-over-year percentage revenue growth in~~combined company’s forecasted business, financial condition, operating results and cash flows. Refer to Part II, Item 1A: "Risk Factors" for additional information related to this risk factor and the ~~fourth quarter of 2019 will likely be lower than the year-over-year percentage growth rates achieved through the first nine months of 2019.~~impact it may have on our business.

Cost of Revenue

Cost of revenue ~~decreased $0.8~~increased $6.5 million or 6%43% for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018.~~ 2019, primarily due to the Merger. Cost of revenue increased by $3.2 million in data and bandwidth expenses, $2.1 million in depreciation and amortization, and $0.6 million in personnel costs during the three months ended June 30, 2020 compared to the same period in the prior year.

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For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, cost of revenue ~~decreased $0.4~~increased $5.3 million, or 1%18%, compared to the prior year ~~period.~~period primarily due to the Merger. Cost of revenue increased by $2.7 million in data and bandwidth expenses, $1.0 million in depreciation and amortization, and $0.9 million in personnel costs during the three months ended June 30, 2020 compared to the same period in the prior year.

We expect cost of revenue to be ~~lower~~higher in 2020 compared to 2019 in absolute dollars due to the increased amortization of intangible assets resulting from the Merger in ~~2019 compared~~addition to ~~2018,~~increased expenses as we continue to expand select data center operations to cloud service providers to accelerate innovation and gain efficiencies, and to ~~continue to decline slightly for~~support the growth of our business. These increases will be partially offset by a decrease in cost of revenue in the remainder of ~~2019 as we have continued~~the year associated with merger synergies and our ~~focus on infrastructure serving efficiency.~~ expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above.

Cost of revenue may fluctuate from quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, depending on revenue levels and the volume of transactions we process supporting those revenues, and the timing and amounts of depreciation and amortization of equipment and software. We are expanding select data center operations to cloud service providers to accelerate innovation and gain efficiencies, and to support the growth of our business. We expect an increase in cost of revenue expenses over the long term as a result.

Sales and Marketing

Sales and marketing expenses increased ~~$0.4~~$8.5 million, or 4%74%, for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~an increase~~the Merger and associated increases in headcount and the amortization of acquired intangibles and other assets. Sales and marketing expenses increased by $5.9 million related to personnel ~~costs.~~expenses and by $4.3 million related to depreciation and amortization associated with the Merger.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, sales and marketing expenses ~~decreased $0.9~~increased $9.2 million, or 3%42%, compared to the prior year ~~period. The decrease was primarily~~period for the same reasons above. Sales and marketing expenses increased by $6.3 million related to personnel expenses and by $4.4 million related to depreciation and amortization associated with the Merger.

Sales and marketing expense increases during the three and six months ended June 30, 2020 compared to the prior year periods were partially offset by decreases in travel and industry events due to the ~~benefit~~impact of the ~~prior year's cost control initiatives.~~COVID-19 pandemic.

We expect sales and marketing expenses to ~~decline slightly~~increase in ~~2019~~2020 compared to ~~2018,~~2019 in absolute dollars as a result of the Merger, primarily due to additional headcount. These increases will be partially offset by a decrease in sales and ~~remain flat through~~marketing expenses in the ~~end~~remainder of ~~2019.~~ the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above.

Sales and marketing ~~expense~~expenses may fluctuate quarter to quarter and period to period, on an absolute dollar basis and as a percentage of revenue, based on revenue levels, the timing of our investments and seasonality in our industry and business.

Technology and Development

Technology and development expenses increased ~~by $1.0~~$3.2 million, or ~~11%~~33%, for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018, primarily~~2019, due to an increase of ~~$1.3~~$3.4 million in personnel ~~costs.~~costs as a result of the increased headcount associated with the Merger.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, technology and development expenses increased ~~$0.8~~$4.2 million, or 3%21%, compared to the prior year ~~period.~~period, due to an increase of $4.3 million in personnel costs primarily for the same reasons above.

We expect technology and development ~~expense~~expenses to continue to increase in ~~2019~~2020 compared to ~~2018, with small~~2019 in absolute dollars as a result of the Merger, primarily due to additional headcount. These increases will be partially offset by a decrease in technology and development expenses in the ~~fourth quarter~~remainder of ~~2019 as we make strategic headcount additions~~the year associated with merger synergies and our expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to ~~focus on the engineering aspect of our new developments, including Demand Manager~~"Merger Costs Synergies and ~~other initiatives.~~ Expense Reduction Initiatives" discussed above.

The timing and amount of our capitalized development and enhancement projects may affect the amount of development costs expensed in any given period. As a percentage of revenue, technology and development expense may fluctuate from quarter to quarter and period to period based on revenue levels, the timing and amounts of ~~these investments,~~technology and development efforts, the timing and the rate of the amortization of capitalized projects and the timing and amounts of future capitalized internal use software development costs.

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General and Administrative

General and administrative expenses ~~decreased~~increased by ~~$0.2~~$5.8 million, or 3%57%, for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018. The decrease is~~2019, primarily due to increases of $3.5 million in personnel expenses, $2.0 million in facilities related expenses, and $0.7 million in professional services primarily associated with the ~~benefit of the prior year's cost control initiatives.~~Merger.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, general and administrative expenses ~~decreased $3.9~~increased $4.6 million, or ~~12%~~23%, compared to the prior year period, primarily due to ~~a $2.0~~increases of $3.5 million ~~decrease~~ in personnel ~~costs as a result of our 2018 cost control initiatives~~expenses, $1.9 million in facilities related expenses, and $0.7 million in professional services ~~fees, which decreased $1.5~~for the same reasons above. The increase was partially offset by a decrease of $0.9 million ~~in the current year period.~~related to bad debt.

We expect general and administrative expenses to ~~decrease~~continue to increase in ~~2019~~2020 compared to ~~2018~~2019 in absolute dollars as a result of the Merger, primarily due to the additional headcount. These increases will be partially offset by a decrease in general and administrative expenses in the remainder of the year associated with merger synergies and our ~~prior year cost control~~expense reduction initiatives. For details surrounding our expense reduction initiatives, refer to "Merger Costs Synergies and Expense Reduction Initiatives" discussed above.

General and administrative expenses may fluctuate from quarter to quarter and period to period based on the timing and amounts of expenditures in our general and administrative functions as they vary in scope and scale over periods. Such fluctuations may not be directly proportional to changes in revenue.

~~Restructuring~~Merger and ~~Other Exit~~Restructuring Costs

~~As part~~We incurred merger and restructuring costs of ~~our on-going evaluation of efficiency~~$12.5 million and ~~implementation of cost-control measures,~~$14.4 million during the ~~first quarter of 2018 we undertook measures to reduce headcount by approximately 100 people, or 19% of our workforce,~~three and to reduce other operating costs. Our actions included reductions in administrative staff to bring our general and administrative operations into better alignment with the current size of the business, as well as in sales and technical personnel as a result of offshoring certain development functions, organizational delayering and restructuring, and reducing investment in unprofitable projects.

~~For the nine~~six months ended ~~September~~June 30, ~~2018, we incurred restructuring~~2020, respectively. These costs included professional fees of $6.8 million and $8.6 million related to investment banking advisory, legal, and other ~~exit~~professional services fees, one-time cash-based employee termination benefit costs of ~~$3.4~~$4.5 million ~~for~~and $4.6 million, and non-cash stock-based compensation expense associated with double-trigger accelerations and severance benefits of $1.2 million and ~~other one-time employee termination benefits related to headcount reductions that were made in~~$1.2 million during the ~~first quarter of 2018 (see Note 8 to the condensed consolidated financial statements).~~three and six months ended June 30, 2020, respectively. There were no ~~restructuring~~merger and ~~other exit~~restructuring costs incurred during the three and six months ended ~~September~~June 30, ~~2018, or~~2019.

Other Income, Net


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(in thousands)						(in thousands)
Interest (income) expense, net	$	2	$	(214)	$	(142)	$	(407)
Other income	(1,284)		(46)		(1,293)		(188)
Foreign exchange (gain) loss, net	(440)		(143)		(1,138)		158
Total other income, net	$	(1,722)	$	(403)	$	(2,573)	$	(437)

Other income increased by $1.2 million and $1.1 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019. All remaining accrued costs as of December 31, 2018 associated with~~2020, respectively, compared to the ~~2018 restructuring events were paid~~same periods in ~~the first quarter of 2019.~~prior year, primarily due to rental income from commercial office space we hold under lease and have sublet to other tenants.

~~Other Income, Net~~

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Interest income, net $ (218 ) $ (232 ) $ (625 ) $ (777 )
Other income (48 ) (206 ) (236 ) (626 )
Foreign exchange gain, net (296 ) (120 ) (138 ) (363 )
Total other income, net $ (562 ) $ (558 ) $ (999 ) $ (1,766 )

Foreign exchange ~~gain,~~(gain) loss, net is impacted by movements in exchange rates and the amount of foreign currency-denominated receivables and payables, which are impacted by our billings to buyers and payments to sellers. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the net foreign exchange gain was primarily attributable to the currency movements between the British Pound, Australian Dollar, and the ~~European~~ Euro relative to the U.S. Dollar.

Provision (Benefit) for Income Taxes

We recorded an income tax expense of $0.3 million and $0.1 million for the three and six months ended June 30, 2020, respectively, and an income tax expense of $0.1 million and benefit of $0.6 million for the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~respectively, and income~~respectively. The tax ~~expenses of $0.1 million and $0.2 million~~expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively. The tax provision for the three and nine months ended September 30, 2019~~2020 is primarily the result of ~~the release of a foreign valuation allowance resulting from a change to a cost-plus arrangement for a foreign subsidiary,~~ the domestic valuation allowance and the tax liability associated with the foreign subsidiaries.

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Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, marketable securities, cash generated from operations, and our credit facility with Silicon Valley Bank ("SVB"). ~~At September~~As of June 30, ~~2019,~~2020, we had cash and cash equivalents of ~~$85.1~~$107.5 million, of which ~~$12.1~~$17.7 million was held in foreign currency cash accounts. Our cash and marketable securities balances are affected by our results of operations, the timing of capital expenditures which are typically greater in the second half of the year, and by changes in our working capital, particularly changes in accounts receivable and accounts payable. The timing of cash receipts from buyers and payments to sellers can significantly impact our cash flows from operating activities and our liquidity for, and within, any period presented. Our collection and payment cycle can vary from period to period depending upon various circumstances, including ~~seasonality.~~seasonality, and may be negatively impacted as a result of COVID-19.

In September 2018, we amended and restated our loan and security agreement with SVB (the "Loan Agreement"). The Loan Agreement provides a senior secured revolving credit facility of up to $40.0 million with a maturity date of September 26, 2020. Pursuant to the Loan Agreement, we are required to comply with financial covenants. While we are currently in compliance with these covenants, this could change in the future depending on our operating results.

~~At September~~As of June 30, ~~2019,~~2020, we had no amounts outstanding under our Loan Agreement with SVB. Future availability under the credit facility is dependent on several factors including the available borrowing base and compliance with future covenant requirements. See Note 1213 of "Notes to Condensed Consolidated Financial Statements" for additional information regarding the Loan Agreement.

Our ability to renew our existing credit facility, which matures in September 2020, or to enter into a new credit facility to replace or supplement the existing facility may be limited due to various factors, including the status of our business, global credit market conditions, and perceptions of our business or industry by sources of financing. In particular, it may be difficult to renew or replace our existing credit facility if we are not able to demonstrate a path to consistently produce positive cash flow. In addition, even if credit is available, lenders may seek more restrictive covenants and higher interest rates that may reduce our borrowing capacity, increase our costs, and reduce our operating flexibility.

We believe our existing cash and cash equivalents and investment balances will be sufficient to meet our working capital requirements for at least the next twelve months from the issuance of our financial statements. However, there are multiple factors that could impact our cash balances in the future. For example, we typically collect from buyers in advance of payments to sellers, and our collection and payment cycle can vary from period to period depending upon various circumstances, including seasonality. Some buyers have been demanding longer terms to pay us later, and some sellers have been demanding shorter terms to collect from us earlier. ~~We may not have the leverage to resist~~If we accept these ~~demands given the competitive nature of our business. If this continues,~~terms, more of our cash will be required to fund our payment cycle and therefore not be available for other uses. ~~Some buyers have also began experiencing financial difficulty and have been forced into filing for bankruptcy protection, and~~In addition, in the event a buyer defaults on payment, we may still be ~~forced~~required to pay sellers for the inventory purchased even if we are unable to collect from buyers. ~~Our~~These challenges have been exacerbated by the COVID-19 pandemic and resulting economic impact, as many of our buyers are experiencing financial difficulties and liquidity constraints. In certain cases, buyers have been unable to timely make payments and we have agreed to revised payment schedules. To date, these actions have not had a material negative impact on our cash flow or liquidity. At June 30, 2020, two buyers accounted for 37% and 10%, respectively, of consolidated accounts receivable. The future capital requirements and the adequacy of available funds will depend on many factors, including the duration and severity of the COVID-19 pandemic and its impact on buyers and sellers and the factors and those set forth in Part II, Item 1A: "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, Part II, Item 1A: "Risk Factors" of our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and in Part II, Item 1A of ~~our subsequent Quarterly Reports on~~this Form 10-Q.

market conditions, and perceptions of our business or industry by sources of financing. In particular, it may be difficult to renew or replace our existing credit facility if we are not able to demonstrate a path to consistently produce positive cash flow. In addition, even if credit is available, lenders may seek more restrictive covenants and higher interest rates that may reduce our borrowing capacity, increase our costs, and reduce our operating flexibility.

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 indebtedness, we will be subject to increased fixed payment obligations and could also be subject to 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. Due to the economic uncertainty caused by the COVID-19 pandemic, the debt and equity markets have become less predictable and obtaining financing on favorable terms and at favorable rates has become more difficult.

An inability to raise additional capital could adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business could be adversely affected.

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Cash Flows

The following table summarizes our cash flows for the periods presented:


	Six Months Ended
	June 30, 2020		June 30, 2019
	(in thousands)
Cash flows (used in) provided by operating activities	$	(21,496)	$	5,533
Cash flows provided by investing activities	46,457		1,128
Cash flows used in financing activities	(4,842)		(987)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(265)		(15)
Change in cash, cash equivalents and restricted cash	$	19,854	$	5,659

Nine Months Ended
September 30, 2019 September 30, 2018
(in thousands)
Cash flows provided by (used in) operating activities $ 9,808
$ (22,552 )
Cash flows (used in) provided by investing activities (4,105 ) 28,844
Cash flows used in financing activities (841 ) (470 )
Effects of exchange rate changes on cash, cash equivalents and restricted cash (192 ) (110 )
Change in cash, cash equivalents and restricted cash $ 4,670
$ 5,712

Operating Activities

Our cash flows from operating activities are primarily driven by revenues generated from advertising activity, offset by the cash costs of operations, and significantly influenced by increases or decreases in receipts from buyers and related payments to sellers. Our future cash flows will be diminished if we cannot increase our revenue levels and manage costs appropriately. Cash flows from operating activities have been further affected by changes in our working capital, particularly changes in accounts receivable and accounts payable. The timing of cash receipts from buyers and payments to sellers can significantly impact our cash flows from operating activities for any period presented.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, net cash used in operating activities was $21.5 million compared to net cash provided by operating activities ~~was $9.8 million compared to net cash used in operating activities~~ of ~~$22.6~~$5.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Our operating activities included our net losses of ~~$27.0~~$48.8 million and ~~$59.6~~$20.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which were offset by non-cash adjustments of ~~$38.1~~$33.9 million and ~~$39.2~~$26.6 million, respectively. In the ~~first three quarters of 2019, net changes in our working capital reduced cash provided by operating activities by $1.3 million. Net~~six months ended June, 30 2020, cash used in operating activities ~~for the first three quarters of 2018~~ was increased by a net decrease in our working capital of ~~$2.1~~$6.6 million. Net cash provided by operating activities for the six months ended June 30, 2019 was decreased by a net decrease in our working capital of $0.3 million. The net changes in working capital for both periods are primarily due to the timing of cash receipts from buyers and the timing of payments to sellers.

We believe that cash flows from operations will continue to be negatively impacted by our ongoing net losses and working capital needs.

Investing Activities

Our primary investing activities have consisted of investments in, and maturities of, available-for-sale securities, ~~acquisitions of businesses,~~ purchases of property and equipment, and capital expenditures to develop our internal use software in support of creating and enhancing our technology infrastructure. Purchases of property and equipment and investments in internal use software development may vary from period-to-period due to the timing of the expansion of our operations, changes to headcount, and the cycles of our internal use software development. As we execute on our strategy to be a high volume, low cost advertising exchange, we are developing solutions to manage the growth of our digital advertising inventory volume more efficiently. We anticipate investment in internal use software development to ~~remain relatively consistent with~~slightly increase compared to past years' investment levels as we continue to innovate new solutions on our platform. As the business continues to grow, we expect our investment in property and equipment to slightly increase compared to ~~2018.~~2019. Historically, a majority of our purchases in property

and equipment have occurred in the latter half of the year in preparation for the peak volumes of the fourth quarter and early in the first quarter of the following year. We expect those trends to continue, with higher levels of property and equipment spend in the latter half of this year compared to the first half of the year. ~~Investments in, and maturities of, available-for-sale securities and acquisitions of businesses vary from period-to-period.~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, our investing activities ~~used net cash of $4.1 million and~~ provided net cash of ~~$28.8~~$46.5 million and net cash of $1.1 million, respectively. During the six months ended June 30, 2020 and 2019, we used cash for purchases of property and equipment of $3.4 million and $2.2 million, respectively, and used cash for investments in our internally developed software of $4.7 million and $4.2 million, respectively. The cash provided by investing activity for the six months ended June 30, 2020 included $54.6 million of cash and restricted cash acquired as part of the merger with Telaria. For the ~~nine~~six months ended ~~September~~June 30, 2019, ~~and 2018,~~ we had cash inflows from net maturities of investments in available-for-sale securities of $7.5 million and $31.7 million, respectively. In addition, we had cash inflows of $9.2 million during the nine months ended September 30, 2018 related to sales of available-for-sale securities. These cash inflows were offset by purchases of property and equipment of $5.6 million and $5.5 million during the nine months ended September 30, 2019 and 2018, respectively, and investments in our internally developed software of $6.0 million and $6.6 million, respectively.million.

Financing Activities

Our financing activities consisted of transactions related to the issuance of our common stock under our equity plans.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we used net cash of ~~$0.8~~$4.8 million and ~~$0.5~~$1.0 million, respectively, for financing activities. Cash outflows from financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 included payments of ~~$1.8~~$7.8 million and ~~$0.7~~$1.8 million, respectively, for income tax deposits paid in respect of vesting of stock-based compensation awards that were reimbursed by the award recipients through surrender of shares.

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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 other off-balance sheet arrangements at ~~September~~June 30, ~~2019~~2020 other than the short-term operating leases and the indemnification agreements described below.

Contractual Obligations and Known Future Cash Requirements

Our principal commitments consist of leases for our various office facilities, including our corporate headquarters in Los Angeles, California, and operating lease agreements including data centers that expire at various times through 2030. At ~~September~~June 30, ~~2019,~~2020, expected future commitments relating to operating leases associated with leases included in the lease liability and ROU asset on the condensed consolidated balance sheet were ~~$26.9~~$54.8 million. See Note 1112 of "Notes to Condensed Consolidated Financial Statements" for our lease commitment for each of the next five years and thereafter. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis. WeDuring the three months ended June 30, 2020 and 2019, we received rental income from subleases ~~totaling $48.4~~of $1.3 million and $46.2 thousand, respectively, and $1.3 million and $0.2 million ~~for~~during the ~~three and nine~~six months ended ~~September~~June 30, 2020 and 2019, respectively. In addition, subsequent to June 30, 2020, we entered into an agreement for third-party cloud-managed services. As part of the agreement, we have a minimum commitment to pay $20.0 million over the course of five years, with no annual minimum commitment.

There were no significant changes to our unrecognized tax benefits in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and we do not expect to have any significant changes to unrecognized tax benefits through December 31, ~~2019.~~2020.

In the ordinary course of business, we enter into agreements with sellers, buyers, and other third parties pursuant to which we agree to indemnify buyers, sellers, vendors, lessors, business partners, lenders, stockholders, and other parties with respect to certain matters, including, but not limited to, 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 certain other officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. ~~No demands for indemnification have been made as of September 30, 2019.~~

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed 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. Our actual results could differ from these estimates.

We believe that the following assumptions and estimates have the greatest potential impact on our condensed consolidated financial statements: (i) the determination of revenue recognition as net versus gross in our revenue arrangements, (ii) internal-use software development costs, (iii) intangible asset and goodwill impairment analysis, (iv) assumptions used in the valuation models to determine the fair value of stock options and stock-based compensation expense, (v) the assumptions used in the valuation of acquired assets

and liabilities in business combinations, and (vi) income taxes, including the realization of tax assets and estimates of tax liabilities. There have been no significant changes in our accounting policies from those disclosed in our audited consolidated financial statements and notes thereto for the year ended December 31, ~~2018~~2019 included in our Annual Report on Form 10-K.

Our revenue recognition policy is further described below, which is consistent with the policy included in our Annual Report referenced above.

Revenue Recognition

We generate revenue from transactions where we provide a platform for the purchase and sale of digital advertising inventory. We also generate revenue from the fee we charge clients for use of our Demand Manager product, which generally is a percentage of the client's advertising spending on any advertising marketplace. Our advertising automation solution is a marketplace that includes sellers of inventory (providers of websites, mobile applications, CTV channels and other digital media properties, and their representatives) and buyers of inventory (including advertisers, agencies, agency trading desks, and demand-side platforms). This solution incorporates proprietary machine-learning algorithms, sophisticated data processing, high-volume storage, detailed analytics capabilities, and a distributed infrastructure. Together, these features form the basis for our automated advertising solution

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that brings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the digital advertising inventory managed on our platform. Digital advertising inventory is created when consumers access sellers’ content. Sellers provide digital advertising inventory to our platform in the form of advertising requests, or ad requests. When we receive ad requests from sellers, we send bid requests to buyers, which enable buyers to bid on sellers’ digital advertising inventory. Winning bids can create advertising, or paid impressions, for the seller to present to the consumer.

The total volume of spending between buyers and sellers on our platform is referred to as advertising spend. We keep a percentage of that advertising spend as a fee, and remit the remainder to the seller. The fee that we retain from the gross advertising spend on our platform is recognized as revenue. The fee earned on each transaction is based on the pre-existing agreement we have with the seller and the clearing price of the winning bid. We recognize revenue upon fulfillment of our performance obligation to a client, which occurs at the point in time an ad renders and is counted as a paid impression, subject to a contract existing with the client and a fixed or determinable transaction price. Performance obligations for all transactions are satisfied, and the corresponding revenue is recognized, at a distinct point in time; we have no arrangements with multiple performance obligations. We consider the following when determining if a contract exists (i) contract approval by all parties, (ii) identification of each party’s rights regarding the goods or services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of substantially all of the consideration is probable.

WeThe determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether we are acting as the principal or an agent in the transaction. In determining whether we are acting as the principal or an agent, we followed the accounting guidance for principal-agent considerations. Making such determinations involves judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative.

For substantially all transactions on our platform, we have determined that we do not act as the principal in the purchase and sale of digital advertising inventory because we are not the primary obligor and do not set prices agreed upon within the auction marketplace, and therefore we report revenue on a net basis. However, for certain transactions related to revenue streams acquired in connection with the Merger with Telaria, we report revenue on a gross basis, based primarily on our determination that we act as the primary obligor in the delivery of advertising campaigns for buyers with respect to such transactions.

Recently Issued Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1 "Organization and Summary of Significant Accounting Policies" to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

~~This item~~We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate, foreign exchange, and inflation risks. The risks below may be further exacerbated by the effects of the COVID-19 pandemic on global macroeconomic and market conditions.

Interest Rate Fluctuation Risk

Our cash and cash equivalents consist of cash and money market funds. Our investments consist of repurchase agreements, U.S. government agency debt, and U.S. treasury debt. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash, cash equivalents, and investments have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. Our line of credit is at variable interest rates. We had no amounts outstanding under our credit facility at June 30, 2020. We do not ~~required for smaller reporting companies.~~believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. In future periods, we will continue to evaluate our investment policy relative to our overall objectives.

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and expenses denominated in currencies other than the U.S. Dollar, principally British Pounds, Euros and Australian Dollars. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances and intercompany balances that are denominated in currencies other than the U.S. Dollar. The effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts at June 30, 2020, including intercompany balances, would result in a foreign currency loss of approximately $1.7 million. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we might not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.��There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based upon the evaluation described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2019,~~2020, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting, except as noted below.

During the quarter ended June 30, 2020, we completed the Merger with Telaria. See Note 7 of "Notes to Condensed Consolidated Financial Statements" for more information. We are currently integrating Telaria into our operations and internal control processes. As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the Telaria business, which we expect to complete within one year after the date of acquisition. Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2020 may exclude Telaria to the extent that they are not yet integrated into our internal controls environment.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We and our subsidiaries may from time to time be parties to legal or regulatory proceedings, lawsuits and other claims incident to our business activities and to our status as a public company. Such routine matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of our business, regulatory investigations or enforcement proceedings, and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to such matters as of ~~September~~June 30, ~~2019.~~2020. However, based on our knowledge as of ~~September~~June 30, ~~2019,~~2020, we

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believe that the final resolution of such matters pending at the time of this report, individually and in the aggregate, will not have a material adverse effect upon our condensed consolidated financial position, results of operations or cash flows.

Between February 5 and March 16, 2020, nine lawsuits were filed by purported stockholders of Telaria in connection with the merger with Magnite, Inc. (the "Merger"). Two lawsuits were brought as putative class actions (captioned Sabatini v. Telaria, Inc., et al. and Carter v. Telaria, Inc., et al). Seven lawsuits were brought by the plaintiffs individually (captioned Stein v. Telaria, Inc., et al; Lin v. Telaria, Inc. et al; Melool v. Telaria, Inc., et al; Robinson v. Telaria, Inc., et al; Wu v. Telaria, Inc., et al; Yang v. Telaria, Inc., et al; and Corthell v Telaria, Inc. et al (collectively, the “Complaints”)). The Complaints name as defendants Telaria and each member of its Board of Directors. The Sabatini complaint additionally names Magnite, Inc. ("Magnite") and Madison Merger Corp. ("Merger Sub") as defendants. On March 23, 2020, Telaria and Magnite filed supplemental disclosures to its Definitive Proxy Statement, mooting the Complaints, and on April 1, 2020 the Merger was approved by stockholders of Telaria and Magnite. As of June 30, 2020, all of the Complaints have been voluntarily dismissed by the plaintiffs.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. We describe risks associated with our business below and in Part I, Item 1A1A: "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and in Part II, Item 1A" "Risk Factors" of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 (the "Risk Factors"). Each of the risks described in our Risk Factors may be relevant to decisions regarding an investment in or ownership of our stock. The occurrence of any such risks could have a significant adverse effect on our reputation, business, financial condition, revenue, results of operations, growth, or ability to accomplish our strategic objectives, and could cause the trading price of our common stock to decline. You should carefully consider such risks and the other information contained in this report, including our condensed consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our common stock.

The following risk factors supplement the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the period ended March 31, 2020. The following disclosures do not address all risks that may be important to you as a Magnite stockholder.

The recent COVID-19 pandemic and spread of COVID-19 has impacted and may have material adverse effects on our business, financial position, results of operations and/or cash flows.

Our business has been impacted and may be materially adversely impacted by the effects of the COVID-19 pandemic.The strain of the coronavirus identified in China in late 2019 has globally spread throughout other areas such as Asia, Europe, the Middle East, and North America and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. In addition to the United States, we have personnel and operations in England, Canada, France, Australia, New Zealand, Germany, Italy, Japan, Singapore, and Brazil, and each of these countries has been affected by the outbreak and taken measures to try to contain it. These measures have impacted and may further impact our workforce and operations, and the operations of our sellers and buyers.

The COVID-19 pandemic has in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, and resulted in an economic downturn. Adverse economic conditions and general uncertainty about economic recovery or growth, particularly in North America and Europe, where we conduct most of our business, has caused advertisers to significantly reduce their advertising budgets. Our business depends on the overall demand for advertising and on the economic health of our current and prospective sellers and buyers. As a result of advertisers significantly reducing their overall advertising spending, our revenue and results of operations have been directly affected. In addition, because people around the world are spending more time at home and in front of internet-connected devices, the amount of ad requests that we processes has spiked, and our infrastructure may not be capable of processing the increased volume of ad requests at cost-efficient levels.

There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic and responses of governments, individuals, and businesses will be offset by increased sales in subsequent periods. The degree to which the COVID-19 pandemic and responses thereto impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, including any resurgence, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Although the full magnitude of the impact of the COVID-19 pandemic on our business and operations remains uncertain, the spread of COVID-19 and the imposition of related public health measures and travel and business restrictions has and is expected to continue to adversely impact our forecasted business, financial condition, operating results and cash flows.

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In addition, additional or unforeseen effects from the COVID-19 pandemic and the resulting economic distress could implicate or amplify many of the other risks discussed herein and in Part II, Item 1A: “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A: "Risk Factors" of our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

We rely on technological intermediaries such as DSPs to purchase advertising on behalf of advertisers. Such buyers have or may develop high-risk credit profiles or pay slowly, which may result in credit risk to us or require additional working capital to fund our accounts payable. These risks will be heightened as a result of the COVID-19 pandemic and resulting economic downturn.

Generally, we invoice and collect from buyers the full purchase price for impressions they have purchased, retain our fees, and remit the balance to sellers. However, in some cases, are required or may choose to pay sellers for impressions delivered before we have collected, or even if we are unable to collect, from the buyer of those impressions. In the past, certain buyers have sought to slow their payments to us or been forced into filing for bankruptcy protection, resulting in bad debt. These challenges have been exacerbated by the COVID-19 pandemic and resulting economic impact, as many of our buyers are experiencing financial difficulties and liquidity constraints. In certain cases, buyers have been unable to timely make payments and we have agreed to revised payment schedules. To date, these actions have not had a material negative impact on our cash flow or liquidity. However, prolonged economic downturn may lead additional buyers to slow or default on payments or in some cases seek bankruptcy protection.

There can be no assurances that we will not experience bad debt in the future, and write-offs for bad debt could have a materially negative effect on our results of operations for the periods in which the write-offs occur. If our cash collections are significantly diminished as a result of these dynamics, our revenue and/or cash flow could be adversely affected and we may need to use working capital to fund our accounts payable pending collection from the buyers. This may result in additional costs and cause us to forgo or defer other more productive uses of that working capital.

If CTV advertising spend grows more slowly than we expect our operating results and growth prospects could be harmed.

The growth of our platform is dependent, in part, on the continued growth in CTV advertising spend. Growth in the CTV advertising market is dependent on a number of factors, including the pace of cord-cutting (the replacement of tradition cable or broadcast TV for CTV and OTT applications), the continued proliferation of digital content and CTV providers, the adoption of ad-supported models by CTV publishers in lieu of, or in addition to, subscription models, and an acceleration in the shift of ad dollars from traditional linear TV to CTV to keep pace with changing viewership habits. If the market for ad-supported CTV develops more slowly than we expect or fails to develop as a result of these or other factors, our operating results and growth prospects could be harmed.

If CTV publishers fail to adopt programmatic advertising solutions, or adopt such solutions more slowly that we expect, our operating and growth prospects could be harmed.

As online video advertising has continued to scale and evolve, the amount of online video advertising being bought and sold programmatically has increased dramatically. Despite the opportunities created by programmatic advertising, CTV publishers have been slower to adopt programmatic solutions compared to desktop and mobile video publishers. Many CTV publishers have backgrounds in cable or broadcast television and have limited experience with digital advertising, and in particular programmatic advertising. For these publishers, it is extremely important to protect the quality of the viewer experience to maintain brand goodwill and ensure that online advertising efforts do not create sales channel conflicts or otherwise detract from their direct sales force. In this regard, programmatic advertising presents a number of potential challenges, including the ability to ensure that ads are brand safe, comply with business rules around competitive separation, are not overly repetitive, are played at the appropriate volume and do not cause delays in load-time of content. Our platform was designed to address these challenges and we have invested significant time and resources cultivating relationships with CTV publishers to establish best practices and evangelize the benefits of programmatic CTV.

While we believe that programmatic advertising will continue to grow as a percentage of overall CTV advertising, there can be no assurances that CTV publishers will adopt programmatic solutions or the speed at which they may adopt such solutions. Any such failure or delay in adoption could negatively impact our finance results and growth prospects.

We may not be able to maintain or increase access to the CTV advertising inventory monetized through platform on terms acceptable to us.

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Our success requires us to maintain and expand our access to premium video advertising inventory. We do not own or control the video ad inventory upon which our business depends and do not own or create content. Publishers are generally not required to offer a specified level of inventory on our platform, and we cannot be assured that any publisher will continue to make their ad inventory available on our platform. Publishers may seek to change the terms on which they offer inventory on our platform, including with respect to pricing, or may elect to make advertising inventory available to our competitors who offer more favorable economic terms. Furthermore, publishers may enter into exclusive relationships with our competitors, which preclude us from offering their inventory.

These risks are particularly pronounced with CTV publishers. CTV inventory is highly sought after, and unlike desktop or mobile advertising, which may come from disparate sources, CTV inventory tends to be concentrated on a smaller number of larger publishers that enjoy significant negotiating leverage. This dynamic has been exacerbated by consolidation in the industry, as a number of digital-first CTV publishers have been acquired by larger established television and media brands. In some instances, consolidation may result in the loss of business with an existing client. For example, if an acquiror has a preferred relationship with one of our competitors or has a proprietary solution. As a result of this concentration, the loss of a CTV client may result in a significant decrease in the amount of CTV inventory available through our platform. Any decrease in our ability to access CTV inventory could negatively impact our results, as we view CTV revenue as a key differentiator and driver for our growth.

The purchase price allocation for any acquisition we complete is generally not finalized until one year after the closing of the acquisition, and any final adjustment to the valuation could have a material change on what is reported as the fair value assigned to the assets and liabilities.

The final purchase price allocation for any acquisition we complete depends upon the finalization of asset and liability valuations, among other things. The valuation studies necessary to estimate the fair values of acquired assets and assumed liabilities and the related allocation of purchase price generally are not finalized until one year after the closing of the acquisition. Initially, we allocate the total estimated purchase price to the acquired assets and assumed liabilities based on preliminary estimates of their fair values. The final determination of these fair values is subsequently determined based upon the actual net tangible and intangible assets that existed on the closing date of the acquisition. Any final adjustment could change the fair values assigned to the assets and liabilities, resulting in a change to our consolidated financial statements, including a change to goodwill. Such change could be material.

Recent rulings from the Court of Justice of the European Union invalidated the EU-US Privacy Shield as a lawful means for transferring personal data from the European Union to the United States; this introduces increased uncertainty and may require us to change our EU data practices and/or rely on an alternative legally sufficient compliance measure.

The GDPR generally prohibits the transfer of personal data of EU subjects outside of the European Union, unless a lawful data transfer solution has been implemented or a data transfer derogation applies. On July 16, 2020, in a case known as Schrems II, the Court of Justice of the European Union (“CJEU”) ruled on the validity of two of the primary data transfer solutions. The first method, EU-US Privacy Shield operated by the US Department of Commerce, was declared invalid as a legal mechanism to transfer data from Europe to the US. As a result, despite the fact that we have certified our compliance to the EU-US Privacy Shield, our customers may no longer rely on this mechanism as a lawful means to transfer European data to us in the US. For the time being, the Department of Commerce continues to operate the EU-US Privacy Shield however and, if we fail to comply with the Privacy Shield requirements, we risk investigation and sanction by US regulatory authorities, including the Federal Trade Commission. Such investigation could cost us significant time and resources, and could potentially result in fines, criminal prosecution, or other penalties.

The second mechanism, Standard Contractual Clauses ("SCCs"), an alternative transfer measure that we also offer to our EU customers for extra-EU data transfers, was upheld as a valid legal mechanism for transnational data transfer. However, the ruling requires that European organizations seeking to rely on the SCCs to export data out of the European Union to ensure the data is protected to a standard that is "essentially equivalent" to that in the European Union including, where necessary, by taking "supplementary measures" to protect the data. It remains unclear what "supplementary measures" must be taken to allow the lawful transfer of personal data to the United States, and it is possible that EU data protection authorities may determine that there are no supplementary measures that can legitimize EU-US data transfers. For the time being, we will rely on SCCs for EU-US transfers of EU personal data and explore what "supplementary measures" it can implement to protect EU personal data that is transferred to us in the United States.

We may also need to restructure our data export practices as a result of Brexit. At the end of this year, European Union law will cease to apply to the United Kingdom ("UK"). This means that data may not be able to flow freely between the EU and the UK and our UK subsidiaries may have to enter into the SCCs, and implement "supplementary measures" both with customers and other group entities, in order to ensure the continuing flow of data to and from the UK subsidiary. We would likely need to restructure our

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transfers of European data via another European subsidiary and have such entity enter into the SCCs with other group entities and implement "supplementary measures" to ensure the continuing flow of data from the EU to the United States. In the event that use of the SCCs is subsequently invalidated as a solution for data transfers to the United States, European clients may be more inclined to work with businesses that do not rely on such compliance mechanisms to ensure legal and regulatory compliance, such as EU-based companies or other competitors that do not need to transfer personal data to the United States in order to avoid the above-identified risks and legal issues.

We are subject to regulation with respect to political advertising, which lacks clarity and uniformity.

We are subject to regulation with respect to political advertising activities, which are governed by various federal and state laws in the U.S., and national and provincial laws worldwide. Online political advertising laws are rapidly evolving and in certain jurisdictions we have compliance requirements with respect to political ads delivered on our platform. In some jurisdictions we may determine not to serve political advertisements due to uncertainty around these requirements and potential burdens of compliance. In addition, our publishers may impose restrictions on receiving political advertising. The lack of uniformity and increasing compliance requirements around political advertising may adversely impact the amount of political advertising spent through our platform, increase our operating and compliance costs, and subject us to potential liability from regulatory agencies.

There are no additional material changes to the Risk Factors of which we are currently aware; but our Risk Factors cannot anticipate and fully address all possible risks of investing in our common stock, the risks of investing in our common stock may change over time, and additional risks and uncertainties that we are not aware of, or that we do not consider to be material, may emerge. Accordingly, you are advised to consider additional sources of information and exercise your own judgment in addition to the information we provide.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Recent Sales of Unregistered Securities

None.

(b) Use of Proceeds

As of September 30, 2019, all of the proceeds from our initial public offering of common stock effected through a Registration Statement on Form S-1 (File No. 333-193739) have been applied as described in our final prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act and other period reports previously filed with the SEC. Not Applicable.

We currently have no publicly announced repurchase plan or program.

Upon vesting of most restricted stock units or stock awards, we are required to deposit statutory employee withholding taxes on behalf of the holders of the vested awards. As reimbursement for these tax deposits, we have the option to withhold from shares otherwise issuable upon vesting a portion of those shares with a fair market value equal to the amount of the deposits we paid. Withholding of shares in this manner is accounted for as a repurchase of common stock. ~~There were no repurchases of common stock during~~During the three months ended ~~September~~June 30, ~~2019.~~

2020, we repurchased 107,194 shares of common stock.

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Item 6. Exhibits


Number		Description

~~Number~~3.1		~~Description~~

~~3.1~~	Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation of ~~the Registrant~~Magnite, Inc., dated June 30, 2020 (incorporated by reference to Exhibit 3.1 to the ~~Registrant's Quarterly~~Registrant’s Current Report on ~~Form 10-Q~~form 8-K filed with the Commission on ~~May 15, 2014)~~June 30, 2020).
3.2		Second Amended and Restated Bylaws of ~~the Registrant~~The Rubicon Project, Inc., dated April 1, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on April ~~8, 2016)~~1, 2020).
31.1*3.3		Third Amended and Restated Bylaws of The Rubicon, Inc., dated June 8, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 2020).
3.4		Fourth Amended and Restated Bylaws of Magnite, Inc., dated June 30, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the Commission on June 30, 2020).
10.1+*		Employment Offer Letter, by and between, Magnite, Inc. and Mark Zagorski, dated April 1, 2020.
10.2+*		Letter Agreement, by and between Magnite, Inc. and Blima Tuller, dated May 20, 2020.
10.3+*		Severance and Vesting Acceleration Agreement, dated April 1, 2020, by and between Aaron Saltz and the Magnite, Inc.
21.1*		List of Subsidiaries
31.1*		Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*⁽¹⁾		Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.ins *		Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.sch *		XBRL Taxonomy Schema Linkbase Document
101.cal *		XBRL Taxonomy Calculation Linkbase Document
101.def *		XBRL Taxonomy Definition Linkbase Document
101.lab *		XBRL Taxonomy Label Linkbase Document
101.pre *		XBRL Taxonomy Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

⁽¹⁾

+ Indicates a management contract or compensatory plan or arrangement.

⁽¹⁾The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be incorporated by reference into any filing of Magnite, Inc. under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be incorporated by reference into any filing of The Rubicon Project, Inc. under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	~~THE RUBICON PROJECT,~~MAGNITE, INC. (Registrant)
		/s/ David Day
		David Day
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)
Date ~~November 6, 2019~~August 10, 2020



	September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	85,122	$	80,452
Marketable securities	—		7,524
Accounts receivable, net	172,284		205,683
Prepaid expenses and other current assets	5,773		6,882
TOTAL CURRENT ASSETS	263,179		300,541
Property and equipment, net	24,238		33,487
Right-of-use lease asset	22,720		—
Internal use software development costs, net	15,189		14,570
Intangible assets, net	7,870		10,174
Other assets, non-current	2,125		1,240
TOTAL ASSETS	$	335,321	$	360,012
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	207,033	$	239,678
Lease liabilities, current	6,993		—
Other current liabilities	498		1,304
TOTAL CURRENT LIABILITIES	214,524		240,982
Lease liabilities, non-current	16,495		—
Other liabilities, non-current	179		1,017
TOTAL LIABILITIES	231,198		241,999
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000 shares authorized at September 30, 2019 and December 31, 2018; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018	—		—
Common stock, $0.00001 par value; 500,000 shares authorized at September 30, 2019 and December 31, 2018; 53,073 and 51,159 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	1		1
Additional paid-in capital	447,314		433,877
Accumulated other comprehensive loss	(585)		(259)
Accumulated deficit	(342,607)		(315,606)
TOTAL STOCKHOLDERS' EQUITY	104,123		118,013
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	335,321	$	360,012



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Available-for-sale—short-term:
U.S. Treasury, government and agency debt securities	$	7,526	$	—	$	(2	)	$	7,524



Accrued restructuring and other exit costs at January 1, 2018	$	—
Restructuring and other exit costs	3,440
Cash paid for restructuring and other exit costs	(2,884		)
Non-cash stock-based compensation for restructuring and other exit costs	(398		)
Accrued restructuring and other exit costs at September 30, 2018	$	158



Fiscal Year
Remaining 2019	$	1,932
2020	7,905
2021	4,348
2022	2,284
2023	1,968
Thereafter	8,491
Total lease payments (undiscounted)	26,928
Less: imputed interest	(3,440		)
Lease liabilities—total (discounted)	$	23,488



	Three Months Ended						Favorable/(Unfavorable) %		Nine Months Ended						Favorable/(Unfavorable) %
	September 30, 2019			September 30, 2018			Favorable/(Unfavorable) %		September 30, 2019			September 30, 2018			Favorable/(Unfavorable) %
	(in thousands)								(in thousands)
Revenue	$	37,642		$	29,729		27	%	$	107,928		$	83,253		30	%
Expenses ⁽¹⁾⁽²⁾:
Cost of revenue	13,869			14,687			6	%	44,070			44,514			1	%
Sales and marketing	11,040			10,654			(4	)%	33,151			34,046			3	%
Technology and development	10,293			9,299			(11	)%	29,848			29,038			(3	)%
General and administrative	9,121			9,355			3	%	29,428			33,340			12	%
Restructuring and other exit costs	—			—			NM		—			3,440			100	%
Total expenses	44,323			43,995			(1	)%	136,497			144,378			5	%
Loss from operations	(6,681		)	(14,266		)	53	%	(28,569		)	(61,125		)	53	%
Other income, net	(562		)	(558		)	1	%	(999		)	(1,766		)	(43	)%
Loss before income taxes	(6,119		)	(13,708		)	55	%	(27,570		)	(59,359		)	54	%
Provision (benefit) for income taxes	55			84			35	%	(569		)	233			NM
Net loss	$	(6,174	)	$	(13,792	)	55	%	$	(27,001	)	$	(59,592	)	55	%